Capitalist Systematics and Individual Freedom

In his economic speech on Monday Senator McCain had the following to say about the present financial crisis:

The top of our economy is broken. We have seen self-interest, greed, irresponsibility and corruption undermine the hard work of the American people.

Then on Tuesday morning he said to Joe Scarborough:

Wall Street has betrayed us. They’ve broken the social contract between capitalism and the average citizen and the worker. … This is a result of excess and greed and corruption. And that’s exactly what is plaguing Americans today.

I imagine that a lot of people would call me a leftist and a socialist, but from these two comments it seems to me that John McCain must have a pretty contorted idea of what exactly capitalism is underneath the rhetorical hood.

What’s happening on Wall Street isn’t a corruption of capitalism. It’s not that people are angles and in capitalism we’ve finally found an economic system equal to ourselves. The genius of capitalism is that people are greedy, self-interested wretches and capitalism is a system that channels their greed into social good. What’s wrong with what’s going on with the financial system in recent weeks is not that financiers are greedy, or even excessively greedy, but that the system is rigged wrong.

When Democrats call for a new regulatory regime, this is what they are calling for: a different arrangement of the system. Different prohibitions, different incentives, different inducements. It’s the Nudge approach. Align the incentives right and then laissez faire.

The alternative to systematic change is the reengineering of the human heart. And proposals to change the hearts of men are not very conservative. This is why capitalism and liberalism are so closely conjoined. Capitalism is indifferent to the characteristics of the corpuscles that comprise the system. It is the economic system most compatible with self-determination because it doesn’t require people of any particular character to function. It’s even sufficiently robust as to be compatible with extremes of behavior. Other systems less fault-tolerant and rely for their sustainability on the virtue of their participants. As such other systems maintain an interest in the condition of the souls of their members. Some see this as a virtue of these alternate systems.

Recent weeks don’t argue my case very well. It would seem that capitalism is in fact not very robust and in need of quite a bit of extra-systematic shoring up. But that’s owing to fifteen years of willful neglect. Professed admiration for capitalism on the right is not so compatible with the sustainability of capitalism. If you get the system right, you don’t have to worry about the character of the people.

But this is one of the things that’s distinct about Senator McCain. He isn’t that into leaving people alone. He’s a proponent of a particular type of civic virtue and is interested in cajoling people, even cajoling them rather convulsively, into demonstrating his brand thereof. And on the right more generally opposition to business regulation is so inflexible that social engineering is the acceptable alternative.

Membership Has Its Limitations

I am vehemently opposed to any sort of loyalty cards that are now de rigueur at almost all stores where you make a purchase of any regularity or size. I think a lot of people see them as a harmless way to save a few bucks. And that’s what they are — for now. But they are obviously a foundation on which to build. But build what? Well, the FTC’s deceptive marketing practices lawsuit against CompuCredit is sure suggestive (Silver-Greenberg, Jessica, “Your Lifestyle May Hurt Your Credit,” BusinessWeek, 19 June 2008):

The allegations, in part, focus on CompuCredit’s Aspire Visa, a subprime credit card for risky borrowers. The FTC claims that CompuCredit didn’t properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls, and marriage counseling offices. “The company touted that cardholders could use their credit cards anywhere,” says J. Reilly Dolan, assistant director for financial practices at the FTC. “What they didn’t say was that you could be punished for specific kinds of purchases.”

And the more general point:

With competition increasing, databases improving, and technology advancing, companies can include more factors than ever in their models. And industry experts say financial firms increasingly are looking at consumer behavior, as CompuCredit did.

Of course the corporate idiocy here is mind-boggling. First they target a sub-prime demographic, but then cut them off for the very behaviors that made these people sub-prime in the first place. Really? CompuCredit was unaware that the underclass blew their money on scratch tickets and payday loans?

I don’t suspect that this is leading to some insidious world of PreCrime, where government thugs scoop you up, guilty on the basis of a statistical analysis. Rather, nudge style, it will just become the accepted background of people’s expectations. People will recognize an incentive and respond accordingly. “Oh, no, we can’t go out for happy hour. We’re trying to get our credit score up for a home loan.”