UPDATED: the Economist as Grown Up

See the bottom of this story for a shocking update!!

In 2001, Joseph Stiglitz won a Nobel Prize for economics. Don’t let that prejudice you, though. Despite the hilarious burlesque with this year’s Nobel Peace Prize, some people who win Nobel Prizes actually deserve public acclamation.

Did Stiglitz? I really don’t know. I have my doubts. Stiglitz is an economist of the Paul Krugman stripe, i.e., someone who finds the spectacle of wealth being created offensive. I suspect that, like many left-wingers, he wishes wealth could come about through an economic form of parthenogenesis. Deep down, he seems to look upon economics as a variety of social work. So, like Krugman, he is always swanking about saying silly things that disparage the very power that makes economics more than a pastime for left-wing academics, namely, the free market, a.k.a. capitalism. Indeed, among the many silly things said about the current economic crisis, none was sillier than Stiglitz’s comment in September 2008 that “fall of Wall Street is for market fundamentalism what the fall of the Berlin Wall was for communism.”

Moronic, what? I was pleased to see Jagdish Bhagwati, who is Stiglitz’s colleague at Columbia University, cover that tendentious and ideologically motivated analogy with some of the obloquy it serves. In an almost entirely splendid piece for World Affairs (a newish journal that should be better known than it is: thanks to Arts and Letters Daily for bringing it to my attention), Bhagwati drily observes that while “all analogies are imperfect, . . . this one is particularly dicey.”

When the Berlin Wall collapsed, we saw the bankruptcy of both authoritarian politics and an economics of extensive, almost universal, ownership of the means of production and central planning. We saw a wasteland. When Wall Street and Main Street were shaken by crisis, however, we witnessed merely a pause in prosperity, not a devastation of it.

When was the last time you heard such good sense emanating from the ivied halls of the academy?

Jagdish Bhagwati is a very sensible fellow. He understands that the economic crisis we’re living through was precipitated in part by wild over-leveraging of dubious assets like (subprime) mortgage-backed securities. I am sorry he didn’t pause to consider the role of the Community Reinvestment Act in this little drama, but the important point is that he, unlike Stiglitz, understands that the economic crisis is not an indictment of the free market but rather a warning to hold fast to those safeguards that traditional underwrote the operation of the free market, for example, a rational adjudication of risk.

Professor Bhagwati also offers a salutary corrective to the glib contention that, powerful though markets may be, they tend to “corrupt” or at least undermine traditional societal values. “After two and a half centuries of this fascinating debate,” he writes,

I have to say that my own sympathies lie with those who have found markets, on balance, to be on the side of the angels. But I should also add that I find the specific notion that markets corrupt our morals, and determine our ethical destiny, to be a vulgar quasi-Marxist notion about as convincing as that other vulgar notion that ownership of the means of production is critical to our economic destiny. The idea that working with and within markets fuels our pursuit of self-interest, greed, avarice, and self-love, in ascending orders of moral turpitude, is surely at variance with what we know about ourselves.

Exactly right. And Professor Bhagwati goes on to elaborate the point: Sure, markets will influence values.

But, far more important, the values we develop will affect in several ways how we behave in the marketplace. Consider just the fact that different cultures exhibit different forms of capitalism. The Dutch burghers Simon Schama wrote about in The Embarrassment of Riches used their wealth to address the embarrassment of poverty. They, the Jains of Gujerat (from whom Mahatma Gandhi surely drew inspiration), and the followers of John Calvin were all taking values from religion and culture to bring morality to the market.

So where do these countervailing values come from? Your mother was right: “They come from our families, communities, schools, churches, and indeed from our religion and literature.”

A corollary of Professor Bhagwati’s argument is that bad hats like Bernie Madoff stand not as evidence of some fundamental fault in our economic system but, on the contrary, as an evildoer whose eventual exposure and repudiation points to the system’s underlying strength.

How does one react then to a phenomenon like Bernie Madoff? Does it not represent the corrosion of moral values in the marketplace? Not quite. The payoffs from corner-cutting, indeed outright theft, have been so huge in the financial sector that those who are crooked are naturally drawn to such scheming. The financial markets did not produce Madoff’s crookedness; Madoff was almost certainly depraved to begin with. The financial sector corrupts morality in the same sense that the existence of an escort service corrupted Eliot Spitzer. Should we blame the governor’s transgressions on the call girls rather than on his own flaws?

Jagdish Bhagwati’s article is full of good things. I will particularly cherish his quotation from John Maynard Keynes, who observed in a letter to Kingsley Martin, editor of The New Statesman, that “The inevitable never happens. It is the unexpected always.”

I also applaud Professor Bhagwati’s observation that

Capitalism works best when those who do not succeed, and are buffeted by the vicissitudes of life, still believe in success — believe that those who do succeed put their wealth to good use, and do not merely engage in self-indulgence. Capitalism works well when those who lose feel that one day they might also win. This is the great American dream: even when mobility has been less real than imagined, the belief matters.

It would be hard to overstate the importance of this dream, this belief. It is part and parcel of a larger civilizational tonic: cultural confidence, the fundamental engagement with and allegiance to the enabling values of our society. Folks like Stiglitz and Paul Krugman, — along, of course, with 99.7 percent of academics in the humanities and social sciences — repudiate those values. Their “anti-capitalism” is merely one face of a much larger abjuration: an abjuration of the West and the commitment to individual liberty that made “the West” as much the name of a specific cultural impetus as a point on the compass. That’s what’s so refreshing about Professor Bhagwati’s article. He concludes a few tedious nostrums about “improving education” and reforming health care, but for the most part his energetic article is a manly, unsentimental paean to the advantages of liberty and our acting like grown ups, not unwitting wards of some bureaucratic behemoth whose care of its charges is only an excuse for its self-perpetuation.

* * * *

And this shockeroo just in: Obama fails to win this year’s Nobel Prize for economics! MarketWatch reports:

LONDON (MarketWatch) — In a decision as shocking as Friday’s surprise peace prize win, President Obama failed to win the Nobel Memorial Prize in Economic Sciences Monday.

While few observers think Obama has done anything for world peace in the nearly nine months he’s been in office, the same clearly can’t be said for economics.

The president has worked tirelessly since even before his inauguration to wrest control of the U.S. economy from failed free markets, and the evil CEOs who profit from them, and to turn it over to wise, fair and benevolent bureaucrats.
Obama reacts to Nobel

From his $787 billion stimulus package, to the cap-and-trade bill, to the seizures of General Motors and Chrysler, to the undead health-care “reform” act, Obama has dominated the U.S., and therefore the global, economy as few figures have in recent years.

How is it, then, that the Nobel Prize Committee failed to honor this brilliant intercession in what was, only yesterday, the world’s greatest economy? Has any one individual ever had a bigger effect on a great economy than Barack Obama? Millions of Americans are now without jobs. All Americans are poorer because of the precipitous decline of the dollar: “Dollar Reaches Breaking Point As Banks Shift Reserves” screams a headline at Bloomberg News. Thank you, Oh Barack, for making good on your promise of “change,” on your promise to “fundamentally transform the Untied States of America.”

Yes, we’ve got the change: where’s the hope?