Mapping the bailout

The arguments being given for the bonuses are also denting the self-image of American capitalism. The language of incentives,rather than being an expression of common sense,has become a tool of ideological mystification. Incentives need to be given to retain talent in the financial companies. Without this talent,the problem of the financial companies will not be fixed. This argument is causing outrage in more ways than one. What is the measure of talent? In what sense are the very same people who are responsible for the financial crisis talented? People can understand the need to give incentives to retain talent when talent is scarce. But is talent in the financial sector so scarce,even in a time when thousands of people in the sector are being laid off?

But the deeper issue is,how can one trust this talent? The shamelessness with which bonuses have been collected has heightened the sense of distrust. Americans cannot help asking how their ruling elites,a few of their best and brightest,acquired so much power and arrogance. So much power that they can even turn their own incompetence to their advantage,and use the crisis to extort. So much arrogance because there does not seem to be a trace of contrition about mistakes made,responsibilities evaded. The degree of brazenness in the complicity between government,the world of finance and even some parts of academia,and their distance from the rest of the country,is now seen as truly breathtaking. One measure of this gap is the fact that when CNN recently ran a poll on what most Americans think is the most important economic issue,taxes ranked the lowest. Yet with the honourable exception of Warren Buffett and a few others,in most of elite circles,the focus is still very much on tax cuts,including for the rich.

It is no wonder that the most ubiquitously used word in the American media now is “greed”. The legitimacy of capitalism has rested on that thin line between a personal striving that leads to improvement for all,and a greed that destroys the very foundations of individual liberty. But what Americans worry about is how a small elite got to hijack the agenda of democracy: how an economic crisis has revealed the depth of democratic deficit.

Some American politicians have seen something many financiers and economists are unwilling to see. Obama has been consistent on one theme: capitalism will survive and perhaps even triumph. But Wall Street should not assume that it will be business as usual. The culture must change. This is not simply about creating new technical fixes in the structure of incentives that alter attitude towards risk. It is about deflating the excessive prestige that finance capital had acquired over two decades. It is about recognising how finance masked,and therefore destroyed,the prospects of the real economy.

In some ways,most of the debates amongst the economists simply reinforce the politicians and popular suspicion that the lines between analytical clarity and self-serving mystification have been blurred. For instance,the government is being criticised in some circles for not restoring stability to the financial sector quickly enough. On this view,what is required is a way of separating toxic from non-toxic assets,and then recapitalising the system. But this piece of advice seems too academic,in the bad sense of the term. If it were easy to value assets,and sort out the toxic from the non-toxic,the crisis would not have arisen in the first place. What would it mean to value assets in a time of such uncertainty? Do we really know what the implications of a full revelation of the assets that actually exist might be? What is drawing the ire of common people is that the best and brightest,instead of understanding the problem,seem to display their cleverness by rehearing their own truisms. What was a talented elite has,suddenly,become a group of “sophisters,economists and calculators”,to use a phrase of Edmund Burke’s; their very abstractions making things worse.

There are two political implications of this. The first is that most people and many politicians understand,more than the intellectuals,that the way out of this crisis will be messy. There is no theory that works. Indeed,Obama has been absolutely forthright in his recognition of how big the mess is. Geithner has been criticised for not having a clear plan for the banking system. But this may be not so much because of a lack of clarity as much as because of a deeper kind of clarity that we are in uncharted waters,where most standard recipes look too glib. The second is that the deeper debate about the relationship between finance and real capitalism will define the axis of ideological argument. The people in Lansing are ardent capitalists. But it is a capitalism tied to real virtue,not abstract cleverness. In some ways we are back to the 18th century,when free-market liberals struggled to save capitalism,not just from public debt and perfidy,but also from projectors and speculators.

The writer is president,Centre for Policy Research,Delhi

express@expressindia.com