Those halcyon days

Reading Paul Krugman's latest evocation of the wonderful post-New Deal world of responsible banking got me thinking. In the 80s and 90s, we were trained to believe that flourishing commerce was contingent upon an enormous financial industry, on the grounds that innovation in finance produces a more rapid and responsive distribution of capital. Obviously, this seems to be a pretty idealistic view. Deregulation was a product of ebullient capitalism as much as it was its cause. But I'm still not sure there's any more inherent truth to the claim that a tightly regulated financial industry necessarily solves all our problems, since so much of this current crisis extends beyond just questions of regulation: a point that, it seems to me, is still not fully appreciated. This is a crisis based on fundamentals: credit-fuelled consumption was just a way of papering over the cracks, a way of pretending the world had not fundamentally changed between 1973 and the present. Regulatory issues are at most a necessary but insufficient part of the solution.

In this sense, evoking the New Deal order as a mythic past to be reconstructed seems as unconvincing as any other attempt to understand progress by glancing backwards. This led me to thinking about Krugman's observation that in the Reagan era, "finance became anything but boring. It attracted many of our sharpest minds and made a select few immensely rich." True enough. Perhaps this suggests that one of the risks of modern capitalism is that all the talents focus on getting themselves rich rather than working in a socially useful manner, and then justify their actions by claiming that they're really helping grease the wheels of the world economy.

But is this really true? When I look at my friends and my students, many do seem to make the decision to follow the money rather than a sense of civic duty. When I look at the state of our current political leadership (in the UK), it's also tempting to conclude that the best and the brightest must be off somewhere else doing something else. But on the other hand, there's still a lot of talented people I know who do have social consciences, who do go into areas of work for reasons other than cold, hard cash. And it doesn't take a professional historian to figure out that the era from the New Deal to the Great Society had a fair share of unimpressive political figures as well, not least among the ranks of the people who were shouting most loudly about public service and civic virtue.

The idea of wondrous days in the past when everyone had a shared sense of civic responsibility smacks just a little bit too much of romanticising the past. Of course, this is not to say that reform isn't necessary: but it should be reform based on a sober analysis of where we are now and where we want to go, not an attempt to rebuild a society that passed into non-existence a long time ago - and, in truth, has many features we really wouldn't like to see reconstructed.

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