Speth: How to respond to this crisis

As the economic crisis deepens and layoffs mount, it may seem strained to look for silver linings on that dark cloud. Yet Milton Friedman had it right when he observed that in our politics only a crisis can produce real change. So, looking on the positive side, what might we hope this crisis will bring forward? Here are six outcomes worth actively seeking.

1. For decades, anti-regulation market fundamentalists have argued with increasing success against government interference in the economy. As a result, investor, consumer and environmental protection have all been weakened far past the danger point. Thanks to the crisis, we may be able to say goodbye to that era. Our country is in deep trouble on several fronts, and if we want to cure these ills, some strong medicine must be taken. That points to effective government intervention as a big part of the answer. So bring on the regulation, and not just in the financial sector.

2. If we are in fact going to have responsible government, it follows that we will need a better brand of politics. Over time, the same politics that got us into our current predicaments are unlikely to do a good job getting and keeping us out. The financial crisis should spur interest in the backlog of political reforms, including public financing of elections, tough regulation of lobbying and other measures now urgently needed to repair American democracy and reassert genuine popular control.

3. Perhaps the financial crisis will teach us to live more simply, with less consumption. Materialism, psychologists report, is toxic to happiness, and our hyper-consumption is one of the main drivers of environmental decline. Being less focused on getting and spending (initially, in part, because there is less to spend) can help us rediscover that the truly important things in life are not at the mall nor, indeed, for sale anywhere.

4. Wall Street’s excesses should rekindle America’s populist heritage. For some time, a growing crisis of inequality has been unraveling America’s social fabric and undermining our democracy. It is a crisis of soaring executive pay and bonuses, huge incomes and increasingly concentrated wealth for a small minority, occurring simultaneously with poverty near a thirty-year high, stagnant wages despite rising productivity, declining social mobility and opportunity, record levels of people without health insurance, failing schools, increased job insecurity, swelling jails, shrinking safety nets and the longest work hours among the rich countries. For as long as I can remember, we have been told to keep economic growth on a fast track or we will have to face the redistribution issue. Well, it is high time we did face that issue. We have had lots of growth, and income distribution has worsened.

5. For years now many of our best and brightest young people have gone to Wall Street to make their fortune and their fame. Much talent has been wasted creating and marketing financial instruments that have allowed assets to grow by a large multiple of the real economy. We can hope that now much of this talent will be put to better, more socially constructive, use. It is certainly needed elsewhere. In a similar way, we can hope investors will seek opportunities that build non-speculative, long-term value — for example, by investing in the transformation of our energy sector.

6. Most fundamentally, the financial crisis should lead more and more people to realize that we live and work in a system of political economy that cares profoundly about income, profit and growth and sees people mainly as workers and consumers. Similarly, this system sees the environment mainly as a source of exploitable natural resources and a place to discard wastes. It is up to us, as citizens acting principally through government, to inject values of fairness, justice and sustainability into that system. But today we mainly fail at this task because our politics are too enfeebled and the grip of special interests too tight. The best hope for real change in America is a fusion of those concerned about environment, social justice and strong democracy into a unified progressive force, paired with the birth of a powerful grassroots movement led by young people.

In responding to crises, we can get it right or we can get it wrong. The Great Depression led to the New Deal, but September 11 led to a series of tragically misguided actions. The current economic crisis can yet lead to deep changes that have long been badly needed.

Gus Speth is the dean of the School of Forestry and Environmental Studies.

Comments

  • Pierson 90

    Mr. Speth is no economist.

  • Booboisie

    Better politics?! Has the Ivory Tower writer watched c-span lately and the bumbling grunts of our legislators? H.L. Mencken was right: America is run by the booboisie.

  • ck

    Bravo, Dr. Speth. Thank you for this very well thought through and clear assessment.

  • yale '11

    A much needed analysis. Thank you for your insight Dr. Speth.

  • Recent Alum

    The irony of starting with a quote from Milton Friedman and going on advocating even more regulations than what we already have.

  • jwd

    A second bravo, but I suggest these grassroots movements can be led by the young and old alike.

  • Yale 09

    Regulations fail over and over again. They simply do not work. The police cannot save you from a murderer, they can only send your body to the morgue. The SEC cannot stop fraud, it can only tell the newspapers about the latest scandal.

    Regarding executive pay: There is a tiny group of people capable of running global financial firms. These people have incredible skills and education. They are compensated based upon the desire of employers to hire them.

    Gus Speth lives in a fantasy world. Banking and finance allowed your school of forestry to be built.

    Gus Speth seeks tyranny and oppression. He thinks he knows how to best spend your money, how you should best use your education, how you can use your time.

    The concentration of power in the political class is a danger to everyone's freedom.

    Obama or Bush- it doesn't matter. They are two sides of the same coin.

  • @ Yale 09

    I suppose we should disband the country's police departments as well, then? Certainly regulation and enforcement, even when spotty and after the fact, could never serve any purpose other than preemption, right? We wouldn't dare want to give incentives for good behavior and disincentives for bad.

  • YaleProf

    It is embarrassing to be associated with an institution that employs someone who can spout this drivel. As one commenter already noted, Speth's comfy little world is funded by things he claims are bad.

  • Yale 09

    Why must the police be a government program monopoly?

    I am perfectly capable of contracting the services of a private law enforcement firm.

    When you get arrested, don't you seek a private attorney instead of a public defender?

  • Yale'08

    Ah, so glad to have graduated last year… so that I no longer breathe the putrid New Haven air that Dean Speth breathes to inspire in him such patent idiocy. Forgive my disrespect, but frankly, it is the failed Ivory Tower approach of Dean Speth and the majority of his fellow professors that has gotten us into this situation in the first place-- and most certainly, these Ivory Tower mentalities (which are quite out of touch with the real world) will not get us out.

    In re: #1) Regulation has been in force around the world, particularly in Europe, during the last several years-- but that didn't save them from this recession, did it? No, they got hit as hard as we did. Oh wait, what? We need regulation worldwide? Like they have in Cuba and North Korea? Ah, ok, I see. Thank you for your wisdom, Dean.

    In re: #2) A better brand of politics, yes! Like Obama! And his politics of hope and change! Except all we've seen of him the last few weeks is fearmongering to push through a pork-laden bill that no one in Congress even read. You know what I call that? Politics as usual. Your standard bearer is a sham, Dean, and not only does the emperor have no clothes-- he'll be stealing yours too.

    Dean Speth, you imply that the New Deal was a good thing-- except that the New Deal made the Depression last longer. The economics department is right next door on Hillhouse Avenue, Dean Speth, a few remedial lessons might be in order.

    On the whole, this is a shameful piece of writing. Nothing more can be said.