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Monday, December 29, 2008

What we don't see

One of my favorite blogs (law or otherwise) is Mirror of Justice. Over there, Rick Garnett recently linked to a column by Spengler in the AsiaTimes. The column essentially begins with then Cardinal Ratzinger's notion that "the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions." 

Putting aside, at least for now, the notion that such systems must be based on "strong religious convictions" (which I don't think is necessarily so, but may turn out to largely the case), I think that this observation is indisputably true. I agree with some of my interlocutors in our previous discussions of the implications of and potential responses to, the financial crisis that markets require both rules and trust which is ultimately rooted in whether participants act in good faith. I am, as I have said, skeptical of the idea that the rules can displace the need for good faith and suspect that the attempt to bend them to that end will create more harm than good.

But the Spengler column brings to mind a few things that don't get enough attention in our public debates

As lawyers - and particularly as legal academics - we tend to pay a great deal of attention to legal superstructure. As a profession that has come to be heavily influenced by economics, we emphasize individual incentives. And so our debate about episodes like the financial meltdown tend to focus on those superstructures. Did we tax too much or too little? Did we overregulate or underregulate the market?

Spengler suggests that the cause of the crisis was as follows: "[T]he bulge of workers in the US and Europe approaching retirement age is the ultimate cause of the financial crisis. Too much capital chased too few investment opportunities, and the financial industry met the demand by selling sow's ears with the credit rating of silk purposes."

This may not fit comfortably with anyone's ideological predispositions, but it rings true to me. Maybe its because I was born on the downward slope of the baby boom and my classmates and I lived chasing after the jobs that our older brothers and sisters had filled and trying to buy real estate at the inflated prices that they had created.

I have always thought that the impending retirement of the first wave of boomers would depress stock values and housing prices. While I tend to think of it in terms of too many sellers at the same time, I fear that the underlying lack of demand caused by demographic unevenness brought us to the point of too much demand chasing too little supply sooner that I thought it would.

There's much more to be said about this, but the larger point is that demographics can swamp our attempts to structure society.

Spengler's second point is that this demographic misfit is caused by a lack of character, i.e., a hedonism that resulted in a baby bust. I don''t intend to get into that, but it does remind me of another point that we often lose sight of. Democracies and free markets do, I think, presuppose persons of a certain moral character. In my view, this breaks down the sharp divide that those on the left and the right often want to draw between social and economic issues.

But that's another post. Or book.

Posted by Richard Esenberg on December 29, 2008 at 06:26 PM in Legal Theory | Permalink


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