Often the measure of a meeting is what is not said or spoken. And there is one very significant issue lurking in the current economic crisis that I doubt will be addressed at the World Economic Forum in Davos.
That issue is whether the public policy response to the crisis will take into account the need to bring about a fundamental change in the behaviour of the American consumer, most notably the problem of excessive consumption (or insufficient savings).
This is fundamentally about human values, or character, and it is never easy in a democracy to talk about the role of the government in reforming our attitudes, or “preferences,” as economists like to call them. And, yet, for those who approach matters from the standpoint of the law, and most certainly constitutional law, this is familiar territory.
It has been a commonplace observation for years among those who discuss things like the American economy that the US consumer has been spending well beyond his or her means. We have known for a long time that the current account deficit was creating an increasingly unsustainable situation. We knew that housing was the locus of the most recent bubble, an “exuberance” aided and abetted by a system that was ready to dance until the music ended. The hope was that the “correction” for these evident excesses would happen “naturally” and over a long period of time. It was also hoped that the rest of the world would not be drawn into the quagmire if and when it occurred. Clearly, things didn’t work out that way. The opacity of the underlying structure supporting this binge was the first sign that the unraveling would be swift and merciless and not gradual and sparing.
Recently, I was at a private dinner with some of the most sophisticated financial minds in the business. The perceptive question was asked whether the stunning and devastating losses people have sustained over the course of the last several months would have the same effect on the current generation of Americans as the Depression did on that and successive generations – namely, a recognition that being overly in debt is a very bad thing. Everyone agreed that, while it is still too early to tell, it didn’t seem that way yet. If that is the case, then there is a major problem facing policy makers.
The rhetoric surrounding all the various proposals for dealing with the current crisis seems to focus on the obvious need to act quickly to avoid calamity. I entirely agree with the op-ed by my colleague Jeff Sachs in the Financial Times, in which he argues persuasively that sound policy making demands that we consider and plan for the consequences of this felt need to devote whatever it takes in the way of public funds to “get us through the crisis.”
There is certainly a risk that our current thinking may be just as unquestioning and short-term in its focus as the thinking that brought us to this precipice. Our current political leaders are gifted and well-intentioned individuals, and it is their responsibility to help us avoid a successive lapse of judgment. But there is an additional risk here – that, however long our perspective, we will simply assume that our basic character, and habits of mind, that brought us to this dire situation will self-correct as the pain of the crisis is endured and then alleviated. That, unfortunately, may not be the case.
When we understand that human nature is prone to certain bad tendencies, sound political judgment calls for institutionalising the means of dealing with that problem.
My area of interest is freedom of speech and press. We have long appreciated that intolerance of expression we find dangerous or offensive is a danger we must avoid. To that end we have created over time an independent judiciary, with life-time tenure and professional norms of principled reasoning. Our courts take responsibility for explaining decisions and are charged with implementing a constitutional norm in spite of the wishes of the majority to censor.
The problem that gives rise to this basic governmental structure is not unlike the problem of human greed getting out of hand. Some intolerance is good, just as some greed is good; but beyond a certain point it can destroy the system on which it depends. A huge question awaits us about the kinds of institutions we need to avoid a repetition of the present financial meltdown. I would be inclined to build up the Federal Reserve system, which has some but by no means all the elements of our Bill of Rights and the federal judiciary. But, until that happens, everything hangs on the good and wise judgment of our political leadership, which is facing and will face even more in the months ahead enormous pressures just to “fix it.”
Lee Bollinger is president of Columbia University