When John McCain turned abruptly yesterday from Hooverite boosterism to TR "malefactors of great wealth" populism on the economy, he made some big promises and some sharp moral distinctions:
In short order, we are going put an end to reckless conduct, corruption, and unbridled greed...
We have seen self-interest, greed, irresponsibility, and corruption undermine the hard work of the American people....
Too many people on Wall Street have been recklessly wagering instead of making the sound investments we expected of them....
Honest people on Wall Street will have a friend in the White House when I am president.... But when any Wall Street operator abuses the trust of the public, then they will face the consequences
McCain's formulation implies that the root of the crisis is just the greedy and corrupt who engage in "reckless wagering," unlike the "honest people" who make "the sound investments we expect of them." And reform is a matter of kicking out the bad guys and "putting an end to greed."
This is a weak explanation of the current crisis. The difference between a firm that went out of business and one that survived -- between Bear, Stearns and Goldman, Sachs -- is many things, but it is not a moral difference. Goldman is no less greedy than Bear, albeit a little more Harvard and a little less Long Island. (There are certainly some bad actors: For an argument that the media has downplayed the role of raw corruption in the crisis, see this piece by Dean Starkman at CJR.) Outside of real lawbreaking, though, morality is a tough concept to impose on the amoral world of markets.
That effort to separate the bad people from the good, and cast out the bad, is characteristic of McCain's "reform" worldview. It was his approach to lobbying -- Jack Abramoff was a bad guy, the lobbyists for Boeing in the Air Force tanker contract deal were bad guys. And it was his approach to campaign-finance reform as well -- there were certain bad people who raised a certain kind of money -- soft, aka "dirty" money -- and reform meant outlawing the things that the bad people do.
This "kick out the bad guys" approach to reform can sound tough and populist. But, just as with lobbying and campaign finance, it doesn't address the underlying system or the incentives that lead to bad behavior. It leaves untouched the ideology that led to the scandal. Obama's approach to reform can be a little less forceful, because it focuses less on scandals and bad guys, but it gets at the systemic and ideological issues: For example, a rule that requires all lending firms to adhere to the same capital requirements as banks is just a universal rule that doesn't target the greedy but eliminates the incentives to manipulate money between the regulated and unregulated zones. On campaign finance, real public financing, which McCain opposes, changes the whole system of incentives, while just banning one kind of contribution does not.
Underneath the candidates' language are very different approaches to reform, and the tougher-sounding, moralistic one, aside from being adopted in a hurry yesterday, is the much more modest challenge to the system.
-- Mark Schmitt.
