A few days ago, Anne Applebaum ululated on Slate that the Madoff affair portends the crippling of capitalism as we know it. Why? Not because the $50 billion that’s gone up in smoke is irrecoverable but because this pyramid scheme to end pyramid schemes will finally have destroyed the trust that has permitted us, or at least upper-middle class people like the Applebaums, to go into a car dealership and purchase a new vehicle with nothing more than an unverified personal check.
Applebaum not only thinks it’s ironic that scam artists like the Madoffs have undermined the very system that made them masters of the universe, but:
The deeper irony here is that all these schemes were only possible in the first place precisely because we have, until now, lived in a culture with such extraordinarily high levels of trust, a culture in which a customer’s bona fides are accepted without question and wealthy people are thought to have earned their money.
Well, and how did all that trust come about? Applebaum doesn’t say, so here’s a little walk down memory lane.
Once upon a time, all deals were handshake deals, but in the late 19th century, capitalist enterprise grew so big and strong that various governmental regimes began to be put in place to keep it from running amok. From anti-monopoly laws to food and drug inspection to labor legislation to banking and securities regulation, the federal government took it upon itself over several decades make sure that Americans could have faith that they would not be screwed by the unfettered operation of market capitalism.
Not least, there came to be an understanding that the primitive belief in the benevolence of the Invisible Hand of supply and demand–call it Free Market Fundamentalism–had been definitively superseded (thank you, J.M. Keynes) by that more complex understanding of the interplay of markets and government regulation, intervention, and social welfare known as the Mixed Economy. By 1960, let us say, the coffers of public trust in the American economic system were filled to overflowing. And we could pretend to ourselves that we were living in a world of handshake deals.
What happened? In the 1980s, Free Market Fundamentalism came roaring back. Its great homilist was, of course, Ronald Reagan, who sermonized endlessly about tthe need for government to just get out of the way so the Magic of the Market could do its stuff. The principle Reagan applied to the Soviet Union didn’t apply here. The market was so magical that you could trust it without verifying. For who needed a strong regulatory regime when there were economic theologians on hand to demonstrate with no end of mathematical formulae that the rational expectations of all comers assured that markets would always do the right thing? Evidence to the contrary, beginning with the S&L debacle of the late Reagan years, didn’t shake the faith. But post-dotcom, post-Enron, and post-subprime mortgage, Madoff may indeed be the last straw.
Over the past generation, the two key forces in the Republican Party have been social and economic conservatism. Both have been faith-based. At the moment, the latter seems a lot shakier than the former.