Five and a Half Whys

The Financial Crisis Inquiry Commission has delivered its verdict on the causes of the 2008 collapse. Because the majority determined that the disaster had been preventable, the Republican members of the commission were not enthusiastic about this conclusion, perhaps pretending to doubt the validity of the forensics because of whose fingerprints were on the murder weapon. I have a different criticism. Although several factors were identified, the inquiry was not sufficiently recursive. It didn’t repeat its questions enough times. If the regulators failed, why did they fail? If financial laws were inadequate, why were they inadequate? If too much money went into highly leveraged derivatives, why were these paper investments so much more attractive than investments in plant and personnel?

Six-year old girls know the game of asking why over and over again. You’d think that sixty year old economists could at least ask why at least five times, as famously recommended by the engineers of Toyota. The difficulty, I suspect, is not that answers are not forthcoming to the repeated questions but just the reverse. There’s a slippery slope here. If you don’t stop fast enough, you might tumble down to an inconvenient place. You might have to admit that the problem cannot be explained by corrupt individuals or institutions, but reflects more fundamental and intractable problems. Moral explanations are always superficial. It’s not just that there are reasons why the malefactors do wrong. There are also reasons why honest actors do the right thing and reasons why, under some circumstances, it doesn’t matter a great deal what anybody does.

It is perfectly true that Alan Greenspan deserves to be horsewhipped, but it would be more useful to know why it is unthinkable that he and the rest of his kind will ever be horsewhipped. And it would be still more valuable to figure out how to promote anti-Alan Greenspans to positions of authority. Similarly, it’s all very well to bewail the dominion of financial interests over regulators, legislators, and judges; but it would be better to find a counterforce to concentrated wealth. Laws by themselves will never help. Like an alien aphid, Goldman Sachs has no natural enemy in these parts—we need to find somebody or something that eats bankers.

Incidentally, I do try to follow my own advice occasionally. For example, while I do think that one of the deeper reasons for the financial and economic calamity of the last couple of years is the great and growing disparity of wealth in the our country—a conclusion, by the way, which is apparently shared even by many business leaders—I don’t think that’s an adequate explanation for what’s going on either. One has to ask why wealth and power have become increasingly concentrated at the very top, not only in the U.S. but in other nations as well. I’m not satisfied with the answers I’ve encountered to that question so far.