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What Will Change?—A Commentary by James Kwak ’11

The following commentary was posted on Wall Street Pit on July 23, 2009.

What Will Change?
By James Kwak ’11

Timothy Garton Ash is a prominent modern European historian, who became famous writing about the collapse of Communism and the transformation of Eastern Europe in the 1990s. It was something many people thought they would never live to see.

A friend asked me what I thought of Ash’s article a couple of months ago in The Guardian, where he asked what will come of modern capitalism in the wake of the financial and economic crisis.

An extreme “neoliberal” version of the free-market economy, characterised not just by far-reaching deregulation and privatisation but also by a Gordon Gekko greed-is-good ethos – and fully realised in practice only in some areas of Anglo-Saxon and post-communist economies – seems likely to find itself [left in ruins or at least very substantially transformed]. But how about a modernised, reformed version of what postwar German thinkers called the “social market economy”?

Ash goes even farther than what you might call the Continental European social-democratic model, and envisions a world with a better balance between production and consumption, between national and international governance, and between exploitation and protection of the environment.

Ash’s essay reflects the feeling that the financial crisis was so cataclysmic, and the behavior that precipitated it so indefensible, that it could not help but trigger a major change in economic organization and perhaps even in societal values. Today, it’s pretty easy to label it as hopelessly optimistic. Many emerging markets, with China in the lead, are determined to return to an economic boom as quickly as possible. In the United States, the official administration strategy is to reflate the banking system as a means of stimulating the economy. After a couple of months of uncertainty, the media has consolidated around reporting this as an ordinary recession, though more severe than most.

More fundamentally, people change only a little bit, and only very slowly. People may be a little less willing to buy flat-screen TVs on credit, but they will still aspire to own flat-screen TVs. Domestic political systems will still undercut attempts at international governance; “internationalism” is perhaps more a dirty word than ever in the United States, as evidenced by the shameful attempts to portray Harold Koh (until recently dean of the Yale Law School) as un-American during his confirmation hearings. As for the environment, I have yet to see compelling evidence that the human race will pull it together in time to meaningfully slow down global warming, and if anything the recession is being used as an argument against investing in alternative energy.

In the longer term, I think we can hope for a few silver linings from this crisis and recession. People may be less willing to take on debt, which will mean greater domestic savings and therefore greater domestic investment with less foreign debt. People may feel less secure economically, or maybe will at least remember feeling less secure during the dark days of 2008-2009, which may make them a little more concerned about the poor and a little more willing to pay for a better social safety net. Graduates of our top universities may want to do something other than become bankers and hedge fund managers, and may invent new technologies and teaching methods instead of new derivatives. Maybe the glorification of extreme wealth will be tempered a bit for a few decades, so the ultra-wealthy will flaunt it a little less and the rest of us will admire it a little less.

All of these things would be good, and they may still happen. But it will be within a capitalist system that remains pretty much the same as before – perhaps with a tiny bit more regulation.