As the Dow Jones takes the expected nose dive and the combined woes of Europe slowly move in the direction of bringing the collective EU economy to a standstill, there is hope of a sort. It is a moment for reflection and reflection brings positive change. The prolonged crisis is a teaching moment for all the middle-aged children running the show. The ongoing debate about the origins of the financial crisis presents a vexing dilemma for businesses, pundits and politicians. How do we grow when economic chaos is the norm? How do we market products and services when no one can afford to buy them? It begins, at least to my mind, with how we even conceive of the current economic mess and its origins.
The technical perspective has relied on the perspective of reducing economic realities to numerical abstractions. Some contend that the crisis simply boils down to technical mistakes, independent of ethical considerations. Policy, regulations, trading practices, etc. all came together to form a perfect storm, so to speak. Banks should not have held so many fabricated and risky assets. The Fed’s monetary policy was far too loose. Credit default swaps should have been transparent. Securitization tools should not have been available to absolve mortgage providers of accountability. It was all matter of technicalities and procedural snafus.
Set in motion the political explanation. Tax cuts and the cost of two wars led to absurdly large budget deficits financed by China. Unprecedented income inequality translated into political power that not only succeeded in treating income as capital gains but also defeated prudent regulation. In other words, deregulate and cut taxes to the point where favor could be more easily curried with power brokers, corporations and the far right. As a result, we saw the growth of a massive financial industry characterized by unbounded incentives for excessive risk-taking. We also saw the emergence of a political dogma built on fantasy rather than fact. Poor economic policy fueled the myth that less government and less taxation would create freedom and jobs.
The problem seems that we are all busy pointing the finger and/or digging through minutia in an attempt to validate positions we’ve already established. We espouse the idea that the free market will heal what ails us even as we deride the very things an unfettered free market has produced. Pornography, guns and all our vices are all opportunities that the free market has been able address – it’s hard to argue that a “degenerate society,” as Mr. Santorum described the bulk of the progressives, is the product of government intervention when the majority of the undesirable businesses have grown as deregulation has declined. The problems businesses and economies around the world face go far beyond the cartoonish explanations of the current host of demagogues.
Eleven years of cutting (taxes, wages, spending, etc.) have brought us to the brink. Businesses thrive on a sense of consistency. Yes, a willingness to embrace risk defines the entrepreneurial spirit and is a central element of all good businesses. It is less about tax hikes and spending cuts than it is about providing an environment that isn’t prone to the chaos brought about by legislating through dogma. Unfortunately, we have chosen to go down the path of ideological strong arming disguised as political discourse. The result is that business and innovation suffer.
And so we see the results today of this prolonged expedition into fanaticism and one-way thinking. The Dow Jones is down 633 points as I write this (and it will no doubt continue to slide) and there seems no way out. At least not until the dialog moves away from moralizing political diatribe and back to a reasoned approach to business and economic growth. And therein lies the hope — suffering brings enlightenment.