Against blaming the victims

Posted: 21 January 2011 in Uncategorized
Tags: , , , , ,

Mainstream economists mostly ignore the problem of inequality. And when they actually notice the problem, they blame the victims.

That’s how they think about solutions to the current crises (e.g., in the cases of Robert Shimer and Casey Mulligan), and how they analyze the causes of the crisis (as Raghuram Rajan has done). Now, Rajan’s argument has been picked up by the Republican minority on the Financial Crisis Inquiry Commission [pdf].

Simon Johnson does a good job disputing the Rajan/Republican argument, utilizing the data from  a study conducted by Daron Acemoglu [pdf]. Where Rajan and the Republicans want to blame government policies for bowing to pressures from the poor and thus causing the housing bubble, Johnson and Acemoglu argue that the government actually responded to those at the top of the income distribution, by deregulating the financial sector, and it was private finance—not government-sponsored entities like Fannie Mae and Freddie Mac—that was responsible for the bulk of subprime housing loans and their subsequent securitization.

The FCIC Republicans are right to place the government at the center of what went wrong. But this was not a case of over-regulating and over-reaching. On the contrary, 30 years of financial deregulation, made possible by capturing the hearts and minds of regulators, and of politicians on both sides of the aisle, gave a narrow private-sector elite – mostly on Wall Street – almost all the upside of the housing boom.

The downside was shoved onto the rest of society, particularly the relatively uneducated and underpaid, who now have lost their houses, their jobs, their hopes for their children, or all of the above. These people did not cause the crisis. But they are paying for it.

The major problem with Johnson’s argument (like Krugman’s before him) is the only link he can imagine between inequality and the current crises passes through politics. What Johnson, Krugman, and others can’t seem to wrap their heads around, or choose to ignore, are the processes within capitalism itself—within capitalism as it developed and changed in the United States from the mid-1970s onward—which created the boom-bubble-bust cycles that culminated in the crash of 2007.

That’s how we can move beyond blaming the victims of the current crises of capitalism.

Comments
  1. Paul says:

    You don’t attribute *any* of the blame to fanie mae and freddie mac? As a general rule in science, when one d attributes blame to one source — financial deregulation (of course) — it is an oversimplification that fails to capture much nuance. A little less ideology and a little more science would do you some good.

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