The Space Between A Handshake Is Too Wide For An Economic Recovery

A popular and successful method of tossing out a political opposition has been to yell. “It’s the economy, stupid!” It worked for Scott Brown and it worked for Bill Clinton. It may well work for Mark Rubio in the Florida GOP Primary.

My only complaint about applying this elocution to today’s problems would be that it is wrong. “It’s the philosophy, Ladies and Germs.” Until that gets fixed, our economy will not.

Pope Benedict XVI, argued roughly that sick minds make for diseased economic conditions. David “Spengler” Goldman praised this argument declaring Pope Benedict to be “Magnificently Right.” In the process of so-doing; Spengler explains the interdependency between economic vitality and societal ethics.

The market does not spring into being like warriors from the dragon’s teeth sown by Cadmus. Markets are part of society, and if society passes the demographic point of no return, the market will die along with all other social institutions. (Spengler – 9 Dec 2008)

Economies and markets also rely on a sound basis of jurisprudence and societal values. Contracts have to be sacred. Professionalism has to be a matter of ethic. The right to property must be included in the fundamental basis rights of a given social arrangement.

Spengler posits further that markets in isolation will not redeem a fallen moral state. It is not in their nature. He writes below.

The future pope’s 1985 paper insists that it is mere moralizing, not morality, to dismiss what economics has learned about the market mechanism. But economics cannot find a remedy for the imagination of an evil heart, or a foolish one, for that matter.

Our ability to have a decent economy again will ultimately hinge upon whether we really mean it when we give another person our word. Is there too much space between that handshake? Our current downfall started with the intellectual assault on the sanctity of the contract that has sadly made it into mainstream thinking.

Steven Shavell of Harvard Law exemplifies the assault on the moral underpinnings that make possible deals not backed with assault weaponry. He asks the important question. Is Breach of Contract Immoral? Sadly, yet predictably, he gets the answer wrong.

When, and why, might it be thought immoral to commit a breach of contract? The answer to this fundamental question is not obvious, because, as is stressed, and as has been overlooked in addressing the question, contracts do not usually provide explicitly for the particular events that are observed to occur. When a contract does not expressly address a contingency that occurs, the morality of breach is assumed here to depend on what the contract would have said had it addressed the contingency.

He actually argues in the weasel-wordage above that inability to predict the future is an excuse to break any or all contracts. Faust could only wish that metaphysical bargains worked in the same corrupted manner. So much for the old golfing and real estate adage “Watch what you sign!”

This sewage leaks forth from academia to contaminate our current real estate market. Arizona Law Professor Brent T. White penned an infamous peon to the debased thinking of our age. His screed of dysfunctional morality comes entitled Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis. The abstract of his siren-song to the evil at heart follows below.

This article suggests that most homeowners do not strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to induce homeowners to ignore market and legal norms under which strategic default might not only be a viable option, but also the wisest financial decision.

Thus, in the name of academic reasoning, our experts now advise us to engage in solipsistic personal behavior with no concern to the negative externalities we inflict on others. When Exxon-Mobil or Goldman Sachs engages in similar behavior, we rightfully take up the pitchforks. Somehow, through the mendacious evil that is populism, we justify our own missteps in this regard as “sticking it to the man.”

Professionalism results from our implicit contract with our employers and the society around us. At work, we do the best we can with what we have to honor two obligations. Our boss doesn’t merely pretend to pay us, we’d better not sham too hard at the job. More importantly, we expect the doctors we visit to cure what ails us and the bridges we drive across not to collapse beneath our cars. We owe the people who use our services similar consideration.

Yet not all professions do this in proper fashion. Science and financial services have developed particularly rancid exceptions which have greatly poisoned the commonweal. Scientists with the IPCC deliberately accepted poor-quality scientific references in an effort to politically force governments to act in accordance with all that “settled science” regarding Global Warming. The Horrible Himalayan Glacier Melt offers a prime example of scientific dishonesty for blatantly political ends.

Dr Murari Lal also said he was well aware the statement, in the 2007 report by the Intergovernmental Panel on Climate Change (IPCC), did not rest on peer-reviewed scientific research.

In an interview with The Mail on Sunday, Dr Lal, the co-ordinating lead author of the report’s chapter on Asia, said: ‘It related to several countries in this region and their water sources. We thought that if we can highlight it, it will impact policy-makers and politicians and encourage them to take some concrete action….

In fairness to Dr. Evil, oops I mean Dr. Michael Mann, it’s not just the diabolical climate scientists that cut a few corners, round a few numbers and hope that the intended audience is too fat, dumb and happy to spot The Big Lie. About those AAA rated mortgage-backed securities that TARP isn’t big enough to cover….

The banks went bankrupt by loading up on supposedly ultra-safe, AAA-rated assets, spawned out of the derivatives hatcheries with the collusion of corrupt rating agencies (who made most of their money rubber-stamping these time bombs). ….Yet the rating agencies (who claim no liability for mis-judgments on the grounds that they are exercising the same Constitutionally-protected free speech as a newspaper editorialist!) are in charge of rating credit quality.(Spengler at Firstthings 22Jan10)

So there it is in too much fulsome, scurvy and frustrating detail. Sanctity of contract no longer is held vital. Professionalism (the result of an implicit contract between the privileged professional and the society in situ) no longer holds by corollary. So we can’t trust one another’s word on anything. Thus, there will not be any efficient or totally beneficial set of markets.

To cure this problem, we don’t need new regulations. We need to match our jurisprudence to the necessity of our age. Otherwise; we’d better hope Congress will pass the stimulus plan. If not, we could have unemployment reach 8%. I think the Bust a Deal, Face the Wheel law from “Mad Max Beyond Thunderdome” would cure more of our economic problems than any brilliant new policy ideas from the vastly futile mind of Barack Obama.