Sunday, November 7, 2010

Moral decay and political economy.

From the Global Guerrillas e-newsletter:

JOURNAL: Moral Decay?

Posted: 11 Oct 2010 02:37 PM PDT

Moral decay is often cited as a reason for why empires/civilizations collapse. The slow failure of the US mortgage market, the largest debt market in the world and the shining jewel of the US economic/financial system, is a good example of moral decay at work.

Why is this market failing? It's being gutted -- from wholesale fraud and ruthless profiteering at the bank/servicer level to strategic defaults at the homeowner level -- because a relatively efficient and effective moral system is being replaced by a burdensome and ineffective one. What shift? Our previous moral system featured trust, loyalty, reputation, responsibility, belief, fairness, etc. While these features were sometimes in short supply, on the whole it provided us with an underlying and nearly costless structure to our social and economic interactions.

Our new moral system is that of the dominant global marketplace. This new system emphasizes transactional, short-term interactions rather than long-term relationships. All interactions are intensely legalistic, as in: nothing is assumed except what is spelled out in the contract. Goodness is solely based on transactional success and therefore anything goes, as long as you don't get punished for it.

In this moral system, every social and economic interaction becomes increasingly costly due to a need to contractually defend yourself against cheating, fraud, and theft. Worse, when legalistic punishment is absent/lax, rampant looting and fraud occurs.

Given the costs and dangers of moral decay, it's not hard to see why it can cause a complex empire/civilization to collapse.

And from the Volokh Conspiracy we have this.

The Political Economy of the Roman Republic

Ilya Somin • November 5, 2010 2:27 am

One of my longstanding interests is the political economy of ancient Greece and Rome. Former VC-er Eric Posner has an excellent new article on the political economy of the Roman Republic:

The constitution of the Roman Republic featured a system of checks and balances that would eventually influence the American founders, yet it had very different characteristics from the system of separation of powers that the founders created. The Roman senate gave advice but did not legislate; the people voted directly on bills and appointments in popular assemblies; and a group of magistrates, led by a pair of consuls, proposed bills, brought prosecutions, served as judges, led military forces, and performed other governmental functions. This paper analyzes the Roman constitution from the perspective of agency theory, and argues that the extensive checks and balances, which were intended to prevent the recurrence of monarchy, may have gone too far. Suitable for an earlier period in which the population was small and the political class was homogeneous, the constitution proved unworkable when Rome acquired a vast, diverse empire. The lessons of Roman constitutionalism for the American constitution are also discussed.

Eric makes many interesting points, and I learned a lot from the paper. But I disagree with the bottom-line conclusion that the Roman Republic failed because it had too many checks and balances, which led to paralysis and gridlock. Even in its last, most dysfunctional century, the Republic repeatedly vanquished powerful foes, including monarchs such as Mithridates of Pontus, Eric’s argument that monarchy was a more efficient form of government during this period notwithstanding. The Republic also undertook various important new domestic policy initiatives, including expanding the citizenship and granting land to enormous numbers of military veterans. This is not the sign of a polity paralyzed by gridlock.

On balance, I tend to agree with the more conventional view that the Republic failed not because of gridlock, but because of agency problems: the Senate and people gradually lost control of the larger and larger military forces needed to defend their growing empire. These forces were increasingly more loyal to their immediate commanders than to the state. As a result, unscrupulous generals such as Marius, Sulla, and ultimately Caesar could use “their” troops to seize power. This problem probably could not be easily solved in a large empire during an era when communications were difficult and slow and the central government could not readily control far-flung standing armies. Indeed, the same problem eventually played a decisive role in bringing down the empire that replaced the republic.

Because I am unpersuaded by the paper’s explanation for the collapse of the Roman Republic, I am also skeptical of the claim that the lesson for the modern United States is that we need fewer checks and balances than we have. Like the Roman Republic, we actually have a fairly strong record of outperforming rival states with more unitary governments (both dictatorships and parliamentary democracies). In some areas, my fear is that we need more checks and balances rather than fewer, in part because we too have some serious agency problems — albeit not as severe as those of the Romans.

Despite this disagreement, I think this is a great paper, and well worth your time if you are at all interested in the subject. And for those who absolutely can’t get enough of ancient political economy, there is my shorter piece on democracy and political knowledge in ancient Athens, and this post I wrote about whether we should revive the Athenian Council of 500.


Taylor H said...

Rome never lost a war. She killed herself.

Anonymous said...

Global Guerrillas correctly identifies the symptoms but misdiagnoses the cause. The problem is not globalism; it's "moral hazard." To explain:

"[T]he government takes bigger risks with taxpayers' money than private lenders take with their own money. Private lenders who make bad loans will go bankrupt and be forced out of business. But when the government gets involved, it lends funds for riskier ventures since the bureaucrats who approve the loan face no personal recriminations — much less loss of profit — for error.

"In other words, private lenders would take Action A while government lenders would take Action B, and Action B is the less-productive path. After all, there is no need for government to take Action A: it can be handled quite well in the free market.

"So it is with the current rash of bailouts. Whatever the final price tag — $500 billion, $750 billion, $1 trillion, more — the fact is that government gets its money either from taxes, borrowing, or the printing press. It is hard to raise taxes by $1 trillion on short notice, and since there is a small hurdle that slows the government's ability to print the money, we know that government will issue bonds. In other words, government will borrow the money from private capital markets."


Anonymous said...

Regarding "moral decay": Few of the adverse affects of the abuses in the financial markets would be able to metastasize without government protecting and encouraging the abusers. Absent market distortions caused by bailouts, monetary policy, and the other economic tools of government the markets' drive toward efficiency would ultimately return us to fiscal and moral sanity. The article describes how (the inefficiency of the legalistic construct absent basic trust) but not why. I am afraid it places too great an emphasis on the ambition of the greedy (a largely ubiquitous presence throughout history) and too little emphasis on the combination of that greed with the coercive power of government.

Anonymous said...

<<< "Rome never lost a war. She killed herself." >>>

Geeeee, that sounds familiar...

But in this case there really are commies in the wood pile.