The Crisis of Context

Causes of the recent financial crisis can be found in editorial section of any newspaper or blog in the world; Ashton Kutcher has likely tweeted about it. The situation is clearly complicated and it even seems naive to pin in all down to one cause. But life is more fun living in absolutes, so here is my theory.

A commune can practice communitarian lifestyles as long as it remains small. But it is pretty clear, that at some point, (due to free riders, accountability issues, and a disconnect between reality and ideology) the system breaks down. In Korea bus drivers do not personally collect money; instead an advanced form of a bucket sits by the door and passengers throw in the appropriate amount as they get on. But this system as well, is changing. Likely because people are no longer being honest enough to make it worth while to grant them the responsibility. Just like communes, the tipping point for the Korean bus system was likely an over growth in size. But it is not only increases in size that fold communitarian principles and necessitate regulation, we can also find fiduciary catalysts. Honor boxes will only be found selling goods of paltry sums. Tomatoes, sold in Florida, sometimes do not require a vender, nor do donuts, as a store in Ohio demonstrates. People can be trusted to act with dignity in these instances, for the gain of stealing a donut does not out weigh the cost of feeling guilty. But you wont ever come across an unmanned table selling laptops with a list of prices and an arrow pointing to a box. For many this would be just too tempting to resist.

Every system has a tipping point, either caused by excessive size or price. The lax financial regulations can work effectively in a certain context, but with the boom the US saw in the 90’s and early 2000’s coupled with the dash to gobble up new territory made available by globalization, our financial system was pushed beyond its tipping point. Temptations were too strong, effective accountability too complicated, and connections to principles too distant to expect the free market to run itself any where but into the ground.

Now we face economists, like Richard Posner, jumping the Chicago School free market ship to Keynesianism with assumptions that, while not much is known, one thing is for certain, the free market did not work. I am afraid that momentum towards bringing us back to the middle will sling us too far in other direction. I am afraid that people will see this not as a contextual failure, how I am defining it, but as a ideological failure. Honor boxes work well in certain contexts, but not all; the particulars of our free market financial system is no different. The contexts have changed, but not the rules. We should be spending more of our time understanding these contexts, these tipping points, and where the future of the US fits into all of this, than fighting over one all encompassing theory, to live by or die by.