An exchange a few weeks ago between Kevin Drum and Matt Yglesias got me thinking about a trap many liberals fall into when talking about the economy.
Kevin was arguing we need to stop a nasty practice businesses are increasingly using whem hiring — using folks’ credit scores as part of screening them. Matt replied that although at first he is “inclined to agree,” he thinks we should
resist the urge to call for regulating the business practices of private firms when the issue isn’t pollution or some other case where the externalities are clear. After all, it seems like either this credit check business is a sound business practice (in which case allowing it is making the economy more efficient and ultimately building a more prosperous tomorrow) or else it’s an unsound business practice (in which case competition should drive it out).
It’s part of his approach to liberal economics — “take the rich people’s money and use it to pay for stuff, don’t tell them what to do with the companies they run.”
Regulate business to prevent negative environmental externalities, sure. Basic safety, okay. But the idea that what we need is for a bunch of people to get together and say that it would be better to ban this and that and the other capitalist act between consenting adults just strikes me as the wrong way of going about things. Purely economic regulation of this sort doesn’t have a compelling track record, runs into all kinds of Hayek-esque knowledge problems, and is basically an open invitation down the road for regulatory capture and the use of rules to prevent the emergence of competition. Count me out. For me, it’s all about higher taxes to finance more and better public services.
Aside from the fact that Kevin thinks it isn’t politically or economically doable, he’s got a deeper problem with Matt’s argument:
The more I think about this, the more it bothers me. Which is odd, in a way, since I’m not really a ravenous supporter of micro-regulating the business community….we liberals shouldn’t view the relationship between businesses and individuals as solely economic transactions. There are core questions here of human dignity and basic fairness that exist quite aside from money.
Kevin’s right, our lives can’t be reduced solely to economic transactions. But he’s wrong to imply that the economy is somehow separate from values. Even basic economic transactions are steeped in values that are enshrined in law.
Take a core issue in contract law: when can you walk away from your debts and financial obligations? Recently Republicans and some Centrist Dems have been railing against ordinary folks who are walking away from “underwater mortgages” — mortgages that are tens of thousands of dollars more than the mortgage home is now worth. It’s unethical, they say, and we should make the penalties for dumping your debts as severe as possible (just like they did with personal bankruptcy a few years ago).
But corporations? That’s a different story. Big corporations can use bankruptcy to flush down the toilet 20 years worth of pension and health-care obligations their employees had been counting on for retirement, then reemerge from bankruptcy without a scratch. You can dress up arguments about when people should and shouldn’t be able to walk away purely in the language of efficiency, but fundamentally it’s about what we think is right and wrong.
Ditto for ownership. Some entrepreneurs have been pushing to create “benefit corporations” or B Corporations that are allowed to both maximize shareholder value and do social good. Why? Because right now it’s illegal. Under current law in most states, if a company’s CEO worries about anything other than maximizing shareholder value, they’re likely to get sued.
Ownership law also restricts you if you’re a shareholder. Shareholders may “own” part of a corporation, but unlike most things you own you’re severely limited in what you can do with your ownership power. If you want to file a shareholder resolution that encompasses anything beyond maximizing returns – and short-term returns at that – you have virtually no room to maneuver. And I don’t just mean you can’t consider Kumbaya values. If you own stock in corporations and, you’re worried that waves of corporate downsizing will cost you and lots of other folks in your community their jobs — in short, will hurt you economically — you’re not legally allowed to consider that fact when trying to shape the direction of the corporation you partially “own.”
When we treat values as if they are separate from the economy, we don’t take values out of the economy. We just lock in the values of the rich and powerful. And if we’re trying to create a better world, there’s no sense fighting with one hand tied behind our back.
UPDATE: Can I get a job in Matt’s economy? The one where stupid decisions by HR or Legal that drive managers like me crazy are driven out of the economy by competition? If your grocery store starts charging $10 a pound for apples, competition will probably stomp out this “unsound business practice.” But if the company you work for starts to use credit statements to screen job aplicants? If only….
