Modern economics has three strands according to John Cassidy in He Foresaw the End of an Era in the New York Review of Books. The benign and idealised view ofderegulated financial markets owes much to three Chicago economists: Milton Friedman, Eugene Fama, and Robert Lucas.
Cassidy says that although best known for his work on monetary theory and his enthusiastic espousal of capitalism, early in his career Friedman had played a key part in developing the "efficient markets hypothesis," which, together with its younger sibling the "rational expectation hypothesis"provided the intellectual underpinning for more than two decades of financial deregulation.
Briefly put, the efficient markets hypothesis states that prices of stocks, bonds, and other speculative assets necessarily reflect everything that is known about economic fundamentals, such as inflation, exports, and corporate profitability. The proof proceeds by contradiction. Suppose stock prices have risen above levels justified by the fundamentals. Then clever speculators, such as Soros, will step in and sell them, thereby restoring prices to their proper levels. If stocks fall below their fundamental value, speculators will step in and buy them.
if stock prices already reflect everything that is known and knowable, then investors can't hope to outperform the market using trading strategies based on publicly available information. Rather than wasting time and effort trying to pick individual stocks, they would be well advised to place their savings in a broadly diversified mutual fund that tracks the daily movement of the market. Largely thanks to Fama and his followers, so-called index funds today have a central part in many Americans' retirement planning.
By the time they were done, Lucas et al. had invented a new way of doing macroeconomics, known as the rational expectations approach, which enshrined in higher mathematics the stabilizing properties of unfettered markets. You don't have to spend much time on Wall Street to recognize that expectations are what drive the markets. If investors anticipate good news, they buy; if they expect bad news, they sell. Where, though, do these economic expectations come from? According to Lucas, they reflect a predefined, externally grounded, and commonly agreed upon reality. ... Utilizing this common knowledge, people form "rational expectations" of things like inflation and interest rates. They don't always get things right—a certain amount of randomness is allowed for—but they are precluded from making systematic errors. If in one period the economy gets out of sync, in the next period it jumps back to the "equilibrium" defined by the model.However, outside this idealized world knowledge is imperfect, people stick to wrongheaded ideas, and there is no agreed version of how the economy works. The response is to make the world conform to the theory since the problem is in the world not in the theory.
Edward Skidelsky in The return of goodness in Prospect argues that contemporary liberalism's insistence that morality is a mere matter of rights and obligations empties life of its ethical meaning. Consequently, we need a return to the virtue ethics of the pre-moderns, and a renewed conception of the good life.
He says that the:
These various pre-modern traditions, eastern and western, represent a style of thinking about ethics that has become almost unintelligible to us. Under the influence of Mill and others, we have come to think of morality as a system of rights and obligations, and the philosophical problem as one of defining these rights and obligations. But where there is no right or obligation, morality is silent. A man who, having fulfilled his obligations to others, settles down with a six-pack to watch porn on television all day may be foolish, disgusting, vulgar and so forth, but he is not strictly speaking immoral. For he is, as the saying goes, "within his rights."
Conservatism was once a frankly elitist movement. Conservatives stood against liberalism radical egalitarianism and the destruction of rigorous standards. They stood up for classical education, hard-earned knowledge, tradition experience and prudence. Wisdom was acquired through immersion in the best that has been thought and said.
In contrast to this classical kind of conservatism there has always been a separate, populist, strain. For those in this school, book knowledge is suspect but practical knowledge is respected. The city is corrupting and the universities are kindergartens for overeducated fools.The elitists favor sophistication, but the common-sense folk favor simplicity. The elitists favor deliberation, but the populists favor instinct.
This populist tendency produced the term-limits movement based on the belief that time in government destroys character but contact with grass-roots Australia gives one grounding in real life and produces character. This has usually been an agrarian populism.
In What Money Can’t Buy: The Moral Limits of Markets Michael J. Sandel asks: Are there some things that money can’t buy? His answer is that today markets and market-like practices are extending their reach in almost every sphere of life. He says:
Consider prisons. Once the province of government, the incarceration of criminals is now a proŠtable and rapidly growing business. Since the mid-1980s, more and more governments have entrusted their inmates to the care of for-profit companies. In the United States, the private prison business is now a billion-government have contracted with private companies like the Corrections Corporation of America to house their prisoners. In themid-eighties when the trend began, scarcely a thousand prisoners occupied private prisons. Today, more than 85,000 U.S. inmates are serving time in for-profit prisons. And the trend has spread to Britain, Australia, New Zealand, Canada, France, the Netherlands, and South Africa.
Sandel says that there are two objects to the market penetration of everyday life. The first objection is:
an argument from coercion. It points to the injustice that can arise when people buy and sell things under conditions of severe inequality or dire economic necessity. According to this objection, market exchanges are not necessarily as voluntary as market enthusiasts suggest. A peasant may agree to sell his
kidney or cornea in order to feed his starving family, but his agreement is not truly voluntary. He is coerced, in effect, by the necessities of his situation.
o the degrading effect of market valuation and exchange on certain goods and practices. According to this objection, certain moral and civic goods are diminished or corrupted if bought and sold for money. The argument from corruption cannot be met by establishing fair bargaining conditions. If the sale of human body parts is intrinsically degrading, a violation of the sanctity of the human body, then kidney sales would be wrong for rich and poor alike. The objection would hold even without the coercive effect of crushing poverty.
The argument from corruption is different. It appeals not to consent but to the moral importance of the goods at stake, the ones said to be degraded by market valuation and exchange. The argument from corruption is intrinsic in the sense that it cannot be met by fixing the background conditions within which market exchanges take place. It applies under conditions of equality and inequality alike.
Sandel argues that the worry about corruption cannot be laid to rest simply by establishing fair background conditions. Even in a society without unjust differences of power and wealth, there would still be things that money should not buy. He argues for the independence of the second objection and tries to show that it is
more fundamental than the first.
In his book Stabilizing an Unstable Economy the post Keynesian economist Hyman Minsky argued that a long period of rapid growth, low inflation, low interest rates and macroeconomic stability bred complacency and increased willingness to take risk. Stability led to instability. Innovation – securitisation, off-balance-sheet financing and the rest – has, as always, proved a big part of the story. As Minsky warned, undue faith in unregulated markets proved a snare.
Hyman Minsky argued that the major flaw of modem capitalism is that it is unstable. His “financial-instability hypothesis,” held that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen. If neo-liberals stress the efficiency of markets, then Minsky puts the stress on their tendency toward excess and upheaval.
Even the Wall Street Journal has taken note of Minsky:
Indeed, the Minsky moment has become a fashionable catch phrase on Wall Street. It refers to the time when over-indebted investors are forced to sell even their solid investments to make good on their loans, sparking sharp declines in financial markets and demand for cash that can force central bankers to lend a hand.
In Stabilizing an Unstable Economy Minsky stressed that undoing Big Government threatens economic stability.
Government is frequently disparaged as an inefficient bureaucratic maze serving the interests of officeholders and time-servers rather than of the public...political and intellectual resources must be invested in the creation and maintenance of an effective government apparatus because Big Government is here to stay if we are to avoid great depressions.
Though Rawls in his Lectures on the History of Political Philosophy says that follows Collingwood in taking it that political philosophy is "a series of answers to different questions" arising from various pressing problems in the societies in which the theories were produced, he does not relate he works by his theorists to the common languages of political thought, as shaped by the politicians, historians, preachers, rhetoricians, journalists, party apologists, pamphleteers and essayists of their times.
Yet he describes the main argument in each of his major philosophers in terms of what would be done or accepted by "rational and reasonable" agents in his own specific sense of those terms. His subjects do not use that vocabulary; and Rawls does not have a major interest in recovering the way the past looked to and was described by those who lived it.
In the Introduction to his Lectures on the History of Political Philosophy, Samuel Freeman (ed.), [Harvard University Press, 2007] John Rawls says that political philosophy in modern liberal society has no special authority. It is simply a continuation -- more intense and perhaps more coherent -- of what citizens are able to think concerning their own political institutions. Rawls insists that it is distinctive of modernity to consider every normal adult as capable of reasoning about political matters. To say that reason is to settle issues is just to say that we must "present our views with their supporting grounds in a reasonable and sound manner so that others may judge them intelligently. " He says:
A second question is this: In addressing this audience, what are the credentials of political philosophy? What are its claims to authority? I use the term “authority” here because some have said that writers in moral and political philosophy claim a certain authority, at least implicitly. It has been said that political philosophy conveys a claim to know, and that the claim to know is a claim to rule. This assertion is, I believe, completely mistaken. In a democratic society at least, political philosophy has no authority at all, if by authority is meant a certain legal standing and possession of an authoritative weight on certain political matters; or if, alter natively, it means an authority sanctioned by long-standing custom and practice, and treated as having evidential force. Political philosophy can only mean the tradition of political philosophy; and in a democracy this tradition is always the joint work of writers and of their readers. This work is joint, since it is writers and readers together who produce and cherish works of political philosophy over time and it is always up to voters to decide whether to embody their ideas in basic institutions. Thus, in a democracy, writers in political philosophy have no more authority than any other citizen, and should claim no more. I take this to be perfectly obvious and as not needing any comment, were it not that the contrary is occasionally asserted. I mention the matter only to put aside misgivings about this.
This reason, Rawls says, is simply the shared powers of reasoned thought, judgment, and inference as these are exercised by any fully normal persons beyond the age of reason, that is, by all normal adult citizens. Suppose we agree with this and say political philosophy does invoke this authority. But so likewise do all citizens who speak reasonably and conscientiously in addressing others about political questions, or indeed any other question. Seeking what we have called the authority of human reason means trying to present our views with their supporting grounds in a reasonable and sound manner so that others may judge them intelligently.
Striving for the credentials of human reason does not distinguish political philosophy from any kind of reasoned discussion on any topic. All reasoned and conscientious thought seeks the authority of human reason.