The Conservative Lesson of the Crisis


I think this, from Matt Yglesias, is a crucial point:

The funny thing is that this a pretty Burkean argument. One of the most powerful lessons of the conservative tradition is that sweeping changes can have tremendous unintended consequences, which run the risk of sabotaging the whole enterprise. That happened in the French Revolution, obviously, and I think it’s pretty clear in retrospect that it happened with AFDC as well.

But the changes that can backfire like that need not be government programs. They can also be the elimination of those programs. In throwing out decades worth of regulation for seemingly rational reasons, the Reagan, Clinton, and Bush administrations didn’t grapple with the possibility that those regulations kept the financial system in check in ways that they didn’t fully understand. It’s uncomfortable to say, “We shouldn’t deregulate because these arbitrary rules may know something we don’t”; indeed, it’s one of the things that makes traditional, Burkean conservatism so unappealing to rationalist types.

You could even expand this lesson beyond the realm of government. I’m sure that converting into publicly traded corporations made a tremendous amount of sense to Wall Street executives in the ’80s and ’90s. But they were either unaware or dismissive of the possibility that being able to pawn losses onto shareholders would lead them to grow beyond reason and take risks that they never would have taken as a partnership. So just as I think the crisis should, if we’re lucky, force our government to be more reticent about sweeping deregulatory policies, it should also spur Congress to make it harder for banks to make large changes to their business structure. Requiring banks to be partnerships would be a good start, but it shouldn’t be the end.

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