It is always flattering when a “noble prize” winning economist agrees with you. Stiglitz has noticed the implications of the foreclosure crisis for the rule of law and property rights:
“The mortgage debacle in the United States has raised deep questions about “the rule of law,” the universally accepted hallmark of an advanced, civilized society. The rule of law is supposed to protect the weak against the strong, and ensure that everyone is treated fairly. In America in the wake of the sub-prime mortgage crisis, it has done neither.
Part of the rule of law is security of property rights” (Stiglitz, November 2010)
Once Stiglitz pursues this line of enquiry further he will be in agreement with USA destroying cultural intangibles:
“The fault at the heart of the MBS security market is further evidence that the US is in the process of destroying the cultural intangible capital that enabled them to grow wealthy. Gone are accounting standards, the rule of law and the certainty of property title. What next?” (Rob, October 2010)
He may then come to agree with Stock markets, they win we lose :
“Let’s add the stock market to the list of cultural intangibles being undermined – accounting standards, the rule of law, property. Talk about wrecking your cultural inheritance. Like the justice system, free market exchange does not just have to be fair. It has to be seen to be fair. With bailouts followed by bonuses and government endorsing or actively participating in the rigging of markets there will be a crisis of legitimacy.” (Rob, October 2010)
Trust is also a cultural intangible that enabled the West to become wealthy. Even if you don’t agree with much of Francis Fukiyama’s Trust, it contains an element of truth. Like many he takes a good idea and pushes it too far. But trust is central. Hence the problem highlighted in TARP damaging trust:
“When Treasury refuses for more than a year to require TARP recipients to account for the use of TARP funds, or claims that Capital Purchase Program participants were “healthy, viable” institutions knowing full well that some are not, or when it provides hundreds of billions of dollars in TARP assistance to institutions, and then relies on those same institutions to self-report any violations of their obligations to TARP, it damages the public’s trust to a degree that is difficult to repair.” (Neil Barofsky).
If you have any doubts at all about the seriousness of what is happening in America then read Hernando De Soto’s The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else:
In the West, standardized laws allow us to mortgage a house to raise money for a new venture, permit the worth of a company to be broken up into so many publicly tradable stocks, and make it possible to govern and appraise property with agreed-upon rules that hold across neighborhoods, towns, or regions. This invisible infrastructure of “asset management”–so taken for granted in the West, even though it has only fully existed in the United States for the past 100 years–is the missing ingredient to success with capitalism, insists de Soto. But even though that link is primarily a legal one, he argues that the process of making it a normalized component of a society is more a political–or attitude-changing–challenge than anything else.
With a fleet of researchers, de Soto has sought out detailed evidence from struggling economies around the world to back up his claims. The result is a fascinating and solidly supported look at the one component that’s holding much of the world back from developing healthy free markets (Timothy Murphy).
Like Fukiyama I suspect De Soto has focused on only one of the reasons for Western growth. There can be multiple supporting factors behind the success of a society or civilization. It does not have to be an either or situation.
But what is quite clear is that as a society the US is eating its cultural seed corn. If the requirements for economic success are removed there will be no economic success. The US is at the risk of validating John Sinclair (1754-1835):
“If we go on at this rate, the nation must be ruined. Smith replied: “Be assured, my young friend, that there is a great deal of ruin in a nation” (Adam Smith, Correspondence of Adam Smith, 1977): p 262, note 3, from Sinclair, Corr., i. 390-1).
Residents of Western Civilization must be thankful that Adam Smith was right in this as well as much else. But while there may be a great deal of ruin in a nation, there is a great deal of debt in the US and other developed countries. Everything has its limits.