What is striking to me about contemporary economic doomsday prognostication is how much it echoes the hoary old Marxist theory of crisis, of the inevitable collapse brought on by the inexorable falling rate of profit. What both these crisis theories evidence is, however, a falling rate of political intelligence.
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It is difficult to get outside the cognitive constraints of the ideological image of liberals versus conservatives, and to think "institutionally." What might it mean to think institutionally about capitalism and about the State (government). Regarding the former, it is always oriented to the short term: today's profits matter more than some future event that might never happen. The next quarterly report is the extent of the attention span of the hypothetical self-interested entrepreneur. What might this mean in practice? It may mean, for example, that environmental degradation matters only if it cuts into profitability (who cares if there’s one less spotted owl as long as I make a buck selling timber). This is short-term thinking par excellence and it is perfectly rational if one assumes that people are driven by self-interest and that it would be irrational to pursue strategies that undermine self-interest. What does this mean for the predicted, impending bankruptcy of the contemporary crisis theory? It means that as long as current profits can be maintained at a reasonable level, the long-term possible bankruptcy doesn't matter.
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What both contemporary and old-fashioned orthodox Marxist crisis theory conveniently ignores is the truly inconvenient fact that "crisis management" forestalls such cataclysmic crises, delays them, pushes them off to some future date. Crisis management is the art of softening the blows of short-term thinking, of the supply and demand cycle, and the social and political dislocation that both entail. Crisis management is neither a liberal nor conservative phenomena, it is a function of institutions, in particular State and quasi-State institutions (see the coordinated actions of Paulson, Bernanke, and Geithner in the aftermath of the demise of Lehmann Brothers). The art of crisis management assumes the irrationality of individuals acting on short-term interest in immediate profitability. Crisis management is also a high-wire act: it must find the right balance between the necessary degree of management and the necessary degree of short-term thinking. A crisis of crisis management (Claus Offe) arises when crisis management encroaches too much on the short-term rationality of the market (which is irrational); in other words, it must manage the consequences of market irrationality without undermining this irrationality entirely. (N.B. I'm using the term"irrational" in a non-pejorative, and purely descriptive, sense: short-term thinking and behavior that ignores long-term consequences is irrational in a restricted sense and from a certain point of view).
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To be sure, there is dim recognition of the implications of crisis management among those politicians today, who admonish -- in Matherian tones -- that "we are burdening our children and grandchildren and great grandchildren and great-great grandchildren with debt." Of course we are! As rational economic actors, our only interest is in the now, not the 50 or 70 or 100 years from now. Our contemporary crisis managers push off the cataclysmic crisis onto future generations, who will have their own crisis managers to push off the crisis onto even more future generations, or until the last ton of fossilized coal has been burnt. Such crisis management is short-term thinking that attenuates the consequences of short-term thinking. Is this wrong or immoral? It is neither, if we accept short-term, self-interested behavior on the part of individuals (persons or firms) as normal and inevitable, which is precisely what these Chicken Little politicians assume.
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What about long-term thinking and long-term survival: who does that and how is it accomplished? Typically State institutions (i.e. government) have the task of maintaining the integrity of the socio-economic system over the longue duree. What are those institutions? The internal and external security institutions; and the social security institutions. Both of these long-term oriented institution forms must be maintained, i.e. financed; and hence we have taxation, and it is only a pipe dream to wish taxation away. Moreover, there is no choice to be made by those who seek “limited government” to get rid of one (social security institutions). Both internal/external security and social security are always already, necessarily interdependent. And while it would be nice to return to the seventeenth-century system of mutual aid, it is simply unrealistic (and hence irrational) to assume -- as a form of “tax relief” and “deficit reduction” -- that this is a practical alternative to State institutions. From the standpoint of the short-term, self-interest of the rational actor, time spent tending to ailing Aunt Jenny is time and money taken away from earning more money, starting a business, or pursuing a professional degree. And while this hypothetical rational actor might want to tend to Aunt Jenny, she realizes that she lacks the skill set to cope with her Aunt’s problems and is quite happy to be unburdened of this task by a government agency (Medicare/Medicaid), and by health care and social work professionals who are trained to take care of such ailing Aunts. Two pennies on the dollar of taxation that goes to this purpose is well worth it to this profit-seeking person, who can use the money saved on buying medicine for the aunt to purchase a larger HD television; and the byproduct of this consumption (or, rather, the “pursuit of happiness”) is that another rational actor remains employed at Best Buy.
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Quite contrary to their intentions, the limited government chorus may well create a new economic crisis if their goal of slashing the long-term social security institutions were achieved (for which new institutions of crisis management will evolve and the whole thing starts over once again). Truly limited government would likely be worse than no government at all, because such a limited government would lose political legitimacy, and would be unable to attenuate political and social disorder that comes from the loss of legitimacy.
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