“There is no such thing as the rational, self-regulating market”

Rowan Williams on the financial crisis

Ignoring for one moment his belief in an imaginary magic friend, and seeming inability to manage the crisis in the institution he is charged with leading, Rowan Williams’ performance on Newsnight yesterday shows that the 104th Archbishop of Canterbury is a moral philosopher to be reckoned with, and a political commentator possessed of considerable wisdom.

The theme of Jeremy Paxman’s interview with the Welsh leader of the worldwide Anglican Communion, and Archbeard of All England, was the financial crisis, and what it means at a level deeper than our pockets.

Williams began by referring to the positive aspects of New Labour, including former prime minister Tony Blair’s partial adherence to a communitarian ideology that we once naturally associated with the Labour Party. The problem is that, in order to finance their public programmes, Blair and Labour made a Faustian bargain with capital, and since then the latter has gotten carried away with itself…

“An enormous wave of unreality hit the whole system… Most of us have grown up thinking that economics is an exact science, which suggests we haven’t read Keynes in the first place, with his stress on uncertainty as something utterly unavoidable… The crisis has left us with a quite strong sense of diffused resentment. There hasn’t been a feeling of closure; there hasn’t been what I as a Christian would call repentance.”

They may be the focus of our current anger, but Williams stressed that it’s not just the bankers who are at fault. All of us colluded with this sorry state of affairs, he said.

I would add that we consumers of complex financial instruments and other, lesser, stuff bear a degree of personal responsibility for the mess we are in, and woe betide us if we carry on as usual after making a few token sacrifices to appease the gods.

Williams again…

“We should all look back and say that we were hypnotised by that sense of unreality. We allowed a big gulf to open up between how finance appeared to be operating, and what is was generating in terms of wealth and wellbeing for a community.”

What can we learn from the experience?

“There is no such thing as the rational, self-regulating market.”

It’s ironic to hear a priest declaring that the invisible hand is a fiction, but Williams is quite right. Markets are human constructs, and human beings often act irrationally. As a result they tend to mess with things in ways that have unpredictable results. The important point to note is that chaos is inherently deterministic, and lessons may thus be learned, if we so choose.

Paxman asked what will happen if we follow a business as usual approach. Williams replied that we have been living in a financial fantasy land…

“I worry. I feel that’s precisely what I call the lack of closure coming home to roost. It’s a failure to name what was wrong, what last year I called idolatry – projecting reality and substance onto things that don’t have them… What we are looking at is the possibility of a society becoming more and more dysfunctional, if the levels of inequality we’ve seen in the past couple of decades are not challenged.”

I offer these quotes from the Newsnight interview as I feel that they have more substance than the media reports today which focus on Williams’ call for bank bonuses to be capped.

Measuring up lengths of piano wire with which to deal with the bankers may make us feel better in the short term, but it doesn’t deal with the underlying unreality to which Rowan Williams refers.