One of the more unnerving aspects of the recent financial crisis is the speedy recovery of those large financial firms that survived the crash. Gifted with eye-watering sums of virtually free credit and liberated from the ‘toxic’ assets that their financial engineering created, global financial firms such as Goldman Sachs reported higher than ever earnings in 2009 and 2010. Elsewhere in the economy, the prospects of recovery are remote and receding. The reframing of the crisis as ‘fiscal’ rather than ‘financial’ has forced sovereign countries to take out unsustainable loans in order to appease their bondholders. Jobs, pensions, and public services have been slashed in the US and across Europe. US homes are being lost to foreclosures at an extraordinary rate (some reports estimating up to 10-13 million foreclosures) as the consequences of the crisis continue to rip through the economy. Compounding the direct dispossession of those whose homes are taken, foreclosure actions blight entire neighborhoods, exerting yet more pressure on whatever little equity in their homes residents may have sheltered from the predatory lenders.
The juxtaposition of business as usual on Wall Street and in the City of London with the destruction of homes, livelihoods and other means of economic security of workers and the unwaged, pensioners and children in the US and Europe shows that neoliberalism’s project of robbing the poor to give to the rich has survived the crisis, gathering strength in its wake. Martha McCluskey’s illuminating working paper, How the ‘Unintended Consequences’ Story Promotes Unjust Intent and Impact, analyses the persistence of upward redistribution in policy making and asks how one of its key supporting narratives can be resisted. The paper provides an excellent overview of the crisis for equality theorists who are not specialists in the intricacies of neoliberal “financialization”. It explains some of the decisions within financial firms–and by some regulators–that created the crisis; and vividly illustrates the devastating impact of those decisions on US communities, particularly Communities of Colour. McCluskey uses the example of the financial crisis effectively to illustrate the argument that the “unintended consequences” narratives in policy discussions about egalitarian regulation serves to rationalize the legal underpinnings of upwardly redistributive measures and perpetuates “the ideology that law is powerless to disrupt a naturalized order of inequality outside of law” (P. 9).
The paper includes a succinct summary of the career of “unintended consequences” narrative, referencing legal realist studies of “law in action” and Robert Merton’s more conceptual 1936 essay before turning to the late twentieth century incorporation into claims about the futility of progressive regulation. While scholars working in traditions such as legal realism or law and society have documented empirically various types of unintended consequences–benign, malign, and perverse–the regulatory futility literature, predominantly influenced by law and economics, typically focuses only on the alleged perversity of distributionally egalitarian initiatives. Rent control, interest rate ceilings, minimum wage laws, environmental regulation and so on are attacked as self-defeating measures that unintentionally exacerbate the problems of those whom they purport to ‘help’. Drawing on the work of liberal theorists such as Cass Sunstein (as well as the more predictably conservative claims of mainstream law and economics and financial market commentators), McCluskey illustrates the pervasiveness of claims about the perversely harmful effects of egalitarian policies and their power to inhibit progressive measures notwithstanding the absence of robust evidence–or in many instances any evidence–about the impact of progressive policies that are dismissed rather than enacted.
McCluskey locates the ideological power of the unintended consequences narrative to foster upward redistribution in the ways that policy debates compare the mythological perfect consequences of the hypothetical free market with the complex compromises that often attend egalitarian regulation and the well-documented limitations of regulatory agencies. This comparison centralizes law as an inherently flawed actor and instrument of progressive regulation, limited in its effective capacity to direct power towards desired egalitarian ends. With respect to the market, by contrast, the ideology of self-regulation through self-interest erases law from view. In effect, the work of law in structuring the ground rules of the market is rendered invisible, its deployment of rules of property and obligation that enable–and potentially constrain–the exercise of power disappears. Through this erasure of law–and power–the unintended consequences narrative contributes to the embrace of the market as a legitimate source of economically just solutions rather than as a subordination of justice to the structural inequalities of contemporary neoliberalism.
Markets of course are every bit as capable of generating unintended consequences as are regulators. Indeed the central item of faith of the efficient market, Adam Smith’s “invisible hand”, is postulated as an unintended consequence–albeit benign–of the exercise of self-interest; and among the contested accounts of the recent financial crisis are explanations of the crash as a perverse unintended consequence of financial innovation. According to the dominant narrative, however, market actors, even elite financial market actors, purportedly lack the capacity to control market forces so that the perverse unintended consequences generated by their decisions do not become a reason to eschew the market.
Insisting that law is far from “powerless to disrupt a naturalized order of inequality” generated by the notion of the essentialized market situated outside law, McCluskey provokes readers to challenge the simple-minded complacency of the unintended consequences narrative. Her directions for critical engagement indicate the need to counter the ways that the insertion of “unintended consequences” in policy debates “obscur[es] contested interests and ideologies”, contributes to the normalization of elite wrongdoing as in financial frauds of the predatory lenders, attributes the results of structural inequality to individual failings, and above all “conveys a false sense of inevitability to harmful policies, evading analysis of alternative policy choices with better results”.
Beyond its systematic analysis of how law is implicated in policies of upward redistribution, McCluskey’s paper engages the reader in thinking critically about the potential role of law “in resisting the upward transfer of resources” (P. 9); and in fashioning alternative economic arrangements, a project that grows more urgent as the effects of the crisis continue to intensify inequality, destroy economic security and corrode peace of mind.