Business of America

Of all the events of the recent financial crisis, none shook the American establishment as profoundly as the fall of Lehman Brothers in September 2008. News articles described the firm as an “institution” of American capitalism, employing adjectives such as “venerable,” “legendary,” and “iconic.” Commentators proclaimed the downfall of independent investment firms, certain that the crisis would bring fundamental change to the financial system. Though not outspoken in the face of general panic, long-time critics of Wall Street’s excesses viewed institutional failure as a necessary development, perhaps recalling Irish writer George Bernard Shaw’s comment that, “All progress is initiated by challenging current conceptions, and executed by supplanting existing institutions.”
Yet over a year later, the story of America’s current economy is one of institutional continuity. Sustained by taxpayer aid, independent firm Goldman Sachs continues to issue stratospheric bonuses, while major automaker GM emerges from bankruptcy less debt-laden but not necessarily more nimble. Consensus regulatory reforms, whether regarding shareholder influence on executive pay or constraints placed on banks , retain a great deal of deference towards financial institutions’ instincts for self-interest. Calls for the Federal Reserve to take a more activist role are rebuffed by experts who emphasize its traditional institutional function, that of overseeing monetary policy. And the mantra of “green jobs” comes in for criticism as mere economic window-dressing, an example of political interests promoting an agenda that cannot be institutionally sustained within the economy.
Meanwhile, whether the economic crisis has redefined the role of our home institution – Harvard University – in the financial system remains unresolved. We sent fewer graduates to Wall Street last year than in previous ones, but opportunities to enter finance were also scarcer. And we cannot yet know whether history will view our many professors-turned-policymakers in Washington as bold innovators, or as modest stabilizers.
The question, of course, is whether the government was so quick to tie achieving economic recovery to protecting institutions that it missed the opportunity for “challenging current conceptions,” as Shaw put it, about how the economy ought to function. On the one hand, “creative destruction” of companies and financial structures sounds more appealing before it throws lives into chaos. On the other hand, as the stock market rebounds but unemployment enters double digits, many Americans are left wondering what we have missed. In a society preoccupied both with its own stability and its sense of progress, such dueling concerns are not easily reconciled.