The Deal Economy 2013

Home | Event | Blog | Awards

Print | Share | Discuss | Reprint

Hegel, Hayek and the search for equilibrium

by Robert Teitelman | Published September 15, 2011 at 1:23 PM

In the Financial Times today, Gillian Tett actually begins a column by conjuring up the 19th-century German philosopher Georg Wilhelm Friedrich Hegel. This takes guts. Hegel, says Tett, "popularized the idea that history proceeds with pendulum swings." She then goes on to outline the Hegelian dialectic in a single sentence, which must be some kind of record. All this is mildly amusing. History and pendulum swings have been loosely associated, usually as part of a variety of religious doctrines, for thousands of years; check out the Mayan cycles. Moreover, anyone who has ever tried to hack their way through Hegel's "Phenomenology of Spirit" or just about anything else he wrote, will know how maddeningly complex his dialectic is -- thesis, antithesis, synthesis -- and how far-fetched it is that Hegel popularized anything. Karl Marx borrowed the dialectic from Hegel, turned it upside down, and, thanks to his more popular writing style and the enterprise of Vladimir Lenin, disseminated it worldwide. But even that's a stretch. When was the last time the dialectic came up at a cocktail party?

OK, this is just being snarky. Tett goes on to lay out some basic, and mostly sensible, guidelines for regulators who wish to avoid the same sort of hubris that brought down the bankers. Her scheme works like this. First there was banker hubris (thesis), which kicks off regulatory hubris (antithesis), which produces -- what? And what follows that? A mess, she suggests, which is not the same as an Hegelian resolution (that is, synthesis), which produces a new thesis and antithesis, up the staircase of history. In a sense, she sets up a self-immolating metaphor; sort of like a credit default swap. If you follow her rules, regulators would not overstep their bounds, and thus not establish an antithesis with bankerly hubris and thus not perpetrate a synthesis. In fact, the dialectic she conceived -- hubris triggers hubris -- would spawn just the opposite of Hegel and Marx's progressively higher level of being, a race to the bottom rather than the top. In short, she's arguing that we need to short-circuit the dialectic, which, beyond the metaphorical confusion here (and beyond her, again, sensible suggestions), is probably as likely as banishing market cyclicality, another well-known pendulum-like phenomenon.

That said there is a more interesting -- if inevitably arcane -- set of ideas buried in her summoning up of the dialectic. A synthesis resembles a kind of equilibrium; in fact, as we already hinted, the dialectic of history and market cyclicality often seems to be related phenomenon. The question here: What does it mean to achieve either synthesis or equilibrium? Conveniently enough, that very question arose implicitly in another attempt by an FT columnist on Monday -- Steven Rattner -- to capture the moment by reference to another much-ballyhooed and "popularized" clash of intellectuals, in this case John Maynard Keynes and Friedrich Hayek. Both, of course, are long deceased, but then so is Hegel. Rattner gently comes down on Keynes' side -- that is, for more stimulus. And in doing so he also implicitly accepts Keynes' notion that markets cannot really achieve the equilibrium of classical economics. Hayek famously felt otherwise. He argued that markets are essentially self-correcting seekers after equilibrium, and that government intervention in their natural processes only screws things up. Like Hegel, there's a lot more to it, of course, but, hey, we're all in the popularization game. (There is a new book coming out on this subject by Nicholas Wapshott, "Keynes Hayek: The Clash That Defined Modern Economics," which I will try to review next week.)

Certainly in terms of regulation, the case against synthesis -- or equilibrium -- is far clearer than in economics. Regulators are faced with unremitting change; and they will never have a clue when they have reached a point of synthesis, balancing off all the interests that assail them, even if they wisely practice Tett's five steps for nonhubristic regulation. The markets are constantly changing. Financial technology is constantly in flux. Complexity mounts and globalized markets create larger areas of opacity. Moreover, regulators, at least in the West, don't operate in a closed and simple world containing just themselves and bankers. There are vast and changing political considerations. In a letter to the FT in response to Rattner's column, a finance professor at the University of Indiana makes the argument that while Keynes' countercyclical strategy may be effective, it is haunted by a "fundamental asymmetry." That is, policymakers and politicians tend to use only one side of the cycle -- that is to stimulate a lagging economy, not to raise taxes and reduce deficits in a booming economy. That, in fact, does explain exactly what occurred at the Greenspan Federal Reserve and the Bush White House after the dot-com bust: Rates were dropped, deficits ballooned, to alleviate the recession, but never ratcheted back after recovery. "To do so would create electoral difficulties (putting it mildly)," says the letter writer.

Very true. This is not about theoretical economics in a vacuum; this is about economics in a mature democracy with many interests, including a powerful, global and inventive financial sector. The twist here, of course, is that while complexity would seem to argue for greater flexibility and a greater humility when it comes to understanding what's happening (Tett urges some of that), it instead has seemed to stimulate a greater allegiance to rules and a stronger dose of simplifying ideology. The very fact that we're debating Hayek and Keynes -- urged on by folks who barely know who they are or what they wrote -- suggests that we are opting for ideological fantasy over any real engagement with ambiguous and complex realities. Ah, but there's always the dialectic, which, according to Hegel, in the long run always comes out right. That, of course, is another popularization. - Robert Teitelman

Share:

blog comments powered by Disqus

Free preview

This is only a preview of The Deal's sophisticated coverage. Explore the real-time intelligence as researched and reported on by our team of financial journalists with a license to The Deal Pipeline. Click here for more information.

Meet the journalists

Robert Teitelman

Editor in chief

Bob Teitelman, editor in chief and a member of the company’s executive committee, is responsible for editorial operations of print and electronic products. Contact

Movers & Shakers

Goldman, Sachs & Co. veteran Tracy Caliendo will join Bank of America Merrill Lynch in September as a managing director and head of Americas equity hedge fund services. For other updates launch today's Movers & shakers slideshow.

Video

Fewer deals despite discount debt

When will companies stop refinancing and jump back into M&A? More video

Free preview

Editor in chief

Movers & Shakers

Sectors