Katrina, the Financial Crisis, and Civilization

Some liberals are drawing parallels between Katrina and the financial crisis, claiming that the failure of the Bush administration in one means that they cannot be trusted to handle the other. I don't know if that's the exact comparison--I long ago stopped reading anything that sought to blame everything bad on Bush. He's been a lousy President, and let's leave it at that.

The reason why I bring this up though is because there is an important, even critical way Hurricane Katrina needs to be considered in understanding what might be at stake here. Katrina showed us that what we take to be civilization is rather fragile. People will more or less behave decently as long as they are reasonably assured that the future will be much like the past, that their expectations of how the world works will not be shattered because of a levee break causing the Gulf of Mexico to flood our city.

Disorder is toxic.

And the financial crisis is scary. Katrina, as bad as it was, was a local event, and concerned a medium sized American city and areas to its east. And, most importantly, people understood what was happening and why, even if they could not do much about it. The levees broke, the flood waters came. The flood waters receded, the levees and the city could be repaired.

This financial thing, however, is much more critical. Think about it. You've got a dollar in your pocket. It has no tangible value. Its only value is if someone else is willing to take in return for some good or service. And the only reason someone will accept your dollar in exchange form something else is if he believes, he trusts that is, someone else will take it. Even gold does not really have much tangible value. And in today's economy, we are not even talking about specie and currency. We're talking about numbers on a spreadsheet somewhere. Really, we're talking about an abstraction. Money is really a belief. And it can be easily destroyed. If no one believes the money exists, or that it has value, then it does not.

At this point, we know that people do not respond well to the shattering of beliefs like that. People in New Orleans believed that the levees would hold, or that somehow the city, state and federal governments would be able to maintain some degree of social order, and when that turned out to be false, civil society quickly fell apart. If Americans wake up and suddenly find that all their money no longer exists, there will be trouble. Bad trouble. And the point is that's entirely possible. Beliefs can be tough to maintain.