Subprime Contagion and John Donne

Remember the very early phases of the subprime crisis? I've been working with some others on a project that examines the way that very early media accounts framed the crisis. It's fascinating. The New York Times stories that we have studied thus far have two main themes: first,that this is a crisis that affects primarily minorities and, second, that the crisis is unlikely to "spread" to the rest of the economy.
What to make of this? Well, the economic sages were clearly wrong: the entire economy was eventually implicated. There were clearly some problems with economic policy . The widening circles of crisis have many technical explanations: the repeal of the Glass-Steagall Act, the explosion of collateralized debt obligations, regulatory capture and so on. From this technical perspective, strengthening the economic levees is the solution. But the economic sages missed a bigger picture.
The real difficulty is far more than technical. It is rooted in the idea that there are "segments" of the national political economy. As a nation, we believe that John Donne was wrong: we believe that we live in economically and socially constructed tribes on islands in the national ocean.
Some people's islands, of course, are not as nice as ours. The natives have bad financial hygiene, they are needy and they have customs that we find unappealing. If we allow them to leave their island, they will become vectors of dis-ease, and even if we don't the pollution that they create on their island can spill into the ocean and cause us problems.
This sort of thinking is not confined to this period of history or even to this nation. Historically, each of the various versions of the British Poor Law represented new strategies for keeping the poor on their island. And a great deal of the "altruism" that motivated earlier reformers in American history turns out, on closer examination, to be something more like fear of contagion.
Sometimes the feared contagion was physical, like the slum clearance efforts of the Progressive era that were intended to reduce the spread of tuberculosis and typhoid. Sometimes it was racial, as when slum clearance became an explicit effort to break up black communities that were located in neighborhoods that the wealthier wanted to colonize.
In the past decade, as income inequality has risen to a point not seen since the Gilded Age, the feared contagion has been economic. Gradations of wealth have sorted residents into tribes. And, as initial policy responses to the subprime crisis demonstrate, policymakers have become increasingly preoccupied with crafting measures to prevent the problems of impoverished islands within our economy from spreading.
They have been especially preoccupied with enacting policies that strengthen the dams that shore up the high water at the upper ends of the income distribution. Because if the dams broke, floods, rather than trickles, might be released to equalize things.
But, really, shouldn't this crisis have taught us something different? Shouldn't we have learned that we only pretend to live on islands, and that in fact, we're all in the ocean together? Shouldn't we be willing to admit that John Donne was right?