I had the pleasure of chatting to an amiable off-duty copper the other night in a pub. From this I learnt quite a nice stat: the population of Hackney is 350,000, and its police force is 900. That is approximately one policeman for every 390 people.
Given that Hackney's population is - despite the best efforts of Broadway Market - hardly the most disciplined in London, this ratio is potentially quite perillous. Imagine that 0.5% of Hackney residents are occasionally involved in something dodgy. If they were to coordinate themselves via Facebook to commit crimes simultaneously, the police would be out-numbered by a ratio of approximately 2:1, notwithstanding their dogs, truncheons and tasers. Given the unlikely event of some shared revolutionary agenda, the police could even be temporarily over-whelmed.
Is 0.5% too high? Maybe, maybe not. I suspect not, but the numbers aren't really the point. What's interesting is that it confirms the Hobbesian account of the modern state as a solution to a game-theoretical problem. As Hobbes understood things, the problem with the 'state of nature' is not that people are innately violent or bad, but that they might be, and it therefore becomes rational to resort to violence sooner rather than later. I know this, and know that you know this, and we are stuck in something resembling a prisoner's dilemma from which we both lose.
The function of the modern state is to break the prisoners dilemma. I encounter you on a dark night. You encounter me on a dark night. We both know there is this thing called 'the police'. It not only becomes irrational for me to attack you, I know that it is irrational for you to attack me. We trust each other to behave peacefully not because the police are present, or even because they might suddenly become present (even in Hackney there is only a 9/3,500 chance of that happening), but because we both know that they exist. A collective action problem is solved.
This underpins Norbert Elias's account of civilisation. The modern state combines with the moral superego to internalise the policing function, to fuse it with rational psychology. Violence in pre-modern societies was unforeseen and distributed. It required the individual to be vigilant and exercise self defence. Violence in modern societies is foreseen and centralised. The individual can estimate the likelihood of suffering violence (from the state) and can adjust his behaviour accordingly. Modern violence functions principally as a calculable possibility, rather than as a disruptive eventuality.
Much of this is also true of the banking system. Underpinned by central banks, banks depend on a collective recognition of the banking system in order to work. Obviously there are principals of banking that shouldn't be broken (as we've kept hearing over the last three months) and capital ratios have to be kept within limits, but only in the same way that Hackney needs a bare minimum of policemen. It is not the function of banks to hold all the money deposited in them, any more than it is the function of a police force to maintain sufficient capacity for violence to control a population. Banking functions thanks to psychological coordination and the construction of a shared reality. I won't withdraw my money because I don't believe you will either. The government's savings guarantee up to £50,000 helps this mutual I-won't-because-you-won't to be sustained.
Whether the housing bubble could have been foreseen and targetted with monetary policy is a question that I am not qualified to answer. And yet! Capitalism depends on the construction of shared realities in order to function. Of course there need to be guarantees in place (just like the police need their truncheons) but the function of a guarantee is to exist in order not to be employed. Paper money is guaranteed in certain respects... which is why we are able to circulate it publicly without ever questioning it. How could you possibly specify when asset inflation became a bubble, given that all forms of valuation in a capitalist society are subject to a collective imaginary? How can you distinguish 'herd behaviour' (as the behavioural economists do) when capitalism would be entirely impossible without it?
In this context, you wonder whether the distinction between orthodox and behavioural economics even makes any sense. Without socio-psychological laws inciting us to trust in the shared illusions of modern society, homo economicus would never pluck up the courage to leave the house. Is it any more significant that Robert Schiller predicted the financial crisis on behavioural grounds than that George Soros did on the basis of calculation?
Now apply this back to policing. If the divide between collective psychology and 'reality' is meaningless (because the latter couldn't function without the former), could you have 'bubbles' in the context of crime and security? It would seem logical that you could. As collective confidence in the police rose, so crime would fall, regardless of how many police were at large. Some Robert Peston-like criminal would then examine the figures, notice that there were now only 100 policemen in the whole of Hackney, and point out that the bubble was about to burst. The bubble would then burst, and Hackney would require a vast 'recapitalisation/bail-out' from the state.