An Indictment of the Economic Failure

Here is an excellent post by Dwight Furrow that looks at the moral underpinnings of the financial collapse.

The following is just the opening bit of this posting. Read this, then go read the whole post:

Since the beginning of our economic meltdown, economists from George Soros to Richard Posner to Brad Delong have been offering explanations for how we got here. Nobel Laureate Paul Krugman argued recently that the cause of our financial crisis can be traced all the way back to Ronald Reagan’s repeal of legislation regulating the mortgage industry.

I am not an economist so I don’t have a view on who is correct. But I think Paul Krugman is at least aiming in the right direction. The sainted Ronald Reagan surely bears some responsibility but in a more profound sense than having short-circuited a regulation. He was a key player in a “moral” revolution responsible for turning greed into a virtue, a revolution that was carried out by many actors, some famous and some obscure.

The ethos of this “moral” revolution was best captured by the Gordon Gekko character (played by Michael Douglas) in the film Wall St:

The point is, ladies and gentleman, that greed — for lack of a better word — is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind.

Economic explanations can only go so far in accounting for the wholesale acceptance of something as implausible as the sentiments mouthed by Gekko. One of the above mentioned economists may have the economics right. But why did virtually an entire culture come to believe that excessive debt, whiz-bang investment instruments, lax regulation, minimal taxes, and magical thinking about market equilibria were sustainable, and why did these beliefs persist despite evidence to the contrary?

Economics tells only part of the story; we need to tell a moral tale as well.

The belief that greed is good is the real toxic asset that underlies the persistence of bad economic policies. Of course, greed is nothing new to the human condition. All of us are greedy much of the time, and I doubt that human desires had suddenly became more powerful in the generations coming of age since the early 1980’s. What changed? Not religious belief which has been remarkably persistent over the last few decades, suffering only modest declines in recent years. What changed is the loss of moral sensibilities that have traditionally constrained and competed with greed—a sense of responsibility, community, and mutual dependence that encourages us to recognize limitations on our individual aspirations. The problem with the mantra that “greed is good” is not that it promotes excessive desire. The problem is that it makes invisible the tools we have to restrain that excess. Re-conceiving greed as a virtue gives everyone an incentive to write out of existence those human capacities that constrain greed.

Desire inflation is, and should be, an important human motivation. The Gekko character is not wrong in viewing greed as a motive that encourages growth. But it is not a moral virtue.

Who was responsible for this revaluation of values? Ronald Reagan was a particularly glib and careless proponent; but not its source. I would point to three factors:

1. A modern conservative movement willing to abdicate its principles;

2. A liberal movement unable to articulate a credible, alternative political morality;

3. And a public willing to believe in magical ponies. (Costless solutions)

I've highlighted the last bit in bold because it property spreads the responsibility far and wide. There's more to Furrow's critique, go read the original posting.