Tuesday, December 30, 2008

Finance, History, Theory

Apologies for losing momentum in this blog, but I have been unable to get onto the Net for a few days. This was probably a good thing because during that time I had a rethink about my previous pledges to 'sharpen up' the demarcation problem (i.e. the problem of drawing a useful line between ethical and non-ethical concerns) and then consider solutions. The rethink was largely prompted by the things I read.

These fell into two groups. First, I continued plowing through stuff that has been written recently - I was mainly looking for thoughts interesting enough to match the momentous nature of the current financial crisis. Nobody seemed up to the job. I read Michael Lewis' collection entitled 'Panic', along with Greenspan's memoir and Robert Reich's 'Supercapitalism'. The Lewis articles do not cut deep, but they contain a lot of anecdotal evidence to reinforce my view that there's a big mess out there and that finance theorists, unwittingly or otherwise, have contributed a large amount of it. Greenspan had somehow slipped under my radar - for some reason, I never took him seriously. Now, I don't feel too guilty about this. His take on the 'crisis' is so underwhelming, I can only think that he has such an overinflated view of his own importance that he is unwilling to say anything significant in case it gets misconstrued and upsets the markets (as if they could be more upset). If you want to have an unpleasant experience of how a person of supposedly world-historical expertise can suffer disconnection from the real world, check out Greenspan's banal comments on the collapse of Enron. Then read up on this evil empire. Reich's book has some good things in it about the relationship between commerce and democracy. But, he underplays the finance card.

In my second category of reading, I returned to some of the literature on previous financial debacles. Here, it is clear that members of the finance industry and politicians are unwilling, or simply don't know how, to extract any lessons from the laboratory of history's relentless experimentation. I also re-examined some of the primary texts of the finance theorists who, as I have indicated before, help rationalise reckless and unethical financial behaviour. Right now, I am reading Merton H.Miller on 'derivatives'. Miller suffered from the same theoretical hallucinations as other prominent finance theorists - a condition I recognise because it is rampant amongst philosophers - and he was prone to creative accounting on the ethical balance sheet (e.g. shifting ethical harm over to the personal responsibility column and then claiming that no social harm has been done) but I kind of like him. He was smart, direct, and knew how to think clearly. However, I leave you with a quotation from him that speaks volumes given that one crucial aspect of the current crisis is the way in which it has shifted burdens of high risk onto people who are ill-equipped, both in terms of knowledge and wealth, to deal with them: "Free market economists have a simple standard for judging whether a new product has increased social welfare: are people willing to pay their hard earned cash for it?"

The upshot of my rethink? Technology willing, I will tell you next time out.

Tuesday, December 23, 2008

Finance Crisis Revisited: Morality's Jurisdiction

T.S.Eliot once said that he was inclined "to approach public affairs from the point of view of a moralist". And in a characteristically insightful essay on Eliot's politics, Lionel Trilling reminds us that Eliot also insisted it is impossible to think of politics and economics independently of morality.

Trilling tells us that this meant "impossible in an ethical sense - the political and economic theorist should not so consider them; and impossible in the practical sense - the theorist cannot construct his theories except on the ground (often unexpressed) of moral assumptions."

The problem for many of us, and it may be an historically unique problem, is to find a way to expand morality's jurisdiction without letting it swallow up everything.

In keeping morality reined in, so that it does not impinge on areas of life where a high level of technical know-how is required, we risk allowing unprecedented crises to spring up - as in the case of the current financial crisis.

However, if we give morality a free hand, so that every business and scientific decision, for instance, is subjected to ethical scrutiny, things will grind to a halt, and life be intolerably boring to everyone except moral busybodies and saints. Next time, we will sharpen up this problem, and then consider how it might be solved.

Sunday, December 21, 2008

Finance and Ethics: The Current Crisis

Nobody seems to have gotten an ethical fix on the current financial crisis. People are upset, outraged, even, and there is a lot of blame flying around in the media. But the moral upshot? Nothing even remotely insightful seems to have been said for public consumption.

This is disappointing. But, it doesn't surprise me. Some years back, I did some research on hostile takeovers, and a number of worrying things emerged that at least partly explain the present absence of fruitful ethical thinking and reflection.

First, many business people, politicians, and economists seem to think that ethics has a very limited jurisdiction. In all but the weakest sense, it has no authority over what happens behind the closed doors of financial institutions. Finance is a technical, and hence ethically neutral, concern. As such, it is best left to those who understand both markets and the relevant equations.

Second, economists, especially those who specialise in finance theory, seem to have lost their capacity to criticise the behaviour of financiers and business people when they are following market trends. Take any evidence that on the face of it looks fishy - a decrease in R& D expenditure, huge remuneration unrelated to performance, and so on - and you will find an economic theorist using market data to show that, despite appearances, this is all for the best.

Third, the rewards in finance-related occupations are potentially so high that employees are subjected to unique temptations and the decisions of management are subjected to a sort of anti-ethical gravitational force. With economists and finance theorists on hand to rationalise ethically questionable decisions, it is difficult for those involved to retain a conventional ethical perspective.

I don't want this blog to be too long, so I will wait until next time to explain how such factors are relevant to the current financial situation.

Saturday, December 20, 2008

No Breakfast and no Celebrities either

Welcome to my blog. I intend to spend most of my time discussing philosophical matters so if you are one of those blog readers who wants to know what I had for breakfast or who my
favourite celebrities are, then you've probably googled (or whatever) the wrong place.

I say "probably" because philosophy is nowhere near as boring as it is all too often made out to be - so if you stick around, or come back another time, you may find something here that interests you. In fact I will soon be writing a blog entitled 'Why do philosophers pretend to be so boring?'. Since you've come this far, why not at least check that out?

For various reasons that will become clear in future postings, I have been revisiting some of the classic texts in both philosophy and literature. And just the other day, I came across an excellent quote in one of Seneca's letters: "We go where reason, and not the absolute truth, takes us". By 'we' he means "we Stoics". But the quote stands out for me because it so nicely captures what I take to be the core of sanity in a now fortunately revived, but still much misunderstood and maligned, approach to philosophy: Pragmatism. The importance of this is a subject I will discuss at some later stage. Next time out, I will say something about the ethical significance of the current financial crisis.