The Scandal beneath the Financial Crisis: Getting a View from a Moral-Cultural Mental Model
Jackson, Kevin T., Harvard Journal of Law & Public Policy
"We have met the enemy, and he is us."
INTRODUCTION I. RECEIVED VIEW OF THE FINANCIAL CRISIS A. What Happened and Why? B. What Regulatory Responses Are Called For? C. Taking Another Perspective, and Posing a Further Question II. CRITICAL EXEGESIS OF MENTAL MODELS A. Mental Model of the Economist B. Business Management Mental Model C. Mental Model of Lawmakers and Legal Authorities D. Moral-Cultural Mental Model 1. Moral Virtue 2. Human Dignity 3. The Common Good III. MORAL-CULTURAL DYSFUNCTIONS INDICATED BY THE CRISIS THAT ARE NOT TREATABLE BY LEGAL REGULATION A. Post-Modernism B. Rise in Speculative Culture C. Egoistic Individualism IV. SAFEGUARDING MARKET ECOLOGY A. Moral Coordination 1. Adam Smith 2. Friedrich Hayek B. No Bailout for Loss of Reputational and Social Capital CONCLUSION
When diagnosing the financial crisis one should take care in framing the terms of discourse. Ever since the signs of economic collapse began appearing, it has been commonplace for pundits as well as the general public to call the fiscal meltdown a "crisis," a term that conveniently carries no ascription of moral disapprobation. Yet after one has reckoned the extensive list of both personal and corporate malfeasances that have played a significant role in precipitating the financial turmoil and paid heed to the underlying moral-cultural factors accompanying the wrongdoing, a more apt description would be "scandal," a term that implies some degree of moral-cultural failure.
This is not idle quibbling over terminology. Most people would agree that it is of critical importance whether an economic downturn is branded a "recession" or a "depression." There are significant political consequences of using one term or the other. Similarly, it matters whether we characterize the global financial imbroglio in amoral (scientific) or moral (human-oriented) terms. It matters whether we approach the crisis with the attitude that we can understand it simply by looking at economists' equations and statistical analyses, annexed to business managers' technocratic jargon, or, instead, we decide that by looking beyond these mental models to the broader realm of moral and intellectual culture we can achieve a more satisfactory understanding.
Looking at the financial scandal from a moral-cultural frame of reference reveals a moral-cultural malaise, and it matters how we respond to this condition. (1) Do we acquiesce to legislators' attempts to promulgate new laws and regulations? This response is common, but it ultimately cedes responsibility for solving the dysfunctions behind the crisis to legal authorities. This Article argues that this approach is inadequate. We would do better to act as if the crumbling of the current economic edifice is a massive chastening, with a call for deepened moral reflection and reform. We ultimately have no one but ourselves to blame for this economic collapse, and there is no one else to whom we can look to chart a new course to prosperity. (2)
The use of the amoral word "crisis" to characterize the meltdown likely flows from an ingrained habit of viewing the world of business in general, and financial markets in particular, as if they operated according to the same kind of mechanistic, determined, and repeatable behavior, like the chemical reactions that scientists study in the laboratory. Those disposed to explain market phenomena with a positivist mindset, who see the business of business as business, in some cases reduce both the symptoms of and the cure for today's credit malaise to mathematical equations. (3) Sometimes they diagnose the problem in squarely scientific, even medical terms, (4) as evidenced by the quick $700 billion and $2.3 trillion prescriptions of government leaders in the United States and Europe respectively. …