This is my first long essay (14 printed pages) on morality, human social groups and how these relate to socio-economic systems. Future essays will appear sporadically as I get it together — Dave
Only those who benefit from the status quo would deny that social life in America is deteriorating. Those among the ever-growing group of disenfranchised citizens experience this unraveling everyday. Social deterioration is usually expressed in economic terms (declining median household incomes, the record number of those receiving food stamps, elevated poverty rates, astonishing income inquality, etc.).
Now ponder this definition of morality from social psychologist Jonathan Haidt.
... morality is any system of interlocking values, practices, institutions, and psychological mechanisms that work together to suppress or regulate selfishness and make social life possible. It turns out that human societies have found several radically different approaches to suppressing selfishness, two of which are most relevant for understanding what Democrats don't understand about morality.
Aside from what Democrats don't understand about morality, which is a lot, consider the United States in light of this definition. In any human social arrangement various things work together to suppress or regulate selfishness and make social life possible.
Haidt wants to draw a distinction between a Millian social ethos (as defined by John Stuart Mill) and a Durkheimian society (as defined by Emile Durkheim). We are not concerned about Durkheim today in so far as we am talking about the United States, which is a large, liberalized market economy. Here's Haidt's description of Mill's political philosophy.
First, imagine society as a social contract invented for our mutual benefit. All individuals are equal, and all should be left as free as possible to move, develop talents, and form relationships as they please. The patron saint of a contractual society is John Stuart Mill, who wrote (in On Liberty, 1860) that "the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others." Mill's vision appeals to many liberals and libertarians; a Millian society at its best would be a peaceful, open, and creative place where diverse individuals respect each other's rights and band together voluntarily (as in Obama's calls for "unity") to help those in need or to change the laws for the common good.
Mill's impossibly utopian vision of the Good Society requires no further comment. We are interested in concrete, real-world societies like the United States. This is the relevant part from Haidt.
Psychologists have done extensive research on the moral mechanisms that are presupposed in a Millian society [like the United States], and there are two that appear to be partly innate.
First, people in all cultures are emotionally responsive to suffering and harm, particularly violent harm, and so nearly all cultures have norms or laws to protect individuals and to encourage care for the most vulnerable. Second, people in all cultures are emotionally responsive to issues of fairness and reciprocity, which often expand into notions of rights and justice.
Philosophical efforts to justify liberal democracies and egalitarian social contracts invariably rely heavily on intuitions about fairness and reciprocity.
How does the United States look in terms of the moral criteria fairness and reciprocity? Whether we looking at the relationship of poverty to income inequality, or lack of opportunity, or any other generally assumed Social Good you care to name (like affordable health care or education), the United States is a moral disaster.
To be sure, the states and the Federal government make a considerable effort to keep our society from imploding altogether. Spending on "transfers" and tax breaks currently keep the official poverty rate at around 15% of the population, well below the 28% who would live in poverty without it (graph below).
From a recent Columbia University study (pdf) — "Figure 6 shows the substantial, and growing, effect of taxes and transfer payments on poverty rates. Using the pretax/pretransfer measure, we find that poverty would have actually increased slightly over the time period, from 27% to nearly 29%. But after accounting for taxes and transfers, povert y falls by approximately 40%, from 26% to 16%. The figure also shows the growing anti-poverty role of taxes and transfers in reducing poverty, from only about 1 percentage point in 1967 to nearly 13 percentage points in 2012."
Thus we see that a concern for fairness and reciprocity in the United States currently prevents about 13% of American citizens from falling into official poverty. About 72% of Americans manage to stay out of poverty on their own. Without those taxes and transfers, the poverty rate in 2012 would be higher than it was in 1967, three years after Lyndon Johnson declared his War on Poverty.
Increased government transfers (among other things) are paid for with borrowed money, and in the last year or so most new government debt was bought up by the Federal Reserve, which created money out of thin air to make those purchases. It would appear that capitalism in America is not working as advertised. In fact, it would appear that capitalism in America has failed. Even more astonishingly, so-called "free" market fundamentalists blame anti-poverty measures (fairness and reciprocity) for capitalism's failure.
The miracle here is that our liberalized market society, which is organized around the principle that participants blindly following their own economic self-interest is the best way to provide for a growing citizenry, has managed to keep 72% of those citizens out of poverty. On the other hand, nearly half of America's citizens live within 200% of the official poverty line (according to 2011 Census data).
This apparent social failure has not deterred people like the New Yorker's John Cassidy from declaring the war on poverty a substantial success. This essay attempts to explain where ultimately self-serving views like Cassidy's come from.
Perhaps some of you think that's a pretty good result (72%). Perhaps you think America has been successful despite the fact that 48% of all Americans live within 200% of the official poverty line. Perhaps you think that's not an abysmal social failure.
If you think the glass is half-full here, then you've got an even lower opinion of Homo sapiens than I do, or at least you have lower expectations than I do. With Homo sapiens, the lower your expectations, the more in touch with Reality you are. Congratulations
Morality And Human Sociality
I quoted Jonathan Haidt earlier, and now I want to switch gears. Haidt's research attempts to identify innate moral preferences which evolved in the human animal, an interesting subject. I am going to be simplifying in this section, but nothing important will be lost because I have only simple (albeit non-obvious) points to make. These remarks represent my own views, not Haidt's. I am using parts of his work as a springboard to make my position clear.
At the end of his Ted talk The moral roots of liberals and conservatives, Haidt put up the following slide. Where Haidt uses the word "teams" I have substituted the term "social group".
Our Righteous Minds were "designed" [by evolution] to ...
— unite us into social groups
— divide us against other social groups, and
— blind us to the truth
This is as succinct a statement about how human social life is organized as you're ever going to see. Let's flesh it out a bit.
Group formation is automatic and unconscious in humans (unite us into social groups). Ironically, in liberalized market societies (like the United States) and within the "science" of economics in particular, the irreducible atom of politics or exchange is the individual, whereas humans only very rarely achieve true individuality. Moral preferences (values) and how self-interest is expressed nearly always derive from the social groups individuals belong to, and from which they take their cues.
The most obvious examples (as in Haidt's analysis) are political liberals and conservatives, but human "groupiness" is far more subtle than that.
For example, those in the U.S. finance "industry" (including those working at the Big Banks, hedge funds, private equity, etc.) form a coherent social group in which it appears that the only moral preference is self-interest. Those working in finance would deny their "groupiness", and so would self-promoting techies working in Silicon Valley, but it is easy to observe characteristic group behaviors in both industries.
Members of these groups generally share the same values and interests. They think alike, act alike and usually in concert, believe the same things outside some minor variations, generally have the same tastes, etc. The juiciest irony is that Silicon Valley people think of themselves as radical individualists, as Ayn Rand-style Libertarians!
Such irony illustrates the human unconscious at work. That's the subtlety I spoke of. Those Silicon Valley assholes are completely unaware of their "groupiness". The same is true of the people I call Doomers and many other loosely structured human social groups, as I will discuss in the next section.
If (for some rare idiosyncratic reason) you seek to lay bare the Reality of human existence, if you want to follow the prescription of the zen master Sen-ts'an, whom Haidt quotes—
If you want the truth to stand clear before you, never be for or against. The struggle between "for" and "against" is the mind's worst disease.
then you've got to forsake group entanglements. This is easier said than done because it's not natural for us humans to do so; first and foremost, we are social animals.
But what is the "truth" referred to here? And in Haidt's slide quoted above?
In my view, the "truth" is that all tribalism (division into social groups) has deep roots in Human Nature, as does political or religious conflict, which is the endless playing out of conflicts between tribes. To be "for" or "against" in this context means being a slave to the beliefs, values, etc. of your own particular group (your in-group). You are for those values and beliefs, and against those of opposed groups (out-groups).
Transcending the easy answers which group affiliation provide means seeing the deeper roots of intertribal conflict. Haidt further believes that some social arrangements are more compatible with the evolution of human morality (such as it is) than others. I agree with him.
There is also a profound mismatch between the innate moral preferences which evolved in small hunter-gatherer bands and the moral requirements of large, complex societies. I will return to this point in the conclusion.
Those who have come to understand that Human Nature exists (like Haidt or me) are most interested in ontological questions—what is the nature of our being? or what exists in the mind prior to experience?—rather than normative judgments—what should be the case? what ought to be the case? Such judgments will always be undermined by Human Nature if those judgements are not compatible with who we humans are.
This is best explained by example. I will use the "progressive" thinker Chris Hedges because a recent DOTE commenter noted (approvingly) that Hedges took a dim view of Haidt's book The Righteous Mind, which I have not read.
Like all political idealists, Hedges has many normative judgments to offer. He is completely immersed within the perpertual struggle between Us and Them. He advocates the single Right Path. Everyone else is full of shit. You're either on Hedges' righteous path or you're not. There's little or no leeway in his moral judgments; they tend to be absolute. He's got the truth on his side. The righteous abolitionist John Brown had nothing on him.
And that's why Hedges begins his review of Haidt's book by denigrating all theories about Human Nature.
Jonathan Haidt’s book “The Righteous Mind: Why Good People Are Divided by Politics and Religion” trumpets yet another grand theory of evolution, this time in the form of evolutionary psychology, which purports to unravel the mystery of moral behavior. Such theories, whether in the form of dialectical materialism, Social Darwinism, biblical inherency or its more bizarre subsets of phrenology or eugenics, never hold up against the vast complexity of history, the inner workings of economic and political systems, and the intricacies of the human psyche. But simplicity has a strong appeal for those who seek order in the chaos of existence.
Do you see what Hedges did there? He started with Jonathan Haidt, a mild-mannered academic who thinks Republicans and Democrats ought to learn to get along together, and ended up with (among other things) Social Darwinism, phrenology and eugenics. This is of course a propaganda technique used to undermine a person by taking a disreputable or despicable thing (like eugenics) and tarring them with the same brush. That's an inexcusable cheap shot, coming as it does from a moral perfectionist like Hedges.
V. I. Lenin would be proud. But I digress.
If Hedges and like-minded people (a social group) should happen to be wrong about the existence of our Human Nature, then most (if not all) of his strict normative judgments about the way things should work go down in flames. I'm talking about judgments like one—
Happiness, then, comes with conformity [according to Haidt]. If we are unhappy it is not because there is something wrong with the world around us.
It is because we have failed to integrate into the hive.
This, of course, is the central thesis of positive psychology, which Haidt is closely associated with. And it is an ideology promoted by corporations and the U.S. military to keep people disempowered.
[I added the link — Dave]
Well, there certainly is something wrong with the world around us, but it is not some consciously devised ideology promoted by corporations and the U.S. military to keep people disempowered.
At best, that's merely a symptom, not the disease itself. At worst, it's paranoid, conspiracy-laden bullshit.
Here's the simple and obvious problem Hedges can not come to grips with: those are humans who are happier when they are well integrated into "hives" (social groups). Those are humans who created the corporate ethos which mindless "consumers" are happy to be part of. Hedges must explain why there is only him and 117 other people just like him, as opposed to billions of happy hive-dwellers consuming the stuff those corporations sell like there's no tomorrow (when it's economically possible to do so, but that's another, related set of human problems).
Hedges wants the human mind to be a "blank slate" upon which he can scribble some righteous text. Hedges must explain why the utopian paradise on Earth he would create, a place where fairness, justice and reciprocity reign supreme, has never been spotted in the wild. All of evolutionary theory and anthropology, all of human history and all of my observations of our current situation side with Ecclesiastes 1:9.
Is there anything of which one can say, "Look! This is something new"? It was here already, long ago; it was here before our time... Whatever is has already been, and what will be has been before...
The idealistic visions of Hedges and historical figures like him have always been thwarted by the characteristic behavior of our species Homo sapiens. If an invariable Human Nature exists, Progress is a pipe dream, as I've demonstrated over and over again on DOTE.
In my view, the "righteous" mind always represents or exemplifies a group mind. How does the righteous mind work? Pick a moral question (e.g., raising the Federally mandated minimum wage). People argue back and forth about it. Let's assume you have a position about it (you do or do not support raising the minimum wage). To see the arguments and counterarguments, look at Should We Raise the Minimum Wage? 11 Questions And Answers.
"Ah!," you say, "I am right and they are wrong." (Really, your group is right, and opposed groups are wrong.) To be sure, if that other group seems to be (in effect) advocating more harm and suffering among a society's most vulnerable members, you may be right in so far as your view reflects the fact that "nearly all cultures have norms or laws to protect individuals and to encourage care for the most vulnerable" (quoting Haidt, and leaving out extreme group conflicts like political or religious oppression, violent conflict (war) or genocide).
But of course those who appear to be advocating harming (or not helping) the vulnerable will say they are doing nothing of the sort. They may be full of shit—characteristics like conscience, sympathy and consciousness vary widely among humans—but that's what they will say. And thus we arrive right back at "for" and "against". And here's the crucial thing—those opposed to your eminently reasonable view are not going to fold up their tent and go away. They're going to be there tomorrow too. Group conflict does not stop when one side or another "wins" today's argument. There's nothing permanent about today's compassionate solution if we humans actually manage to do the "right" thing.
Nonetheless, behaviors in the real world do often lead to increased harm and suffering among the downtrodden (e.g., slavery in the American South before the Civil War—an obvious example). If we are looking for Sen-ts-an's truth, if we are looking to escape the prison of Us versus Them, it is up to all of us individually to identify moral failures outside the limits on our thinking which come automatically with blind adherence to in-group beliefs. Each of us must learn to see for ourselves. What enlightened individuals choose to do about morally repugnant situations is a matter of personality and practicality.
Before and during the Civil War, there were abolitionists—a position born of an individual's moral conscience and preferences—and then there was the abolitionist movement (comprising various political groups between 1830 and 1870). The human experience changes profoundly when we move smoothly and almost imperceptibly from one to the other. It is clear that social groups may adopt political positions which are not palatable to enlightened individuals.
It is here that we might think about Jesus of Nazareth, the Buddha, Gandhi, and other historical figures who followed the path of clarity, who sought to rise above the limitations of our nature. Often these people did not live to their natural end; they were assassinated or crucified for the sin of transcendence.
Those who "followed" these spiritual trailblazers, especially if their message caught on, invariably ended up forming new human social groups, which then over time inevitably came into conflict with other human social groups. These groups would often splinter, creating new intergroup conflicts (e.g., Catholics and Protestants). And thus we humans always end up wallowing in the same "Us versus Them" shit over and over again.
And before concluding this section, I should outline my own moral preferences. First, I eschew all group affiliations. I am apolitical, though that was not always so. My own preferences align with the Golden Rule, though I am not a saint, or anywhere close to being one. I often fail to live up to that very high standard.
Regarding others, I believe that all human beings should be given the opportunity to be the best human being they can be (universal inclusiveness). For example, Haidt and political conservatives are concerned with the problem of free riders—“slackers,” “leeches,” “cheaters” or “anyone else who ‘drinks the water’ rather than carries it for the group” (quoting Hedges). You might recall that Ronald Reagan made political hay by bashing welfare queens.
I view the "free rider" problem as generally unimportant. If you give all people the opportunity to participate fully in a human society all the time, and thus always benefit from living in it, they will do so with enthusiasm. That's how people work. Humans are social animals!
What did Woody Allen say? Eighty percent of life is showing up.
I also think that if a few "geniuses" of finance had been publically executed after the meltdown of 2008, we wouldn't have to worry about them fucking us over again in the next few decades. (John Kenneth Galbraith believed that was the length of the financial memory, so the big money boys fuck up every 20 years or so.)
There is no hope whatsoever that we will ever see a human society whose socio-economic structure reflects my own moral preferences. And now we are told that the 85 richest people in the world are just as wealthy as the bottom 3.5 billion people. Sigh.
The greater truth is that human "groupiness" and ceaseless intergroup (political or religious) conflict are non-negotiable parts of Human Nature. Only the very rare individual will see Sen-ts'an's truth—the inevitable struggle between "for" and "against" is the mind's worst disease.
The Human Condition is tragedy, the playing out of our Fate. If it is not, when was that disease not with us?
The Rationalizing Animal
The existence of important social groups in any given society is not always obvious. Once you realize this, and know what to look for, unfortunate social behaviors come to light, behaviors which I've been observing for many years now.
I would claim that any large, complex human society contains at least the three "hidden" groups below.
- an elite
- the beneficiaries of the status quo
- the disenfranchised
Almost certainly some social scientists somewhere have discussed hierarchies in human societies in these terms. Unfortunately, I am not familiar with that literature, so I will just plow on, knowing that I'm simply reiterating some of the work of people who went before me.
In the United States, our current elite is partially captured by this crude diagram.
Lest you think this diagram is born of paranoia, let me assure you that I am not describing a cabal, a conspiracy, a surreptitious oligarchy or anything of the sort. The "hidden" social group shown (in red) simply exists.
Close observation tells us that Tim Geithner, Goldman CEO Lloyd Blankfein, BlackRock CEO Larry Fink, Larry Summers, John Boehner, Robert Rubin, Janet Yellen, Jack Lew, Peter Orszag and many, many others are in America's elite. There is a revolving door between the Goverment and Big Finance. These people run the United States.
In pure group-type terms, this social group is secondary, informal and transient (follow the link for details). In part, that means that the elite in the United States, like that in any other human society, is not formally chartered and changes over time. Members of this group may or may not know each other or work together. Despite this apparent lack of structure, it would be pure folly to deny the existence of an elite.
I will discuss a related subject, overt corruption, in a subsequent essay. More subtly, we are interested in the fact that members of the elite (at any given time and in any given society) share the same moral preferences and have common interests (diagram above).
In sketching America's failures in the introduction, I took a quick look at the economically and politically disenfranchised. But today I am primarily interested in the beneficiaries of the status quo. And if America is a moral failure in terms of fairness and reciprocity, as defined by the ever-more precarious existence of an ever-growing group of economically disenfranchised citizens, then that status quo is rotten to the core.
The behavior of beneficiaries can be explained by what Haidt calls the Rationalist Delusion in moral psychology. You can also consult an academic paper by Haidt called The Emotional Dog and its Rational Tail: A Social Intuitionist Approach to Moral Judgement.
A New York Times review of Haidt's book The Righteous Mind provides a good-enough summary of his views. It was written by William Saletan and appeared on March 23, 2012. I will skip the parts where Saletan talks about liberals (Democrats) and conservatives (Republicans). Here Saletan is talking about Haidt's views on Human Nature.
To the question many people ask about politics — Why doesn’t the other side listen to reason? — Haidt replies: We were never designed to listen to reason.
When you ask people moral questions, time their responses and scan their brains, their answers and brain activation patterns indicate that they reach conclusions quickly and produce reasons later only to justify what they’ve decided. The funniest and most painful illustrations are Haidt’s transcripts of interviews about bizarre scenarios. Is it wrong to have sex with a dead chicken? How about with your sister? Is it O.K. to defecate in a urinal? If your dog dies, why not eat it? Under interrogation, most subjects in psychology experiments agree these things are wrong. But none can explain why.
You might review my recent short post The Illusion Of Free Will and follow the links therein.
The problem isn’t that people don’t reason. They do reason. But their arguments aim to support their conclusions, not yours.
Reason doesn’t work like a judge or teacher, impartially weighing evidence or guiding us to wisdom. It works more like a lawyer or press secretary, justifying our acts and judgments to others. Haidt shows, for example, how subjects relentlessly marshal arguments for the incest taboo, no matter how thoroughly an interrogator demolishes these arguments.
To explain this persistence, Haidt invokes an evolutionary hypothesis: We compete for social status, and the key advantage in this struggle is the ability to influence others.
Reason, in this view, evolved to help us spin, not to help us learn. So if you want to change people’s minds, Haidt concludes, don’t appeal to their reason. Appeal to reason’s boss: the underlying moral intuitions whose conclusions reason defends.
Reason evolved to help us spin, not help us learn. This has also been my view for a long time now because that view is consistent with and explains virtually all my observations of the human world.
Saletan thus describes Haidt's definition of Homo sapiens, the rationalizing animal. But of course those conclusions create more Bad News than Saletan himself can accept.
Haidt’s account of reason is a bit too simple — his whole book, after all, is a deployment of reason to advance learning — and his advice sounds cynical. But set aside those objections for now, and go with him. If you follow Haidt through the tunnel of cynicism, you’ll find that what he’s really after is enlightenment. He wants to open your mind to the moral intuitions of other people.
Ordinary people, upon unexpectedly stumbling upon some Awful Truth, often resort to describing true observations about how humans work as cynical. When Saletan says Haidt's whole book is a deployment of reason to advance learning, he mistakenly believes he has found the self-referential flaw in Haidt's views.
Unfortunately, Haidt's accurate perception of the limits of "rationality" also sets limits on his own success in explaining that view to others (like Saletan). I'm quite sure Haidt is aware of the self-referential nature of his views, as I have been in writing DOTE.
Generally speaking, people have already decided what they want to believe. Therefore, many of those reading DOTE are seeking confirmation of their own preconceived and unalterable views. This is called confirmation bias, and represents the passive side of the more active spin coin.
Long and short, humans characteristically generate and seek out bullshit. If you want to actually learn something, you must first learn how to filter out an endless amount of human nonsense (rationalization, spin).
Let us now return the discussion to the secondary, informal, transient group I am most interested in today, the beneficiaries of the status quo. Like the elite group pictured above, we can have no doubt that such an informal human social group exists, though again its boundaries are always fuzzy in any given society at any given time.
Who is in this fuzzy but sizeable group? In the United States at this time, this group comprises about 5-10% of the total population, including all working or academic economists, most academics generally, all of those in the mainstream media, most of those working for (but not necessarily leading) any large American institution, including the large corporations or Washington D.C. think-tanks. This group includes nearly all political pundits and newspaper editors, those working in the large non-profits like Pew Research, etc. In short, many, many people benefit from the status quo.
Beneficiaries illustrate Haidt's and my views about how "reason" (spin) arose and played out in the human animal. We can recast this view according to my own Flatland model of human cognition—
The unconscious mind reaches "conclusions" (reflecting instincts like self-interest or innate moral preferences) and the conscious "higher mind" rationalizes (spins) those conclusions to others. Haidt calls this unconscious cognitive process "intuition".
Beneficiaries of the status quo automatically and almost invariably rationalize (defend) the current socio-economic regime as dictated by their own self-interest.
Beneficiaries thus form a secondary elite which has a large vested interest in the way things are because they profit (often indirectly) from current social arrangements, regardless of how morally bankrupt those arrangements are. These are the spinmeisters.
These people will advocate piecemeal policy changes to tweak the current system to achieve what they regard as moral improvement, but will never venture into territory suggesting that our current social arrangements have failed most of America's citizens, and thus wholesale changes are required to "fix" the situation.
Such arguments are always about moral preferences. For example, if your moral preferences include the idea that everyone deserves the opportunity to get an affordable, worthwhile college education, you are probably also aware that this stance does not reflect the preferences of either America's elite or the beneficiaries of the status quo. People in those groups like to emphasize that a college education is an investment, a rationalization which excuses the inexcusable as far as you're concerned—willy-nilly tuition hikes far above official inflation, student debt slavery, and so on.
As far as I know, Jonathan Haidt does not venture down this road when he discusses the evolution of morality and its expression in human societies. I believe the invariable existence of this large informal group in human societies, the beneficiaries, is perhaps the most important source of resistance to social change which might go in the "right" direction (toward less harm & suffering and more fairness & reciprocity).
Automatic resistance to positive change by a privileged class has been a source of my disgust with Homo sapiens generally for a long time now. Mark Twain was disgusted too, as I outlined in a 2011 post called The Pattern Behind Self-Deception.
"You tell me whar a man gits his corn pone, en I'll tell you what his 'pinions is."
Twain's "corn pone" is self-interest, expressed as social status or material wealth. Twain knew—he put it in the voice of a slave—that we could often know what a socially "successful" man thought by considering his self-interest alone. Saletan's description of Haidt's hypothesis is worth repeating here.
We compete for social status, and the key advantage in this struggle is the ability to influence others.
This is a succinct (albeit incomplete) summary of the unconscious cognition driving what beneficiaries do. They are also doing some major league ass-kissing to keep their high-status or well-paying jobs.
My only actual contact with beneficiaries is on the internet in the various mainstream publications I might look at, including the Atlantic, the New Yorker, the Washington Post, etc. The "content" we see at these websites always reflects one of two overriding purposes, namely—
-
The creation of inconsequential fluff stories to attract "eyeballs" to sell advertising. Such stories necessarily avoid important issues. Fluff is not only very popular, but is also socially reassuring. No need to worry folks...
-
The publishing of more "important" stories (typically on the economy or politics, sometimes on the environment) presenting non-threatening conventional views which directly support the status quo (or minor modifications thereof).
Let's go through an example to make these abstract considerations more concrete.
The Rationalizing Beneficiary — An Example
I've seen thousands of self-interested rationalizations since the economic meltdown in 2008, but will present only one here. Read Matthew O'Brien of the Atlantic on secular stagnation, or John Cassidy in the New Yorker on the same topic if you want to see some recent examples. Just a little inflation here, a little more fiscal spending there, and Voila! — America will be back on the right track again.
The example I've chosen is called When Bailouts Make Moral and Economic Sense (Bloomberg, June 10, 2013). You can probably see where I'm going here
What made this a particularly good example was that the authors, Daniel Friedman and Daniel McNeill, also wrote a book called Morals And Markets, which talks about (among other things) how humans treat those in their own groups (their in-groups) as opposed to how they treat outsiders (those in out-groups). The in-group/out-group news is not good, but I will take that subject up in a future essay.
Thus you might think that Freidman and McNeill would be sensitized to moral preferences, social groups and all the rest. Well, think again. I am going to quote the article at length, adding comments as we go.
Effective or not, bailouts somehow seem unjust. Why use taxpayer money to save the companies that actually caused the meltdown, the banks that made the reckless loans, and insurance companies that wrote too many credit-default swaps?
More broadly, why save the state and local governments that offered overly generous pensions? Or auto companies too fat and lazy to match foreign competitors? They deserve to suffer the consequences of their behavior.
Yes, they do deserve to suffer the consequences. That's called fairness and reciprocity.
Let’s start with the word “bailout.” To most laypeople, it suggests a gift to a giant, inefficient, highly connected octopus.
Laypeople? Not a gift?
But bailouts are typically investments: loans or purchases. In 1980, the U.S. government bailed out Chrysler with a $1.5 billion loan and earned acid criticism, mostly from liberals. But by 1983, Chrysler had paid it back and, with interest and stock warrants, the government made a $660 million profit. Taxpayers spent less overall, and the nation saved jobs. So these companies often pay for the lifesaver we throw them.
Ah! Bailouts are not what we laypeople think they are. They are investments. The first Chrysler bailout seems to support Friedman and McNeill's case. But now they turn to the bailout of the gambling financial services unit of AIG. You remember AIG, right?
More basically, the trouble is that we don’t live in Adam Smith’s village. We live in a much larger world.
Take American International Group Inc. The mammoth insurer had links everywhere. On Feb. 28, 2008, it had branches in 130 countries and received half of its revenue from overseas. Its assets exceeded $1 trillion and its stock sold for $50.15.
Yet for an insurance company it showed breathtaking disregard for risk. In August 2007, Joseph Cassano, head of the unit that made the fateful CDS deals, said,
“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”
It is now over five years after the meltdown. And AIG executive Joseph Cassano, who Matt Taibbi dubbed "patient zero" of the financial crisis, what happened to him? Nothing.
Facing Bankruptcy
In late 2008, AIG faced death from “those transactions” and begged for help. The government could have punished it and let it succumb, but the harm would have been global. AIG owed money everywhere, and its bankruptcy could have brought surprising creditors, like the supposedly safe money-market funds, to their knees and spurred further panic.
Yet most AIG divisions earned a profit. So to keep this crumbling tower upright, the U.S. government pumped $182.5 billion into it and took 77.9 percent of its stock. The gamble seemed hazardous, since at one point its stock fell to about $1 a share.
And it was the most hated bailout, partly because AIG went on to shower millions in bonuses on executives who had caused the fiasco.
Please also note that Goldman Sachs made approximately $13 billion on the AIG bailout because they held credit default swaps (CDS) on AIG paper. It would also behoove us to remember what Carnegie Mellon economist Allan Meltzer said about capitalism.
Capitalism without failure is like religion without sin.
OK, here's the main spin, cleverly disguised as moral reasoning. Hold your nose.
But the [bailout] strategy had key advantages. For instance, the government was buying inexpensively, when most investors thought the company mortally ill. And it could be patient. It didn’t need repayment at once. According to one analysis, by 2012 the U.S. government had earned all its money back and made a profit of $15 billion, and it still owned 16 percent of a company whose stock was selling for about $34.
Similarly, with the banking system, the most direct strategy would have been to take control of the most overleveraged big banks, fire the top executives, strip out the toxic assets and liquidate them slowly, and spin off new banks with cleansed balance sheets.
This approach worked well in the U.S. savings-and-loan crisis of the 1980s and more recently for banks in Scandinavia. Taxpayers ended up paying relatively little, and the economy suffered minimal damage.
However, like all investments, bailouts don’t always turn a profit. The Treasury gave the big banks about $230 billion from the Troubled Asset Relief Program [TARP] and has received about $255 billion, for a gain of $25 billion. However, the smaller banks still owe some $15 billion, and overall the public may never get the full $700 billion back from TARP. But its cost will be far less than pundits originally warned.
Saving Goliaths
So we have to counter the moral impulse to pull down irresponsible goliaths with the economic — and ultimately moral — benefits of saving them.
After a financial crash, well-targeted bailouts and stimulus spending can hasten repair of the torn network. They can keep the economy stronger, spare the hardship of lost jobs, and earn money for taxpayers. The moral reaction, often manipulated to political advantage, hinders such repair work and prolongs the suffering.
Did you notice the color shift that just occurred there? In terms of fairness and reciprocity, Black became White and White became Black. Now we can't tell the difference.
The government can respond by educating the public about the nature of bailouts and thus help overcome the sense that they are ripping money from citizens’ paychecks to cushion fat cats from their blunders. This task may be difficult, but even so, Barack Obama's administration proved deficient in it. Indeed, in the 2010 midterm elections, the moral backlash fueled the Tea Party and made further stimulus impossible. Repair of the financial system then had to proceed slowly, using awkward indirect subsidies...
Yes, the smell is awful. I told you to hold your nose.
Perhaps we laypeople, the hoi polloi, haven't been sufficiently educated about the benefits of bailing out corporations which those in the elite have deemed too big to fail.
Wonder of wonders, the people making these decisions have often worked closely with the people who need bailouts because they have just failed
I am going to leave the analysis to you the reader. Re-read the section above called The Rationalizing Animal and then go through the text, highlighting each part where the authors rationalize some outrageous thing and thus defend the rotten status quo. All the crucial parts were emphasized in the text. I got you off to a good start when I highlighted the first rationalization—a bailout is an investment. What else might a bailout be?
Think about fairness and reciprocity. Take a nuanced position. For example, short-term bailouts did indeed prevent the entire rotten edifice from crashing down back in the fall of 2008. That did save the jobs of many ordinary people. But what should have happened that didn't happen in the years following?
Here is what you need to know about Daniel Friedman and Daniel McNeill:
Daniel Friedman is a professor of economics at the University of California at Santa Cruz. Daniel McNeill is the author of Fuzzy Logic. This is the second of two excerpts from the second edition of their book Morals and Markets: The Dangerous Balance, to be published June 11 by Palgrave MacMillan.
As noted above, this article was published by Bloomberg. Enough said.
It Is What It Is
The (paleo)anthropological literature is very convincing in demonstrating that a concern for fairness and reciprocity is an innate moral instinct in humans. On the other hand, these are humans (the beneficiaries of the status quo) doing all this disgusting rationalizing in a situation in which those moral values have clearly been violated. How do we reconcile this apparent contradiction?
I believe the answer lies in the mismatch between the small-scale social groups in which those values evolved and the large, complex human societies in which we live. I believe the differences between how humans behave toward those in their in-groups and those outside them (in out-groups) have not been sufficiently appreciated. Modern societies require humans to deal with lots of people they don't know (strangers) and don't really care about. This simple fact gives rise to the ubiquitous fairness and reciprocity failures we see in all modern human societies, including of course the United States.
I will explore this subject in a future essay.
It is difficult to write about Human Nature and morality because one's own moral judgements constantly interfere with any attempt to find underlying truths.
It would be nice to live in a society in which everybody had an abiding interest in maintaining fair and reciprocal relations among all human social groups, but we don't live in such a society, and we never will.
It is what it is.
A very insightful essay Mr. cohen. Thank you for the time and patience it took in writing it.
Your posts as of late (since you almost gave up posting completely) have been critical and more helpful in understanding.
It seems a lot of your anger about our situation has subsided. I wonder if this is right or wrong?....Who knows.
Surely, "it is what it is."
Thanks again
Posted by: Ryan Brooks | 01/22/2014 at 01:59 PM