Ethics and Economics

I have noticed in myself a rather strong emotional reaction to the economic crisis, especially as concerns the financial sector. I think I’ve narrowed it down to a disappointment and anxiety over what I see as a lack of ethical principles being applied to the credit system. I don’t like to think that we live in a world where there are a minority of individuals in a supposedly democratic society outside the rule of law as established according to our collective values. It doesn’t even bother me specifically that some individuals within the financial system would choose to flout generally accepted standards of ethics. All types of people make these breaches of ethics all the time if the price is right. What has been so unsettling is to learn that the system put in place to monitor such action and to bring violators to justice has been systematically dismantled over decades.

It is overwhelming to think of how to go about reestablishing the prudent rule of law when a self-interested and seemingly impune minority has so much power and wealth.

However, I am reading Robert Reich’s Aftershock right now and have just finished reading this…

In order to fix what needs fixing, we need to be clear about what broke. The underlying problem is not that financial institutions were reckless, although they were. The ultimate solution, therefore, isn’t just to make them more prudent. Nor is the central problem that consumers borrowed too much, although they did. The solution, therefore, isn’t merely to get Americans to save more and consume less.

To summarize: The fundamental problem is that Americans no longer have the purchasing power to buy what the U.S. economy is capable of producing. The reason is that a larger and larger portion of total income has been going to the top. What’s broken is the basic bargain linking pay to production. The solution is to remake the bargain…

A fundamentally new economy is required — the next stage of capitalism. But how will we get there? And what will it look like when we do?

There are essentially two paths from here. Only one will get us to where we want to be.

To be continued.