17 July 2011

Moral Posturing

Tom Clougherty on bankers:
This is a point I've often tried to make to left-wingers, usually without success. Too many people are so blinded by hatred of the financial industry, that they simply assume that all its problems are caused by bad people with bad motivations. It leads them to completely overlook the very real structual and systemic problems in banking, and produces little more than shallow, populist rhetoric.

It's why so much public debate has focused on marginal issues like executive pay and bonuses, and so little attention has been given to the all-important skewed incentives created by bailouts, central banks, and government regulations. Political discourse seems inevitably to focus on the personal, which hardly matters at all, and ignores structures and systems, which matter a great deal.
If signaling theory is to be believed, it would appear that leftists are more concerned with appearing morally superior than with actually addressing the root of the issue. It’s easy to say that one would never defraud others if they faced the same situations the bankers faced, but one can never be truly sure until one actually faces those decisions. It’s incredibly easy to turn down millions in bonuses when one never stands a serious chance of receiving them anyway.

What’s difficult to accept is that most people, leftists included, would succumb to the same pressures the bankers did if they faced the same decision and incentives. And so, leftists and populists demand—quite reasonably—the lying cheating bankers’ heads on stakes. But they never demand systemic reform, which was the problem in the first place.

Thus, if leftists were serious about fixing the problem of fraud and corruption in the banking sector, they would start with changing the incentive structure. That they would rather crucify bankers and demand that humans act as morally perfect agents would suggest that they are more concerned with moral posturing than real solutions. At least they’re sticking it to the man.

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