Stephen Hicks, Ph.D.

The Ethics of the Financial Crisis

In addition to the session on “Reason in Hayek and Rand” at the APEE conference to be held April 11-13, 2010 in Las Vegas, Nevada, I am organizing a session on “The Ethics of the Financial Crisis.”

Rationale: Many conferences and debates are focusing on the economics and politics of the crisis, but much less attention is being focused on the core ethics issues involved. So I have solicited papers from several scholars on topics such as the following:

* Whether greed is a good explanation for the crisis.

* The role of altruism in justifying Fannie Mae, Freddie Mac, or legislation such as the Community Reinvestment Act.

* The ethics of paternalism as a justification for such political institutions and legislation.

* The actions of political versus market entrepreneurs in the mortgage industry and/or financial sectors.

* Whether the mortgage industry and/or financial sectors were, prior to 2008, free markets, lightly regulated, or heavily regulated.

* Moral hazard in the regulated industries and sectors.

* The ethics of regulatory capture.

* The ethics of BB&T’s, Wells Fargo’s, and US Bancorp’s decisions not to pursue subprime mortgages.

* The Community Reinvestment Act as an affirmative action program for housing.

* The CRA as a housing welfare program.

* The moral difference between lobbying proactively versus in self-defense.

* The (im)morality of rent-seeking in general with application to the bailouts.

* The ethics of the government’s use of coercion, direct or indirect, to get banks to accept TARP funds.

* The ethics of the government’s accounting methods in administering the bailouts.

* Ethics and responsibility for unintended consequences.

When the session’s panel is finalized, I’ll post it.

The increasing(ly clear) relevance of Ayn Rand

“Read the news today? It’s like ‘Atlas Shrugged’ is happening in real life,” as this Facebook group points out.

Many intelligent observers have noted the connection, which has led to sharply increased sales of Atlas and prominent coverage of Atlas’s themes in Business Week, Forbes, the New York Times, the Economist, The Wall Street Journal, and other major publications. And from across the pond comes this British magazine’s tribute and commentary on Ayn Rand’s significance. (Thanks to Bob H. for the link.)

Amity Shlaes’s recent piece in Bloomberg is well worth reading: Atlas Is Shrugging With a Growing Load. Shlaes is the author of a recent history of the Great Depression and so is well positioned to offer commentary on our times. A pair of key quotations from Shlaes’s piece:

On punitive taxation: “In 1986, a year when Atlas Shrugged sold between 60,000 and 80,000 copies, the top 1 percent of earners paid 26 percent of the income tax. By 2000, that 1 percent was paying 37 percent, and Atlas Shrugged sales were at 120,000. By 2006, the top 1 percent carried 40 percent of the burden.”

On government fiat money and deficit financing, quoting Rand: “Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’”

Today’s events are a consequence of political, economic, and, more importantly, philosophical principles adopted by the most influential thinkers and doers of the last several generations. The antidote, accordingly, requires that this and the next generation’s most influential thinkers and doers change their philosophical course.

For follow-up material on Rand’s philosophical analysis of the roots of the crisis and the antidote, I recommend the following.

For general readers, here is my introductory overview of Ayn Rand’s biography and ethics at the Internet Encyclopedia of Philosophy.

For all readers, here are two recent anthologies of essays on Atlas Shrugged, one edited by Professor Edward Younkins and the other edited by Professor Robert Mayhew.

For a technical, book-length discussion of Rand’s ethical theory, here is Tara Smith’s Ayn Rand’s Normative Ethics. For further discussion of Professor Smith’s book, here is my review [pdf], published in Philosophy in Review, and Carrie Ann Biondi’s extended review [pdf], published in the most recent issue of Reason Papers.

For a philosophically-informed analysis of the crisis by a top-level financial professional, I recommend John Allison’s analysis. Allison is Chairman of BB&T and one of the great businessmen of our generation. Evidence: BB&T is one of the major banks that is still very healthy. Like Todd Zywicki, I recently heard Allison speak on the origins of the financial crisis and how BB&T avoided being sucked into the mess, and I recommend his analysis highly.

As we are suffering through yet another hard experiential lesson about collectivism and enforced altruism, let’s resolve to learn the lesson clearly and in principle so that the next generation will see more encouraging signs like these.