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Greed=self-interest squared
Nov. 4th, 2009 11:49 amAn excellent quote from Professor Michael Sandel, quoted by his ex-pupil Stephanie Flanders on Monday:
To move off at a slight tangent from this, I was reminded immediately of the book "Crimes Against Logic", which talked of "Hooray Words", such as "justice", "fairness" etc.
This week I saw the keyword behind David Cameron when he gave one of his "big" speeches. That word was "change". The strange thing is, while politicians on both sides argue for "stability" (a hooray word) they also argue for change (another hooray word). I eagerly await some marketing guru advising a political party that its campaign slogan should be "Change with Stability".
Politics, economics and the tabloids have become so loaded with loaded words that they have, effectively, lost their meaning. They just become "negative" or "positive" words. This allows people who don't understand topics (usually politicians, sometimes journalists, occasionally economists) to blather on about them in emotionally loaded terms without having to worry about such things as logic.
I heard a speech yesterday in the Commons where a Member of Parliament (speaking of which, there's the loaded word "Honourable" there) who objected to the new bonus system at RBS, which basically tells them to wait three years before the bonus is paid. The Member said "I don't see that there's any difference between getting paid this year or getting paid in 2011. It's still a bonus".
One felt like saying "if you don't see the difference, you are a fucking moron", except that (a) I am fortunately not in the House to hear such idiocies and (b) if I were, I think it would be considered unparliamentary to use such language.
(Although I know there is no need for me to point out the difference -- apart from the obvious one of making the bonus earner wait for his or her money -- I'll mention in passing that the point of the delay is quite simply that it gives you the chance to find out whether the apparently profitable decisions made in 2009 were really profitable after all.)
But politicians, lobbyists, et al, just love hooray words; they are easy to use, they genereate an emotional response, and they obviate the need to do any thinking.
In this sense, "Wall Street" and Gordon Gecko both uttered a profound truth and did us all good service. "Greed is good", he said. Of course, Oliver Stone's aim was to make Gecko look bad, by using a negative word in a positive way. But look at it another way. What if you said that "self-interest is bad"? Well, for a start, you'd generate a lot of blank stares. That's the interesting thing about hooray words, and it's a good way to discover them. Just try saying the opposite to a phrase used by a politician, and then try to imagine anyone saying it. If you can't, then the original phrase is probably using a hooray word.
The thing is, all political campaigns can now consist only of hooray words, because the marketers don't want to upset anybody. If you banned words like "fairness", "justice", "reasonable" "forward" "together" and many others which don't occur to me at the moment, then you couldn't have a political campaign at all. To bring forward another bete noire of history who had the courage to say something that was not a hooray phrase, there was Margaret Thatcher's "There is no such thing as society". Now, you may disagree with this strongly (I certainly do), but, give her credit, at least there's something there with which to disagree.
In this sense, I think that my disgust at the recent economic disaster differs enormously from that felt by the general public and exploited by the politicians. As DY has pointed out, the credit bubble of the past 10 years might have generated some undeserved earnings and questionable business practices (not to say downright fraud in some cases) but it also put a lot of money into many people's pockets, some of which is still being spent. The first boom of 1996 to 2000 probably helped to push up property prices sufficently to make me a mortgage-free homeowner by 2003. Unlike most people who were lucky enough to benefit in the same way, I don't think about how "clever" I was to invest in buy-to-let in 1997. Or, if I was "clever" (in spotting that property was underpriced relative to yield), my cleverness was not "worth" £130,000 or whatever profit it was I made on the deal. But no-one is screaming at me to pay back my "bonus".
The boom encouraged by cheap credit (to stave off the recession caused by the bursting of the dotcom bubble) was wrong because it was unsustainable; it was borrowing from tomorrow to pay for today. The reason that bankers' bonuses are being picked on is because this "correct" analysis is (a) difficult to understand and (b) if you do understand it, makes uncomfortable reading, because it effectively says "we, all of us, have stolen from our children". In this sense, I quite liked Osborne's "the game's up" speech, although I have no doubt that it will be tempered back in the not-too-distant future. Meanwhile, Darling and Co are desperate to keep the focus on the banks and the bonuses, because the current plunging of money into the economy has seriously discomfiting implications.
The collapse of the Irish economy (rather than the more extreme Icelandic collapse, which I accept is an outlier) is perhaps the best measuring stick, although Spain might run it close. In Ireland the property market has virtually fallen apart, with new builds now on sale at less than cost, and probably 40% off their peak. Staff employed in the industry has fallen 90%. No-one is building. Meanwhile, the government is pushing forward with regulations that will make it virtually impossible to build a house at a profit. Your land might cost £100k, putting up the building would cost £100k, and additional regulations (including the new carbon emissions rules) would add another £100k. On the plus side, it would keep more regulators and inspectors in work -- that being the great growth economy.
So, in an attempt to get some of the reputation of macro-economists back, what IS the future? Well, France's Scor this morning reported a reduced investment yield for the first nine months compared with last year. How so, given the surge in equities? well, Scor explicitly stated that its investment strategy was now based on a forthcoming surge in inflation, and if it waited until everyone else knew it was coming, it would be too late.
Secondly, there has to come a time when the UK doesn't have the backing to put more money into the economy. Or, rather, there has to come a time when investors realize that the UK doesn't have the backing to put as much into the economy as it is already doing. As I've said before, that means the end of triple A ratings. In a sense, I have been here before. I remember when all of the major reinsurers were triple-A rated; now only one of them is. Indeed, the reinsurers now dream of double-A ratings, never mind triple-A. Leading country ratings have been triple-A not because countries are intrinsically less likely to default (remember Mexico, remember Argentina, remember Russia) but because the developed world has experienced an unusually golden era. Unfortunately it used that golden era unwisely, meaning that, if the situation were to return to the late 1970s but government liabilities were to remain as they are today, any chance of a triple A-rating would vanish in a puff of smoke.
__________
"Citizens generally who looked at this - at the bailouts and the bonuses and been outraged - they believe there is a difference between greed and self-interest. But there's no way of capturing that intuition in economic analysis because, according to economic analysis, in any case one is deploying self-interest or greed, which is simply self-interest squared, to serve a social purpose. "
To move off at a slight tangent from this, I was reminded immediately of the book "Crimes Against Logic", which talked of "Hooray Words", such as "justice", "fairness" etc.
This week I saw the keyword behind David Cameron when he gave one of his "big" speeches. That word was "change". The strange thing is, while politicians on both sides argue for "stability" (a hooray word) they also argue for change (another hooray word). I eagerly await some marketing guru advising a political party that its campaign slogan should be "Change with Stability".
Politics, economics and the tabloids have become so loaded with loaded words that they have, effectively, lost their meaning. They just become "negative" or "positive" words. This allows people who don't understand topics (usually politicians, sometimes journalists, occasionally economists) to blather on about them in emotionally loaded terms without having to worry about such things as logic.
I heard a speech yesterday in the Commons where a Member of Parliament (speaking of which, there's the loaded word "Honourable" there) who objected to the new bonus system at RBS, which basically tells them to wait three years before the bonus is paid. The Member said "I don't see that there's any difference between getting paid this year or getting paid in 2011. It's still a bonus".
One felt like saying "if you don't see the difference, you are a fucking moron", except that (a) I am fortunately not in the House to hear such idiocies and (b) if I were, I think it would be considered unparliamentary to use such language.
(Although I know there is no need for me to point out the difference -- apart from the obvious one of making the bonus earner wait for his or her money -- I'll mention in passing that the point of the delay is quite simply that it gives you the chance to find out whether the apparently profitable decisions made in 2009 were really profitable after all.)
But politicians, lobbyists, et al, just love hooray words; they are easy to use, they genereate an emotional response, and they obviate the need to do any thinking.
In this sense, "Wall Street" and Gordon Gecko both uttered a profound truth and did us all good service. "Greed is good", he said. Of course, Oliver Stone's aim was to make Gecko look bad, by using a negative word in a positive way. But look at it another way. What if you said that "self-interest is bad"? Well, for a start, you'd generate a lot of blank stares. That's the interesting thing about hooray words, and it's a good way to discover them. Just try saying the opposite to a phrase used by a politician, and then try to imagine anyone saying it. If you can't, then the original phrase is probably using a hooray word.
The thing is, all political campaigns can now consist only of hooray words, because the marketers don't want to upset anybody. If you banned words like "fairness", "justice", "reasonable" "forward" "together" and many others which don't occur to me at the moment, then you couldn't have a political campaign at all. To bring forward another bete noire of history who had the courage to say something that was not a hooray phrase, there was Margaret Thatcher's "There is no such thing as society". Now, you may disagree with this strongly (I certainly do), but, give her credit, at least there's something there with which to disagree.
In this sense, I think that my disgust at the recent economic disaster differs enormously from that felt by the general public and exploited by the politicians. As DY has pointed out, the credit bubble of the past 10 years might have generated some undeserved earnings and questionable business practices (not to say downright fraud in some cases) but it also put a lot of money into many people's pockets, some of which is still being spent. The first boom of 1996 to 2000 probably helped to push up property prices sufficently to make me a mortgage-free homeowner by 2003. Unlike most people who were lucky enough to benefit in the same way, I don't think about how "clever" I was to invest in buy-to-let in 1997. Or, if I was "clever" (in spotting that property was underpriced relative to yield), my cleverness was not "worth" £130,000 or whatever profit it was I made on the deal. But no-one is screaming at me to pay back my "bonus".
The boom encouraged by cheap credit (to stave off the recession caused by the bursting of the dotcom bubble) was wrong because it was unsustainable; it was borrowing from tomorrow to pay for today. The reason that bankers' bonuses are being picked on is because this "correct" analysis is (a) difficult to understand and (b) if you do understand it, makes uncomfortable reading, because it effectively says "we, all of us, have stolen from our children". In this sense, I quite liked Osborne's "the game's up" speech, although I have no doubt that it will be tempered back in the not-too-distant future. Meanwhile, Darling and Co are desperate to keep the focus on the banks and the bonuses, because the current plunging of money into the economy has seriously discomfiting implications.
The collapse of the Irish economy (rather than the more extreme Icelandic collapse, which I accept is an outlier) is perhaps the best measuring stick, although Spain might run it close. In Ireland the property market has virtually fallen apart, with new builds now on sale at less than cost, and probably 40% off their peak. Staff employed in the industry has fallen 90%. No-one is building. Meanwhile, the government is pushing forward with regulations that will make it virtually impossible to build a house at a profit. Your land might cost £100k, putting up the building would cost £100k, and additional regulations (including the new carbon emissions rules) would add another £100k. On the plus side, it would keep more regulators and inspectors in work -- that being the great growth economy.
So, in an attempt to get some of the reputation of macro-economists back, what IS the future? Well, France's Scor this morning reported a reduced investment yield for the first nine months compared with last year. How so, given the surge in equities? well, Scor explicitly stated that its investment strategy was now based on a forthcoming surge in inflation, and if it waited until everyone else knew it was coming, it would be too late.
Secondly, there has to come a time when the UK doesn't have the backing to put more money into the economy. Or, rather, there has to come a time when investors realize that the UK doesn't have the backing to put as much into the economy as it is already doing. As I've said before, that means the end of triple A ratings. In a sense, I have been here before. I remember when all of the major reinsurers were triple-A rated; now only one of them is. Indeed, the reinsurers now dream of double-A ratings, never mind triple-A. Leading country ratings have been triple-A not because countries are intrinsically less likely to default (remember Mexico, remember Argentina, remember Russia) but because the developed world has experienced an unusually golden era. Unfortunately it used that golden era unwisely, meaning that, if the situation were to return to the late 1970s but government liabilities were to remain as they are today, any chance of a triple A-rating would vanish in a puff of smoke.
__________
