Tuesday, September 2, 2014

Financial Morality


In the academic world there is a group of social scientists who discuss the use of "risk" as a modern form of moral regulation: Alan Hunt, Tom Baker, Richard Ericson, etc.  That risk has moral connotation seems intuitive.  The idea of doing something that has the potential for harm or loss inherently conjures feelings of goodness and badness.

From this, Hunt Baker and Ericson, have argued, modern institutions of risk such as, insurance, act as morally governing.  They define good and bad risks and to the extent that this aligns with certain portions of the population, the result is good and bad people or populations.  

In my experience, the idea that financial decision making has moral implications and/or depends on moral judgements meets a great deal of push back by those that see financial decisions (and the decisions behind those decisions) made by a group of "rational agents."  From this perspective, judgements are not really value based on considerations of good ideas and bad ideas but simply on what is economically advantageous.

The circular argument in this perspective is that to prize economic theory or economic advantage over other considerations IS a value judgement.  And to consider some judgements better than others to achieve profit or financial sustainability IS a moral judgement: Profit is Good/ Financial ruin is Bad.

A good example showed up in the comments section to a recent FT article foreshadowing a financial crisis even more dire than the last.  Bagehot by-the-Bay wrote, 
In some industries — high tech and the airlines, for example — bankruptcy is not a sin, it’s part of the natural order of things. I suppose one either believes this, or not.  ...
Mr or Mrs Bagehot identifies bankruptcy as a moral bad (i.e sin) for some but a virtue for others- much like taking multiple wives is morally good for some and morally bad for others.  It depends on what flavor of marriage industry to which one subscribes.  It depends, according to Bagehot, on what one "believes" about the meaning of bankruptcy beyond the identification of its occurrence.

There is nothing about the fact of bankruptcy that is inherently value laden but it is how one responds to the risk or realization of bankruptcy that gives it significance.  At times, bankruptcy has the potential to impact,  directly or indirectly,  a broad range of people with different value sets.  For example, bankruptcy may cause loss of employment, economic volatility, "bad credit," etc.  Different groups may approach the bankruptcy event differently much like "high tech" may approach it differently from some other industry.

Making decisions about risk including financial risk, necessitates consideration of outcomes to be sought after or avoided, values to be upheld or neglected.  In short, consideration of what is morally good and bad.

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