Economics and lack of morality

I really did not know how to title the post based on this superb interview. It is of this Czech economist Tomas Sedlacek who just at the age of 35 is creating waves. He has already been advisor to ex-Czech President Vaclav Havel. He has written what looks like a must read book – Economics of Good and Evil.

The interviewer titles it as ‘Greed is the Beginning of Everything’, though one of the central message of Tomas is  ‘Greed marks the end of everything.’ He connects so many things to economics – Bible, Adam and Eve, Greek mythology etc etc. The views might sound extreme but is quite enjoyable to read his thoughts.

Sample this on greed:

SPIEGEL: Mr. Sedláček, in Oliver Stone’s 1987 film “Wall Street,” the fictional tycoon Gordon Gekko, played by Michael Douglas, pronounces the provocative motto of neoliberalism: “Greed is Good.” Has the crisis in financial capitalism reduced greed to what it was once before, one of the seven deadly sins?

Sedláček: Gekko succeeds with his greed, but then he falls victim to it. Mankind’s oldest stories tell us that greed is always Janus-faced. It is an engine of progress, but it’s also the cause of our collapse. Being constantly dissatisfied and always wanting more seems to be an innate natural phenomenon, forming the heart of our civilization. The original sin of the first human couple in the Garden of Eden was the result of greed.

SPIEGEL: Not of temptation and curiosity?

Sedláček: Desire and curiosity are sisters. The snake merely awakened a desire in Eve that was already dormant inside of her. According to Genesis, the forbidden tree was a feast for the eyes.

We usually say in economics is that all that matters is equilibrium. Once we get that e-point, . Demand matches supply and all is well. He says, eco of equilibrium is doomed to failure. Demand curves keep shifting right and we just can never fulfill our desires:

SPIEGEL: So evil is the result of insatiability?

Sedláček: The demands of people are a curse of the gods. In Greek mythology, the story of Pandora, the first woman, who opens her jar out of curiosity, thereby releasing poverty, hunger and disease into the world, tells the same story as the Bible. In Babylonian culture, the Gilgamesh epic shows how desire rips man out of the harmony of nature.

SPIEGEL: Does the human species define itself by its existential dissatisfaction?

Sedláček: The saturation point, like the end of history, is never achieved. Consumption works like a drug. Enough is always just beyond the horizon. The Marxist philosopher Slavoj Žižek put it this way: “Desire’s raison d’être is not to realize its goal, to find full satisfaction, but to reproduce itself as desire.”

SPIEGEL: Which is why life is ultimately a Sisyphean task?

Sedláček: The economics of equilibrium are doomed to failure. Eve’s desire — in economic terms, her demand — will never subside. And Adams’s offer to toil by the sweat of his brow will never be enough. In the film “Fight Club,” based on the novel by Chuck Palahniuk, the protagonist Tyler Durden says to his nameless friend, who despises his profession in the auto industry: We work at jobs we hate so we can buy shit we don’t need. That is the expulsion from Paradise, transferred to the modern age.

He says economy is like walking:

SPIEGEL: The debts of Western countries haven’t grown in the last 30 or 40 years as a result of need, but of abundance.

Sedláček: Aristotle, the philosopher of the golden mean, viewed excess as man’s greatest weakness. He believed that one could only avoid excess through moderation.

SPIEGEL: Sure, but what’s the right measure? Economists preach growth as the sole remedy. Is economic activity like riding a bike — if you don’t pedal you’ll fall over?

Sedláček: I believe that the economy is more like walking: You can stand still without falling over. This reflects the idea of a Sabbath economy. God rested on the seventh day, after he had created the world, not because he was tired, but because he felt that what he had created was good. According to biblical custom, the fields were to be left fallow once every seven years, and debts were forgiven after 49 years. There’s a saying that the good is the enemy of the better. It’s correct the other way around: The best — or chasing it — is the worst enemy of the good.

So if morality and less greed is important why didn’t communism deliver?

SPIEGEL: Communism, under which your generation grew up, didn’t achieve this form of self-sufficiency in half a century.

 Sedláček: Because it wasn’t viable. In truth, it isn’t communism but capitalism that drives the permanent revolution. It drives people to work harder and harder, because it presents them with the very credible possibility of success. Communism could never do that. Karl Marx thought and wrote in the world of Oliver Twist. If he were alive today, he would probably not recognize the need for a revolution.

SPIEGEL: So in our part of the world, we all essentially live in societies shaped by social democratic ideas?

Sedláček: We are clearly not communists by nature, but we are definitely communitarians. Only a truly egomaniacal person can live happily in a society in which he is the only rich one. Man has a need for fairness and, therefore, for a fair distribution of wealth.

Adam Smith was more of a moral philosopher;

SPIEGEL: So greed and empathy offset each other as balanced forces?

Sedláček: Yes. In his “Theory of Moral Sentiments,” Adam Smith, the founder of modern economics, defines sympathy as the basis of morality and as the driving force of human activity. The suffering of one person also affects someone else.

SPIEGEL: But Smith is more famous for his most important work, “The Wealth of Nations,” in which he questions the effects of human self-interest and the “invisible hand” of the market.

Sedláček: Self-interest guides human behavior, but Smith knew that man cannot be explained by the egoistical principal alone. He clearly distanced himself from his contemporary Bernard Mandeville and his theory that private vices generate public advantages, and that the general welfare stems from the self-interest of the individual. Contrary to his effective history, I believe that Smith’s legacy consists in the incorporation of moral questions into economics — in fact, that they are precisely what constitute its core. For modern economists, on the other hand, the question of good and evil is practically heretical.

Economy has three pillars:

SPIEGEL: If the invisible hand of the market alone were capable of transforming self-interest into the common good, we wouldn’t need government regulation at all.

Sedláček: When self-interest exceeds certain limits, it threatens the market economy. A functioning society rests on three columns: morality or decency, competition and regulation, or basic government conditions. The weaker morality is, the stronger the state must intervene. The Eastern European countries, which depended entirely on deregulation to create markets after the fall of communism, learned this lesson after painful experiences. A society that focuses on egoism without morality descends into anarchy.

SPIEGEL: The laissez-fair ideologists and the Tea Party movement in the United States still want to keep the government out of things.

Sedláček: The interdependence between capital and the state became obvious during the crisis. The financial system would have collapsed without government help, and then the governments would have been finished. Regulation may be a loaded concept, so let’s talk about coordination instead. But you need two players. You can’t play tennis alone.

🙂

We ask wrong qs in economics. The economists should decide on ethics not just on achieving the end:

SPIEGEL: Does this interplay between the market and the state shape the field of social morality?

Sedláček: The most positive, descriptive economic models have approached the question of how the market economy functions with complicated mathematical models for decades, but they are simply wrong or pointless at best. The real question should be: Is the economy working the way we want it to?

SPIEGEL: But it isn’t up to economists to set ethical standards.

Sedláček: Yes, it is. Ethics forms the core of economics. It leads straight to the question of the good and right way of living, or Aristotle’s concept of eudemonia. For him, maximizing benefit without maximizing good would have been pointless. A market economy without morality is a zombie system: The robots function perfectly, but in the end they leave behind a trail of devastation. We have to return to our origins and talk about the soul of the economy.

He goes on to discuss a new stability and growth path target. He says following growth just leads to more debt.

As I said, pretty different and extreme view….

Superb reading all through..

Very interesting views by economists these days. What an impact of the crisis on eco thinking..

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One Response to “Economics and lack of morality”

  1. AS Says:

    Hi, could you recommend more European economists to follow or to read books or blogs? Thanks.

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