Jonathan Aldred - Licence to be Bad: How Economics Corrupted Us

JONATHAN ALDRED is Fellow and Director of Studies in Economics at Emmanuel College and Lecturer in the Department of Land Economy, University of Cambridge, UK. He is interested in the ethical foundations of economics and how they have shaped modern life. He has been lecturing and writing in this area for over twenty years, with a particular focus on questions of social and environmental justice, and the relationship between economic ideas and political change

Over the past fifty years or so new ideas about how we should behave have corrupted our thinking. We have come to see black as white, bad as good: its moral to be immoral. The change has been huge yet it has been achieved through many subtle, barely discernible steps.

Of course, were not intrinsically less virtuous than past generations. And this is not a straightforward story about people knowingly behaving badly. Instead, it is about how we have been encouraged to believe that various actions and activities are acceptable, natural, rational, woven into the very logic of things when just a few generations ago they would have seemed stupid, perplexing, harmful or simply wicked. There has been a transformation in the way we understand many of the ideas and values we live by: ideas about trust, justice, fairness, freedom of choice and social responsibility ideas which profoundly shape our economy and society. Although these developments are relatively recent, they are now so ubiquitous and deep-rooted in everyday life that we are barely aware of them.

Take the global financial crisis that began back in 2007. It is widely agreed that much of the blame for the crisis lies with the regulators, the people employed by government to police the activities of banks and other financial institutions. Blame the regulators is now a familiar argument but it ought to shock us. We do not blame the police if our home is burgled. So why blame the regulators for the bankers reckless (and sometimes criminal) behaviour? Bankers will be bankers is the essence of the reply: there is no point in blaming them for it. And if one banker shows self-restraint, another will step in to exploit the opportunity. And markets rely on greed to function properly. Through the spread of these dangerous ideas, we have granted bankers an excuse to be greedy, permission to play the system: a Licence to be Bad.

It is not just bankers. Our troubles go much wider and much deeper. Look at Volkswagen. How did the biggest car-maker in the world morph from the modest, cautious manufacturer of a single model into a corporation which carefully plotted a cynical, large-scale deception of its customers?

At least part of the answer must surely reflect the change in corporate culture encouraged by a Chicago economist named Milton Friedman. In 1970 Friedman who would later advise US President Ronald Reagan and Prime Minister Margaret Thatcher in the UK wrote a landmark article in The New York Times entitled The Social Responsibility of Business is to Increase Its Profits. In case of doubt, Friedman explained that profit was the only responsibility of business.

The influence of recent economic ideas has not been limited to the corporate and financial worlds. At around the same time that Friedman reframed the responsibilities of business, new ideas were reframing the responsibilities of individuals too.

Take an idea known as free-riding. This theory implies that it is often irrational to cooperate because, even if you do, no one else will and in any case your contribution is too small to make any difference. Although the theorys influence on society remains largely unacknowledged, its essential ideas have filtered out into our ordinary thinking, overthrowing the common sense of doing your bit. We have all been corrupted, down to the small choices of daily life. We have come to believe that it is pointless to vote, harmless to access music, news and other online content without paying, and inevitable that people will exaggerate their insurance claims or avoid paying tax whenever possible. And we walk along busy city streets absorbed in our smartphones, paying little attention to avoiding collisions with other people. In all these cases we rely on the efforts or contributions of others, without which the collective activity in question would be impossible. On other occasions, there is no serious collective activity, because free-rider thinking leads us to abandon hope before we even begin. Many people despair about climate change in these terms.

How did we get to this? And how did we become a world in which, while the rich countries have become even richer, many more of their citizens rely on soup kitchens and food banks? Is it partly because weve been told that making the rich richer is good for the economy but making the poor richer is bad? How did so many of us come to believe all these things when, not so long ago, we had very different beliefs and values?

Whatever your views about bankers, corporate profits, voting, free online content, climate change or inequality, we often seem locked into our present way of thinking (some commentators have called it neoliberalism, but you wont see that word again in this book). Economics appears to constrain the choices available to us. More than that, it shapes the questions we ask and the problems we see. The acceptable answers are influenced by our economics-derived morality. So if we hope for change, an essential first step is to understand how we came to this where these powerful new economic ideas came from and how they came to have such a hold over us.

The answer is far from obvious. After all, by turns, we seem to ridicule economics and then defer to it. We did not adopt our present way of thinking through deliberate choice. But it didnt happen by chance. It wasnt a conspiracy, but from some angles it looks like one.

To see where it all began, travel to Geneva, Switzerland. Take a train going east, running along the edge of Lake Geneva (Lac Lman). At Vevey, alight and take the funicular railway which ascends Mont Plerin. Your hotel is just two minutes walk from the top station of the funicular railway. In 1947 about fifty people made this journey to what was then called the Htel du Parc. Most of them were university academics, along with a few journalists and businesspeople. They were united by fear and loathing of the direction that many countries seemed to be taking.

At that time, in almost every country the state was assuming a bigger role than before. The Depression and mass unemployment of the 1930s was still a vivid memory; economic crisis had played a part in the rise of fascism and the subsequent catastrophes of the Second World War. As peace returned to Europe, no one wanted a return to mass unemployment, and the new economics of John Maynard Keynes showed that governments had the power to prevent it. Keynes, who laid the foundations for modern macroeconomics, is probably the most influential economist of the last hundred years. It was Keynes who was responsible for the now-familiar idea that, in an economic downturn, governments should increase public expenditure or cut taxes to stimulate the economy. Keynesian economics complemented New Deal-style policies in the United States and the emergence of the welfare state in Britain following the Beveridge Report of 1942. Economist William Beveridge had been asked by the government to study unemployment insurance and related services and make recommendations. His landmark report argued for cradle-to-grave state-provided social insurance.