What is, or should be, the link between morality and narrow economic rationality? Three things raise this question:
- Barclays' attempts to manipulate Libor might well have been rational from the point of the traders involved, based upon weighing the benefits of doing so against any fines. But it's generally agreed that such behaviour was morally wrong if not perhaps illegal in the UK.
- Tax avoidance schemes of the sort used by Jimmy Carr have been called immoral, though their most of users believe them to be ways to maximize post-tax income.
- One reason why benefit "scroungers" are stigmatized is the belief that it is morally right to work, even if the personal (and social) benefits from doing so are small.
These three cases are all examples of how there's a clash between (perceived?) moral behaviour and rational maximization.
Which poses the question: should maximizing behaviour really be tempered by considerations of morality?
In many cases, the answer is clearly yes, because there is in fact no trade-off between rational maximization and moral conduct.As Deirdre McCloskey has argued, "bourgeois virtues" of prudence and temperance enrich both individuals and societies. Trustworthiness is one way of overcoming the problem of asymmetric information which can cause markets to fail to develop.
In other cases, though,there is a sharp trade-off between morality and economic maximization.
This is most clear in the euro. The moral belief that reckless debtors and lenders must suffer ther consequences of their imprudence is perhaps the biggest obstacle to a resolution of the debt crisis.
And one might argue that the trade-off also exists in the cases I started with:
- The same sort of desire to follow rules that would have prevented Barclays from manipulating Libor can also inhibit innovation. One feature of genuine entrepreneurship is the desire to reject established ways of doing things. A society in which people followed unwritten rules would have fewer Libor manipulators - but also fewer good entrepreneurs.
- Greater tax morale would encourage governments to spend more, not necessarily on useful projects.
- A stronger work ethic would make the unemployed even more unhappy.
Now, I don't say all this to side with the sort of right libertarian who prizes rational maximization above all else. I do so merely to suggest that, sometimes (often?) there can be a sharp trade-off between morality and prosperity.The knee-jerk demand that economic actors behave more morally requires rather more thought.