The weekend edition of the Business Times featured an interesting conversation with the economist Roger Bootle. Interesting because the Business Times is ... well, a newspaper about business and the economy although on weekends it deigns to feature selected restaurant reviews (usually expensive) and articles on fashion (also usually expensive).
This article was unusual because Bootle seems to be arguing against some of the fundamental premises of capitalism and economics - that is that society is best served when self interested individuals make rational decisions based on that self interest. His line of thought began when he went from a meeting discussing the outlandish bonuses to be paid out to the hospital where his wife was about to give birth. The juxtaposition between the remuneration of the midwife, who'd held his wife and child's lives in her hands and the work and remuneration that the fat cat City bankers were about receive struck him as being very very strange and a signal that there was something wrong with the financial world.
The reason I got so interested in the interview is because he's doing something I wish people would do more - that is - question the key premises and assumptions of economics. In some of the excerpts from the interview below, Bootle discusses how some of the basic assumptions of economics contradict the entire field of psychology and sociology.
Think about it - as a Christian - what does it mean when the entire field of economics is based on the premise of self interested individuals acting rationally? How does it square with the Christian faith? Shouldn't it at least raise some questions - or doubts - in our minds as to whether such a system could possibly coexist comfortably with Christian ethics and morality?
Where is the dying to self - so critical to the Christian walk - when your entire world is premised on one acting in a self interested and 'rational' manner? Could it be that the field of economics itself with all its underlying assumptions about human behaviour is antithetical to christian values and mores? Adding on to that thought - given that our world is now run by giant MNCs and governed by huge interlocking economic and financial systems - could it also be that in the process, it somehow undermines our humanity?
Bootle comes close to this conclusion when at the end of the interview, he talks about the need for recovering a sense of public purpose. He asserts that the older bankers in London had a sense that they were contributing to the society at large, that "the financial activity was there in order to achieve some purpose outside the financial world".
Link to the full interview is here. Extracts below.
"'So then I jumped on the train, went to the hospital where my wife was due to give birth later that day, and suddenly, amidst all these, I came across this nice midwife who was extremely helpful and dedicated. And the contrast struck me very strongly because what she was doing was extremely important in some human sense, and there was a woman who was completely in her hands, namely my wife giving birth to a child, and of course there was a child. What could be more joyful than that?
'And of course she was earning a mere fraction of what people in the City were earning. I got interested in this business of motivation, because I thought to myself, if you're a midwife, obviously it'd be quite nice if someone came along and gave you a big bonus, but what actually motivated you, where did you get your satisfaction from? At the end of the day when you went home, did you think to yourself, you know, I've earned another couple of thousands of pounds today. I thought the answer was no, and it really alerted me to questions of motivation, purpose and reward, and I came to think then that there's something profoundly sick about the financial markets"
"While some bankers profess to be doing God's work, Mr Bootle declares that much of the activity in financial markets 'achieve no good for society at all and, in some cases, may actually harm it'. Obviously, financial activity has its place and worth, but 'if you look, for instance, at the sheer volume of trading that's done in shares by institutional shareholders, who are supposedly acting in the interests of their members, you have to ask yourself whether that actually achieves a great deal', he says.
And one fundamental assumption of economics and economic accounting is that 'if transactions take place between freely consenting adults in a market environment where people aren't being compelled to do something, then the activity must be generating human welfare', he points out. 'And I've come to believe, more and more, that as far as the financial sector is concerned, that's simply not true; a lot of what's going on is just moving stuff from one place to another, one pocket to another.'
But society is obsessed by the business of measurability: 'If it's measured and it's called GDP, then we tend to assume it will be good, and so society is devoted to increasing this thing called GDP but that may not actually have that much connection with fundamental human wellbeing.'
Likewise, basic financial market theory assumes or asserts that if a new market springs up and trading takes place, something 'good' is taking place as the activity is meeting some market need.
'But what I think is becoming increasingly obvious is sometimes new markets emerge, so there is something that's traded, and because it's traded, then other people have to monitor what's happening to the price. Because the price is changing, then other people - mainly executives and companies - get concerned about what's happening to the market price, which makes the need for activity......
That said, economics is simply 'a very, very funny subject, very odd indeed', he declares. 'It's psychologically extremely weak. You've got, after all, a whole academic subject called psychology which is all about human motivations, how humans behave in groups, a huge subject and with practical issues on how to deal with people. Then you've got another academic subject called economics that basically says that human beings are quite simple - they're interested (only) in themselves and they just want more and more of this thing called enjoyment or well-being or money or utility, whatever, and they're like a machine, and they just do and do, and of course they're rational in the process of all these.
'It's very odd, really. It's almost like the insides of that other academic subject are just worthless, just thrown away! And now, economists are realising what behavioural finance is all about - the psychological dimension to human beings. Related to that is also the issue of groups. Economists and economics don't really have an understanding about groups - the only concession economists make to groups is they recognise they exist but assume they behave just like individuals and firms. In the process, of course, they're throwing away another academic discipline called sociology!'
"He adds: 'I think we need a system which quite consciously has a sense of public purpose. I've talked quite a lot to older bankers - you want to talk to them, get their wisdom before they die - and what these people tell you is they had a sense of purpose in the organisation, the sense that the organisations were doing something for the benefit of society.
'If you talk to older merchant bankers in London, for instance, people who worked in London before the Americanisation of the city, again, they had more of a sense of purpose - that the justification for what they were doing was something outside the world of finance. The financial activity was there in order to achieve some purpose outside the financial world. It was that that gave justification to what they did, it was from that they derived their pride and self-respect, whereas we've moved into a system where people derived pride and self-respect from their bonuses"