I’ve taken some time out recently to delve behind the news headlines concerning the financial Armageddon that apparently threatens life as we know it – double-dip recession, Eurozone crisis, contracting economies and the rest. Why? Because I can’t help feeling that there are major moral issues behind it all, and for me moral issues are religious issues.
Amidst the banker bashing and political propaganda surrounding all this, I have been surprised to hear learned economists referring to ‘moral hazard’ in relation to their sphere of activity. Are we suddenly becoming concerned about morality? I certainly think that would be a good thing – but is it real?
First it is necessary to understand what the term ‘moral hazard’ really means. It refers to the separation of actions from consequences. Once that has occurred, what incentive is there for people to act fairly? Most obviously, if a bank is ‘too big to fail’ – which is to say, it will always have to be rescued if in trouble – what incentive is there for its executives to avoid foolish risk? Or, if a country in the Eurozone is always to be ‘bailed out’, what incentive is there for its government or people to organise their finances responsibly? This latter point is particularly important, of course, to Germany, which seems destined to do much of the bailing.
I first remember hearing the term ‘moral hazard’ at the time of the Lehman Brothers collapse. The danger of moral hazard was one reason it was allowed to fail. However, once the ‘contagion’ (as we now call it) became apparent, the danger of moral hazard was trumped by the danger of global financial breakdown.
We do not learn from history. The concept of moral hazard goes back at least to the seventeenth-century ‘bubble’ that caused the Dutch tulip bulb crisis, probably the earliest example of such a speculative disaster. I suspect the idea goes back much further, in fact the Greeks (ancient, that is) probably had a word for it.
There are two surprising things about the ‘moral hazard’ concept. The first is that, once the idea gets around, we might realise that in fact there is moral hazard in many areas of life – wherever people are, perhaps, more aware of their rights than of their responsibilities.
The second surprise is that so few of the usual moral arbiters in our culture, particularly in the religious sphere, have had much to say on this subject. Even when comment is made, many of them are one sided, and do not seem terribly well informed. If religion cannot talk with some authority about this issue, tailor-made for sensible but passionate debate, what exactly can it talk about?