Bailouts, capitalism and the financial markets
....polling in America shows that most people, whether rich or poor, Republican or Democrat, don't believe that the government should give this money to financial firms, even if the collapse of those firms would have an adverse effect on the economy. So we're now faced with the seemingly incongruous situation of looking at an industry that sings the praises of capitalism and the free market, but wants the State to bail it out when it's in trouble.
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Alan Saunders: John Armstrong, let me approach the same question from another point of view. You have drawn attention to a separation in society between the moralists and the technicians. What did you mean by that?
John Armstrong: Well what I mean is that when we look at something like the current crisis, there are people who think of it as 'something has gone wrong with the machine.' We're not exactly sure what it is, some bit of wiring is wrong, a bit of regulation is in the wrong place, we've pressed the wrong lever; we were supposed to press the accelerator and we pressed the brake, or the other way round. And they basically think fundamentally this is a technical problem.
Then the moralists of whom, say Kevin Rudd would be an important instance, would say that this is primarily a psychological problem. It's grounded in his case in an almost a biblical picture of a human greed, a sort of sin or vice which has worked its way through our system and now we're seeing the consequences, as it were, of sin in the world, a very moral picture of the situation that we're in. And I think that this kind of division between technical account and a moral account can apply in many areas of life, but it's quite striking the way in which these divergent themes are around just at the moment.
Raghuram Rajan: Let me just take on this moralist versus technicalist. I do think that when people say greed is responsible for all this, greed is at the foundation of the capitalist system. You want more, call it greed, call it incentives for more, it's very much the sense that that's what drives better performance there. It doesn't mean that the more greedy you are the better a capitalist you are. It just means that there is this incentive at the bottom of everything that people do. And what went wrong, and this is where I think I qualify the technical list, is not so much that people were greedy, they've been greedy historically, it's that the greed spilt over into excessive risk-taking. And usually there are ways to contain this greed in useful ways, so that the greed - there's a famous Adam Smith saying 'It's not by the benevolence of the baker that you get your bread, but by his need for his desire for money', I'm torturing that quotation but you get the picture.
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