The Grand Illusion
The New York Times recently ran an expose of Goldman-Sachs’ venture into the commodities markets, and the result of the firm’s purchase of a company that effectively gave Goldman control over the spot market in aluminum. The upshot of the Goldman purchase is that, as a result, the price of aluminum – that essential metal for both aircraft and soft-drink cans – has doubled, as have delivery times, and the additional cost to consumers is roughly $5 billion annually.
Now… I can see the argument for large business takeovers that benefit someone besides the company taking over, and I can see some benefits to at least someone in corporate behaviors such as those of as Walmart that have driven out thousands of local stores through lower prices and lower wages to employees. The average consumer benefits by getting lower prices, even if the workers get screwed, and small store owners and employees lose their jobs. And there are cases where huge financial corporations do get caught for illegal manipulations, which appears to be the case in the recent charges by the Federal Energy Regulatory Commission that J.P. Morgan illegally manipulated the price of electricity. The Goldman aluminum case is a bit different. Prices are up, as are delivery times, and everyone gets screwed but Goldman. The thing is… it’s perfectly legal under existing law.
In fact, as Americans are slowly realizing, a great deal of the financial machinations that led to the financial crisis, from whose results which we are hopefully finally beginning to emerge, were also perfectly legal. It turns out that it wasn’t illegal to lend money to borrowers who could not repay those loans, at least so long as the documents weren’t fraudulent. It wasn’t illegal to collateralize and securitize those bad investments, and it wasn’t illegal to create such a mess than the government had to bail out those institutions in order to keep the banking sector from collapsing. These are facts hammered at me by more than a few legal, financial, and mortgage types over the past several years.
All this brings up a more fundamental question. Just because something is “legal,” does that make it right? Should you engage in legal but unethical behavior? All too many business types do this every day, and such behavior illustrates a basic change in American as well as other societies that has occurred gradually but inexorably over the past century or so. Once upon a time, much of the law was merely a limited codification that outlawed what society viewed as the worst excesses of human behavior. Human social codes and behaviors also exerted a certain pressure on individuals and businesses to be more ethical.
But as laws have swelled and become more complex and prescriptive, those social conventions have eroded, more and more people seem to have come to believe that, if the law doesn’t forbid something, it’s all right to do it. In turn, in the United States, and elsewhere around the world, people have reacted by attempting to put their own parochial religious and moral beliefs into the law… which generates more and more conflict of the type that the Founding Fathers wished to avoid by separating church and state.
Years ago, a political science professor I studied under observed that when people used power excessively and irresponsibly, society always eventually reacted to reduce or eliminate that power. We’re beginning to see that reaction… and the result is most likely to be something that few of us will enjoy. All because we’ve decided, as a society, that if it’s not illegal, we can do it… whether we really should or not.
For many people today, if it is legal — it is ethical, or at least that’s how it seems to me. They don’t perceive a difference. The fact that the issue comes up for characters in many of your books is one of the things I really like about your books. Your characters often face a question of whether the ability to do something justifies doing it, or whether the fact that there are no formal prohibitions against (or requirements for) an action is enough to suggest that it can or should be done.
I suspect that this is something of a pendulum, and we’ll see it swing back in the not terribly distant future, as we face the consequences more and more of that sort of thinking. But until then — we’re quite possibly headed for a rather bumpy road.
I’m not sure that ‘laws becoming more complex’ has a causal relationship to this change in attitude (‘if it’s not illegal, you can do it’), rather than being coincidental, or even a result of that attitude. I also think that in saying there has been a change in attitude at all, you may be casting our forebears as the noble savage – i.e., it’s not that earlier Americans heroically ‘decided’ not to act this way, it’s that they didn’t have a choice – they couldn’t get away with it, so they didn’t do it.*
Social codes and behaviors were (and are) constraints. Where I find a different explanation is that since the days of yore (read: the “It’s a Wonderful Life” or “Leave it to Beaver” eras that are often idealized as the American golden age), technological advances have vastly expanded our social communities beyond our neighborhoods, cities and states, both in terms of communicating with people who aren’t nearby and our ability to physically relocate.
This has the side effect of making it easier to leave a social group if it doesn’t match your self interest and shop for one that does (you don’t just hop on the train to the Big Apple and hope it works out – you know before you get there). So, the codes that bound the acts of earlier generations are less effective because it’s easy to escape their enforcement mechanisms of ostracism or shaming (or violence). Of course, the ability to exit and shop is easier if you have more money.
This is where technology comes in again, in that (using your rapacious financiers as an example) it’s now possible to work in New York, and make money by duping Commissioners in Jefferson County, Alabama into financing their community with ruinous derivatives contracts (or whatever your favorite wall street excess story is). The technology makes these transactions possible by enabling distance and complexity, and the distance means you don’t live where the damage from your actions will have any effect on your social standing.
Once these groups ‘found’ each other, they were able to pool their resources and have laws changed to suit their purposes. So, as you noted, very little of the destructive acts that precipitated the financial crisis were actually illegal (or the Goldman/JPM example in the NYT and Bloomberg you discuss). To tie this up, the change in the laws comes from the attitude, not the other way around.
In terms of the ‘if it’s not illegal’ attitude manifesting outside of the wealthy, I think it could be a side-effect of the trend towards gilded-age wealth inequality.
The defenders of this wealth distribution are using their political allies and media outlets to beat the mantra that economic structure is a binary choice – capitalism or socialism, with no in-between. If you criticize any aspects of free markets or deregulation that make this distribution possible, you are a socialist, which is bad because, you know, the USSR and welfare queens and stuff.
It could also be that there is less allegiance to the It’s a Wonderful Life social code because it simply isn’t working for people that adhere to it. Many people are being left behind in this economy, and they know it because they benchmark themselves off of Leave it to Beaver – ask yourself how much Ward Cleaver would have to make a year in 2013 dollars to finance what is seen as the idealized middle class existence that is the right of someone who works 40 a week and pays their taxes. This is fostering an every man for himself attitude; the fear of social consequences outweighed by the fear of ruin our outright hopelessness.
Sorry for going on, I didn’t have the time to write a shorter response…
* Not to get too far afield, but see also, e.g., segregation or the economic imperialism US businesses undertook in the developing world throughout the middle part of the century. Neither was illegal – where was the noble restraint?
Is it me and creeping middle-aged nostalgia, or is it a sad truth that many of the non-law based enforcements which govern behavior and build it in children have been left behind? Left behind or force-ably stripped away by the rest of society in an effort to be more ‘fair’ and ‘kind’ to others.
Perhaps I view things through rose colored glasses, but it seems that many things which people do today would never have been tolerated as little as thirty years ago. Never mind fifty or more years ago. That individuals took more of a personal insult at seeing others break the social codes. And because of that personal insult view of it, they acted immediately and in firm fashion to stop what the individual breaking the code was doing. Often, I’ll grant, in a violent fashion.
In today’s age of ‘free speech’, people believe they can say most anything. Where as previously, you were allowed to say anything, but if you said something deliberately offensive, others would take you to task for it. Without involving the law. If your child misbehaved, you could discipline them, others could discipline them, without some one crying child abuse.
Any number of societal regulatory controls, that seem to have been push away in the name of making life better, but have result instead in in the next successive generation being worse than the previous.
In a society where pretty much anything goes, why are we surprised when there are people who take that to heart?