A study of requirements for the optimal functioning of Capitalism quickly uncovers the need for a strong focus on trust. This applies to economics on the micro level as well as the macro perspective.
Trust is one of the ethical principles that make the difference between constructive and self-destructive operation in profit-driven financial businesses. In cultures where social development does not place sufficient weight on ethical norms and the reliability of its institutions, trust gradually dissipates.
Economic Ethics: This has profound implications both on the national level and on the individual level, writes historian of comparative religions and author, Hanne Nabintu Herland.
Economic Ethics: Former central bank director of USA, Alan Greenspan – who was part of the problem as the Federal Reserve failed to recognize the pre-crisis housing bubble in 2007 – makes a vital confession in his memoirs, The Age of Turbulence, when he states that we cannot build an economic society without an ethical foundation.
He admitted that the structured products were so advanced that the system’s ability to self-regulate in case something went wrong, started too late. The challenge was the human factor.
The assumption that the financial agents would show ethical reservations when it was necessary and act rationally, completely failed. The moral foundation failed completely. Mutual trust disappeared as people ceased to be trustworthy.
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Economic Ethics: Greenspan claims that economic theories are based on assumptions of how people react and choose to act. It is critical for the survival of the system that an individual makes good choices and operates with economic integrity and rationality. Something went off the rails.
What we need are more sober financial institutions, new structures, better monitoring, humbler bankers, and agents. That may, alas, be exactly what we shall not get, as the aftermath of the crisis seems to show that bailouts from the US establishment and helping hands have so far not faced any major judgement.
Peter D. Schiff points out in The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country that the US is enjoying a government-inflated bubble that will explode with horrifying consequences for the economy. Since 2007, the situation has become worse, as the chosen solution to nearly defaulting the national debt was to further raise the debt limit.
Schiff predicts this ride will lead to an abrupt devaluation of the US dollar and a crash that will end US power, its political system, and its way of life.
Whether he is right, remains to be seen, but the current worldwide push from non-Western nations to end the dependency on the dollar definitively pushes towards a multipolar system. Schiff states that entitlements, debt service, and other spending programs consumed over 100% of federal revenues in 2012. The rest of the government is paid for by borrowing.
Schiff states: “To avoid complete collapse, America must drastically reduce government spending, and regulations that drain businesses and suppress economic growth, eliminate costly and unnecessary agencies, stop foreign military escapades, and cut entitlements of all kinds for all classes of people.”
So, what’s to come is probably way worse than what we have experienced up to now – and all of it the end result of limitless greed, lack of self-restraint and self-discipline, lack of honesty and modesty, lack of trustworthiness and accountability, lack of precisely the kind of morality which religion points at as the way out of deep trouble. We have gone in the opposite direction of modesty and are suffering the consequences.
It is an unavoidable fact that an individual’s moral foundation plays a central role in order for market Capitalism to work properly. It is of utmost importance to be rendered trustworthy in the eyes of others.
Alan Greenspan and Economic Ethics: Alan Greenspan points out that people cannot function together unless definite values regulate daily choices. However, the content of values is culturally contingent.
Thus, the question arises: which values are we pushing for in the West today? Certainly, not the traditional foundational ethics that defined the age in which Capitalism first originated, as an economic model strongly tied to the Protestant Ethic.
Lack of trust in governmental structures or banks, end up encouraging financial actors to think only in terms of selfish profit. This very same problem permeates many African countries. When this happens in African or Asian countries, we call it corruption. There is little trust in the political institutions or the banking system; the rich enrich their own clan and family alone. When selfishness begins to permeate central positions, trust slowly begins to disappear, and each man takes care only of himself and his own family – which is the curse of Africa.
Some correctly assert that there is a tendency within the Capitalist structure to produce some wealthy individuals. Such individuals bear a significantly larger responsibility to use their wealth not only to their own benefit but again, “to the betterment of all.”
If a country has responsible, rich individuals, the country will prosper due to the wisdom and trustworthiness of these individuals. If a country has wealthy elites which only spend their earnings on their own families, the country will suffer poverty, corruption, and lack of justice.
Pope John Paul II said that the problem is that the current style of Western Capitalism is wrenched off its original moral foundation. If Capitalism is equivalent to individual profit without moral responsibilities, the economic system becomes self-destructive, placing wealth into the hands of some, not searching for ways of more just distribution. Some will become steadily richer, while the rest of the world population remain even poorer than before.
In 2015, 1% of the population in the world had more wealth than the rest 99% combined, according to Oxfam numbers. One of the results of globalism is that 56 individuals now own more than 50 % of world assets, again Oxfam.
A 2013 Pew Research Centre survey that asked people in a number of countries whether they believed that their children would have better-living standards showed that only 33% of Americans believed so, 17% of British and as low as 9% among the French.
The depressing mood is all-encompassing. It shall be most interesting to follow the US economy in years to come, now soaring unbelievable 30 trillion US dollars in debt.
