Bailouts: Against all the rules
6 gennaio 2012
He who makes mistakes must pay the price. Ever since the crisis erupted five years ago, this key law of the market economy has been trampled on. Politicians must now decide between prosperity and morality, writes Die Zeit. Estratti.
Anyone who takes the trouble these days to trawl through internet forums on the economic crisis will make an interesting discovery. It is not the incredible amounts being pumped into the market or made available through various bailout funds that are provoking the greatest resentment, but the people that the money is going to: the bankers, who have been on the gravy train a long time and are now sliding into bankruptcy; the states that have lived beyond their means and are no longer getting fresh funding; the homeowners who have taken on too much credit and can no longer pay off their debts.
Misbehaviour is being rewarded instead of punished. This is essentially what Western societies have been witnessing for the last five years. In order to understand the increasing irritation with continual bailouts one must take into account not just the financial dimension of this crisis, but also the moral one.
One can better understand this with a psychological concept – the phenomenon of cognitive dissonance, which denotes the contradiction between the way we imagine the world and the way the world actually works. Something similar happens in the fable of the hungry fox and the grapes growing on a vine high up a wall.
Again and again the fox leaps, snapping at the grapes, but they remain out of reach. Accustomed to getting what he wants, the fox gradually becomes annoyed by the contradiction with his self-image. What the industrialised nations are going through is not much different.
Carrot and stick of a free economic system
At the core of all individualistic Western notions of justice lies the principle of personal responsibility, which is deeply rooted in Western thought. Each person is responsible for the consequences of his own actions: that awareness not only disciplines, but motivates. The correlation between risk and liability is the very foundation of capitalism and is what allows the market to transform the individual pursuit of profit into the common good.
“Investments are made more carefully the more liable the person responsible for these investments is. Only when liability is absent do we see excess and indulgence,” wrote the Freiburg economist Walter Eucken, one of the architects of Germany's social market economy in the 1940s. Most political economists today would still put it the same way.
The principle of personal responsibility is the carrot and stick of a free economic system. Total solidarity on the other hand destroys the incentive systems of capitalism – and thus capitalism itself.
It is because this market economy imperative and a prevailing sense of social justice go together so well that the call for increased personal responsibility has been the signature tune accompanying the reforms of economic liberalism since the 1980s. Everyone can make it – but everyone can lose, too.
As is often the case, this has been pushed to its extreme by the Americans. In a recent televised debate, presenter Wolf Blitzer asked Republican presidential candidate Ron Paul how society should deal with a young man who didn’t think it necessary to take out health insurance and is now lying in a coma. The man must take responsibility for himself, Ron Paul answered. Blitzer asked if this meant that society should let the young man die. “Yes,” roared the audience.
Undermining the moral foundations of the market economy
Positions like these are repellently radical to continental Europeans. But matters of life and death apply here too. Those who bring on their own destitution can only count on limited help from the community. Against this backdrop, rescuing governments or banks must be taken as gross violations of the rules.
To the increasingly desperate cry for justice, those who supports bailouts respond with arguments about “efficiency”: If a bank falls, everyone will go down with it, and small savers in turn will lose their money too. If a state totters, everyone totters with it, and law and order will break down. It's the poorest who will suffer most. In short, bailout is cheaper than bankruptcy.
But help is also not without risk. When the European Central Bank (ECB) pumps half a trillion euros into the banks, the risk of inflation is real if financial authorities fail to recover the money in due time. What is even more crucial is that if the operation is to succeed it must not cost the taxpayers a single penny, while it must ward off the great calamity at the same time. Central banks were founded for precisely this purpose.
If it emerges that the bailouts succeed but also undermine the moral foundations of the market economy and perhaps even of society itself, then the West will find itself in the uncomfortable position of having to choose between prosperity and justice. In other words, either we are prepared to accept the risk of meltdow or we accept that, looking at the big picture, small injustices can be allowed during crises.
It's a tough call. In the Great Depression of the 1930s, states placed morality above all else. By refusing to step in, they ruined the economy. Today states place the economy above all else, and so may destroy morality. In the end, perhaps there remains only the path that the fox in the fable chooses. Realising that the grapes are out of reach, he grumbles, “They're much too sour for me anyway,” and walks off. To resolve the contradiction, that gap between his imagined and his real abilities, he lies to himself.
Traduzione di Anton Baer