I'm with Zingales here: an ethical dimension should be added as an orthoganal line of thought to the profit-maximising dimension when it comes to business school instruction. However, I am a bit more skeptical on a claim by Yglesias that the unethical/criminal behavior in business has been on the uptic in the wake of Milton Friedman's ideas. This is just a general view I have: mores and morals do change, but they do so slowly and the basic reality of human nature stays relatively constant over extended periods of time. Certainly, I would not expect that the propensity of humans to cheat and steal would change over as little as 30 years because of some thought that some guy had.
I think, rather, that what we see is confirmation bias at work. That is, when a particular industry or a political unit (city, state, country, whatever) is embroilled in deep economic trouble and/or is on the verge of collapse, evidence of corrupt, unethical, dishonest and illegal practices tends to come to the surface. When things are going swimmingly for everyone, on the other hand, people just tend not to notice these things. When the tide recedes, all sorts of flotsam, jetsam and other junk is bared for all to see. Consider this:
- the securities industry of the late 1920s is associated in our minds with - crudely put - snake oil salesmen being everywhere. Not coincidentally, the biggest financial and economic crisis of the 20th century followed and 1933 and 1934 were seminal years for the federal regulation of banking and securities sectors.
- the next set of scanal-prone bankers came upon us in late 1980s and early 90s, culminating in the Savings and Loan crisis and a bunch of said bankers ending up behind bars.
- as minor distractions compared to what followed 6 years hence, the WorldCom and Enron scandals roughly coincided with a recession of the early 2000s that followed the dotcom bust.
- we're currently living through the next set of scandals, which, predictably enough came hot on the heels of the biggest financialclusterfuck catastrophe in 80 years.
Now, do we really think that the financial industry professionals have been living open, honest and modest lives between the 1930s and 1990, between 1990s and 2002 and between 2002 and 2008? I suppose it could be that prevailing regulatory regime at the time and/or the overall profitability of the industry just squeezed the lying cheats into other sectors of the economy as between 1930 and 1990. But the lying cheats are always with us. And always have been. And always will be. With or without Milton Friedman's encouragement. We just need to try to make their lives very difficult where it matters.
I think, rather, that what we see is confirmation bias at work. That is, when a particular industry or a political unit (city, state, country, whatever) is embroilled in deep economic trouble and/or is on the verge of collapse, evidence of corrupt, unethical, dishonest and illegal practices tends to come to the surface. When things are going swimmingly for everyone, on the other hand, people just tend not to notice these things. When the tide recedes, all sorts of flotsam, jetsam and other junk is bared for all to see. Consider this:
- the securities industry of the late 1920s is associated in our minds with - crudely put - snake oil salesmen being everywhere. Not coincidentally, the biggest financial and economic crisis of the 20th century followed and 1933 and 1934 were seminal years for the federal regulation of banking and securities sectors.
- the next set of scanal-prone bankers came upon us in late 1980s and early 90s, culminating in the Savings and Loan crisis and a bunch of said bankers ending up behind bars.
- as minor distractions compared to what followed 6 years hence, the WorldCom and Enron scandals roughly coincided with a recession of the early 2000s that followed the dotcom bust.
- we're currently living through the next set of scandals, which, predictably enough came hot on the heels of the biggest financial
Now, do we really think that the financial industry professionals have been living open, honest and modest lives between the 1930s and 1990, between 1990s and 2002 and between 2002 and 2008? I suppose it could be that prevailing regulatory regime at the time and/or the overall profitability of the industry just squeezed the lying cheats into other sectors of the economy as between 1930 and 1990. But the lying cheats are always with us. And always have been. And always will be. With or without Milton Friedman's encouragement. We just need to try to make their lives very difficult where it matters.
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