Financial Crisis as a Morality Tale

Economists often hesitate to make normative statements, usually preferring descriptions to judgments. In contrast, children’s Sunday school teachers always are seeking stories to promote ethical behavior. As a member of both camps, I’ve been amused by efforts to cast the financial crisis as a morality play.

The most common approach treats the financial crises as the fault of “selfish, greedy, Wall Street tycoons who were ripping off Americans,” to use former Mississippi Governor Ronnie Musgrove’s phrase. (1) Senator John McCain advanced such a narrative saying, “Americans are hurting right now, and they're angry. They're hurting, and they're angry. They're innocent victims of greed and excess on Wall Street and as well as Washington, D.C. And they're angry, and they have every reason to be angry.” (2) Politicians keep their stories brief and vague, but one presumes that the greed referenced involves the purchase of mortgage backed securities on margin. Leverage, of course, is a two-edged sword, and in ignoring risks investors were creating dangers not only for themselves but for the whole financial sector.

Still, such a tale omits important elements. Governor Sarah Palin’s debate slip about “a toxic mess, really, on Main Street that's affecting Wall Street” (3) was a better economic analysis than any candidate dares state intentionally. The losses that leverage amplified originated with mortgage defaults. Real estate speculation and mortgage default are brands of greed practiced by broader demographics and disqualify many from the “innocent victims” category.

Blaming all problems on investment bankers is as poor a Sunday school lesson as it is an economic analysis. The best parables instigate introspection. Creating scapegoats detracts from morals that could be drawn from the news, like the risks of speculative bubbles, the propriety of frugality, and the trouble of contracting with unreliable partners.

Speechwriters are in the business of crafting rhetoric, not economic histories nor Sunday school manuals. My hope is that the slogans and rhetoric are not mistaken for either of the more substantive genres. Elbert Thomas warned, “Very often repeating [a slogan] will make us think we have solved the question that gave rise to it." (4) Questions of economics and morality, however, demand more than slogans.

(1) "Wicker on the Wrong Side of Sub-Prime Lending Reform." A press release posted on Musgrove for U.S. Senate.
(2) Transcript of the Third McCain-Obama Presidential Debate. 15 Oct 2008.
(3) Transcript of the Biden-Palin Vice Presidential Debate. 2 Oct 2008.
(4) Thomas, Elbert D. The Four Fears. Chicago: Ziff-Davis Publishing Co., 1944. Page 5.

A Further Note on Political Ads

Living in an influential swing state, I have been completely inundated by political advertisements this election season (in fact, there is one on right now). It was only upon brainstorming a diatribe and formulating my new theory, a voter apathy threshold (more to follow), that I began to wonder about the history of the ads. Presidential candidates have used political ads since 1952-- check out these websites: The 30 Second Candidate and The Living Room Candidate for a history of the political advertising and a complete collection of ads from presidential campaigns (as if you haven't seen enough political ads already).