Economyths - ten ways economics gets it wrong Part 10

As discussed above, one's happiness depends on a number of factors. It generally doesn't help if you're stressed out and working incredibly hard to pay off a mountain of debt. At the same time, what counts for happiness is relative rather than absolute salaries. It would therefore make sense to aim for lower debt and lower economic growth, as conventionally defined in terms of GDP. As shown in Chapter 8, economic growth also often subtracts from environmental quality, which itself is important for happiness. This doesn't of course mean that growth or progress should stop, only that they should be redefined.

In unequal societies, though, it is hard for anyone to be satisfied with what they have in material terms. So the first priority is to reduce inequality, which as discussed earlier is also strongly correlated with a range of social problems. The sociologist Robert Putnam observed that: "Sometime around 1965-70 America ... started becoming both less just economically and less well connected socially and politically." 34 Free markets, if left to their own devices for long enough, tend to concentrate wealth and power into the hands of a small number of individuals or firms. We therefore need non-market mechanisms, such as those discussed in Chapter 7, to limit this tendency.

Another plank of happiness is freedom from excessive levels of economic stress. So it is desirable that the economy be reasonably stable. Economic shocks such as financial crashes or unemployment have powerful emotional consequences. "It's probably no accident that the economic term - depression - is the same as the psychiatric one," notes the psychiatrist David Spiegel. "People tend to feel bad when what they have planned seems suddenly to come apart, when their ability to be effective in the world is challenged."35 To restore financial stability is not the same as arguing for continuous growth. A low-debt, low-growth economy with a smaller financial sector may turn out to be inherently more stable because it has less leverage.

As mentioned in Chapter 6, a large amount of labour - including much done by women - is unpaid. This work, which is performed according to social norms, is vitally important for maintaining the happiness of a society. It should therefore be acknowledged and rewarded. One way is to use tools such as local currencies or time banks, which allow one to earn credits for services performed, and offer a balance between social and market norms. The popularity of these schemes has exploded in recent years, with many areas adopting their own local version.36 A shorter working week might lower GDP, but it would allow the informal sector time and s.p.a.ce to expand, with increased involvement by both s.e.xes.37 Finally, we have to acknowledge as a society that money and happiness are completely different quant.i.ties. The reason that GDP has soared in Western economies over the last few decades, but reported happiness levels have remained relatively static, is because they are not the same thing. The economy can't make us happy all by itself. We just need it to work. Happiness is a separate issue that eludes direct pursuit and instead emerges as the indirect result of other activities.

The neocla.s.sical model for economic growth is unsustainable and unsatisfying, not just because it requires infinite resources and harms the environment, but also because it relies on an eternal desire for more, which can by definition never be satisfied. It offers, not happiness, but the eternal promise of happiness, if we can just work harder and upgrade our lifestyles to the next level before everyone else does. We therefore need a new model of a successful society, in which money and material possessions play a subordinate role. Part of that is a new model for what const.i.tutes a full and satisfactory life. Who is to say that maximising individual pleasure is the guide to a good life - or that it is even appropriate, in a world where pain and suffering have yet to be banished? What about values and qualities like wisdom, humility, empathy, graciousness, justice, service, courage, loyalty, honour, spirituality, and love, which cannot be reduced to simple calculations of short-term utility?38 The main obstacle to achieving this switch to a more balanced and pragmatic view of the economy is, I believe, neocla.s.sical ideology. Anyone who takes an introductory economics course is taught that the individualistic pursuit of pleasure will, by a roundabout process involving the invisible hand, free markets, and so on, somehow make life better for all humanity.39 Since many of these students then go on to become leaders in business or government, where they perpetuate the same self-legitimising fiction, it is no surprise that we live in an individualistic, materialistic culture dominated by market norms. As a society, we're all sitting further away from one another.40 It's time we started telling a new story.

What's wrong with this picture?

Economics sees itself as an objective, impartial, detached science; however, as already discussed, theories influence the world they seek to describe, and sometimes in surprising ways. For example, for a theory that emphasises qualities like stability and symmetry and rationality, and downplays the role of the financial sector - the Arrow-Debreu model of the economy doesn't even include one - neocla.s.sical economics seems destined to create a world that is unstable and unfair and run by banks.

This points to perhaps the most puzzling fact about mainstream economic theory. On the one hand, it says that the economy is fair and stable and optimal. On the other hand, companies in the financial sector that actually control much of the world's wealth, and should therefore understand how it works, don't seem to pay any attention. They support all the correct neocla.s.sical think tanks, of course, but they also do everything they can to support inequality and instability. Such companies thrive on volatility, because they make their money by speculating on changing prices. If markets were really efficient, then price changes would be small and completely random, and it would be impossible to make a profit. It would be as exciting as surfing in a puddle.

And for that matter: why do we need central banks? If the economy is efficient and self-stabilising, and markets are all-knowing, what is the point in having a Federal Reserve tweaking interest rates? Wouldn't it be better to just let banks set their own interest rates according to the "law of supply and demand"?

And finally, if neocla.s.sical ideology is so rigid and widespread, why is it that free markets and small government are OK when the economy is on the up, but as soon as a crisis comes the first companies to get supported by the taxpayer are the banks? Shouldn't they be allowed to fail according to the law of "survival of the fittest"? Isn't it what their principles would demand? None of it makes sense.

In the final chapter, we therefore ask the inevitable, and entirely reasonable question: is neocla.s.sical economics all part of a giant global conspiracy - an attempt to distract us from the real game that is being played behind the scenes?

CHAPTER 10.

THE GOOD ECONOMY.

The world over, citizens think we are lying to them, that the figures are wrong, that they are manipulated. And they have reasons to think like that. Behind the cult of figures, behind all these statistical and accounting structures, there is also the cult of the market that is always right.

French president Nicolas Sarkozy, speaking on the need for new economic metrics to provide alternatives to GDP (2009).

What's important when you are in that hedge-fund mode is to not do anything remotely truthful because the truth is so against your view, that it's important to create a new truth, to develop a fiction.

Jim Cramer, television personality and former hedge fund manager (2006).

Mainstream economics teaches that the market economy, if left to its own devices, will maximise the utility of each individual and lead to the best of all possible worlds. This concluding chapter discusses how the mistaken a.s.sumptions and myths of economic theory mask our understanding of how the economy actually works. They persist not for scientific reasons, but because they serve a certain agenda. We see how a flood of new ideas is providing us with the tools to shape a better, fairer, and more sustainable economy. These ideas come from diverse sources: new areas of mathematics such as nonlinear dynamics, complexity, and network theory; social movements like environmentalism or feminism; and also the ancient discipline of ethics. Current economic theory is less a science than an ideology peculiar to a certain period of history, which may well be nearing an end.

The Lipstick Building is an elegant 34-storey postmodern office tower in midtown Manhattan. Resting upon an oval array of pillars, the red granite and stainless steel construction tapers to the sky in three layers, like an opened tube of lipstick. The first two floors contain an impressive gla.s.s lobby, adjacent to a pedestrian plaza. The building's largest tenant is a huge law firm, Latham & Watkins. Until 2008, the 18th and 19th floors also played host to a thriving and unusually profitable stock-trading and investment operation known as Bernard L. Madoff Investment Securities.

Madoff started the firm in 1960, at the age of 22, on savings of $5,000. Initially, most of his clients came from family contacts - his father was a stockbroker, his father-in-law an accountant. Madoff was a pioneer at developing fast computer systems to make quotes, thus allowing him to siphon business away from rival companies that were members of the New York Stock Exchange. The technology later formed the basis of the NASDAQ exchange. By 1992, Madoff's trading volume was equivalent to 9 per cent of the NYSE.

Then in the mid-1990s, motivated at first by a desire to cover up an investment loss, this Wall Street insider took something of a left turn.1 He set up what would become the largest investment fraud in history - a $65 billion Ponzi scheme, which sucked in money from private and corporate investors with the sole purpose, it appears, of enriching Bernie Madoff.

The 18th and 19th floors of the Lipstick Building were filled with the usual array of smart, college-educated traders, who gave the impression of urgent efficiency common to those who handle millions of dollars a day. They worked hard and long and were exceptionally well paid. Clients included Bear Stearns, Lehman Brothers, and Fidelity. The office was routinely audited by regulators. All in all, it was what you would expect from a successful financial company. That wasn't the whole story, though. Like a family with a secret in the bas.e.m.e.nt, the whole operation had another level - the 17th floor - that clients, visitors, regulators, and even the other employees rarely got to see.

This floor was staffed with a different type of person - less educated, less experienced, less skilled. They dressed casually, and worked only regular nine-to-five hours. Their jobs were simple and routine, mostly clerical work, but still well paid. They were the ones running the "hedge fund" that was the heart of Madoff's operation.

The scheme worked as follows. Madoff exploited his network of contacts in the business, philanthropic, and Jewish communities to take in money from wealthy investors, charities, or feeder funds. Advertising was by word-of-mouth, and referrals from the official business on the top two floors. The Madoff funds consistently delivered a high rate of return, and people asked few questions. If anyone wanted to withdraw money, they could at any time - there was always more cash coming in from new investors. But most preferred to allow it to grow. This was especially true of the charitable trusts that Madoff specialised in.

When asked how he managed to consistently beat the market, Madoff explained that his strategy was based on a combination of blue-chip stock investments and derivatives such as futures contracts. As he told the Wall Street Journal in 1992, this allowed investors "to partic.i.p.ate in an upward market move while having limited downside risk."2 The story was complicated but plausible enough to convince even major banks like HSBC or Spain's Banco Santander to invest billions. Intermediaries such as feeder funds were awarded high commissions, which discouraged too much a.n.a.lysis.

Madoff's operation came under suspicion from regulators a number of times and was investigated. But whenever they looked over the paperwork, and the reams of numerical data for all the stock transactions, it all looked OK. The only thing that brought it down was the crash in 2008, when too many investors tried to withdraw their funds at the same time, only to find that they had never really existed.

A new truth.

So how did Madoff manage to perpetuate this illusion of growth for so long? Part of it was his skill at creating a compelling story - a "new truth" - which according to Jim Cramer (host of CNBC's show Mad Money) is essential for any hedge fund, real or not. But technology - or rather the lack of it - also played an important role.

Madoff had built his original business around the innovative use of high-speed computerised trading. People on the top two floors had fast computers and real-time access to prices. But for the "hedge fund" Madoff preferred to use an antiquated IBM AS/400 machine, which was kept in a special gla.s.s case. Its outdated hardware - the range first came out in 1988 - meant that it was not compatible with the other systems.

That wasn't an accidental drawback; in fact it was the entire point. Madoff, perhaps with help from his closest accomplices, would have to enter the data each day by hand. This procedure allowed Madoff to fabricate a history of stock transactions that would give whatever rate of growth was desired. Trade confirmations for each client were then prepared separately, each showing the fict.i.tious gains calculated by the old IBM. In reality, no trades were taking place at all. There was a risk that clients would check, but it seems they never looked beyond the bottom line.

The key elements of this particular scam, then, were:* A complicated but plausible story. The hedge fund strategy could have worked in principle, and the returns were never so large that they seemed impossible. Its apparent complexity deterred questioning.

* Trust. Madoff was an insider who had built a reputable business.

* Incentives. Intermediaries were kept happy with high commissions. Investors were kept happy, or at least optimistic, with dreams.

* A network of rich and powerful contacts. Madoff had many wealthy friends, including entrepreneur and philanthropist Carl J. Shapiro, who chipped in a quarter of a billion dollars months before the scheme collapsed.

* Influence with regulators. Madoff and his family had extensive ties with regulators. He was a former chairman of NASDAQ and on the board of directors of the Securities Industry a.s.sociation.

* The illusion of growth. Madoff's funds showed consistent returns of around 10 per cent.

* An ageing computer. A machine that adjusts prices to agree with the story.

By 2006, Madoff had acc.u.mulated billions of dollars, which he mostly kept in cash accounts at Chase Bank. They financed a luxurious lifestyle for him and anyone in his gift-giving circle. But there was no investment, no real growth - all of that was a fiction. When the scheme collapsed, lives and inst.i.tutions were destroyed. Madoff was sentenced to 150 years in prison - the judge labelled his crime "extraordinarily evil."

Logic Piano II.

Now, it would of course not be correct to say that the scheme known as the "world economy," with its accompanying neocla.s.sical sidekick, is directly equivalent to a Ponzi scheme in which there is no actual investment or growth. However, there are a number of points in common, which are worth exploring.

First of all, the economy has a great story. Open compet.i.tion between individuals in free markets lifting the world out of poverty and optimising the levels of happiness for all mankind - sounds good to me. The story also enjoys a great deal of trust and credibility. It has been endorsed by the best universities, and even the n.o.bel Foundation. Introductory textbooks make sure to downplay or smooth over difficult or frightening issues like financial instability (bubbles are debatable), social inequality (no chapters on power discrepancies), or environmental degradation (someone else's problem).3 Anyone who remains unconvinced is referred to the elaborate and impenetrable mathematics that support the story. This usually deters further investigation.

The scheme has also made sure that partic.i.p.ants are adequately incentivised. Anyone working at senior levels is well paid, sometimes extravagantly so. The neocla.s.sical story means that ruthlessly pursuing your own objectives and ama.s.sing incredible wealth can be interpreted as virtuous behaviour - Goldman's CEO Lloyd Blankfein, for example, said his company was performing "G.o.d's work" - which is an important motivational plus.4 And the system has a powerful network of contacts at top universities, inst.i.tutions like the World Bank and International Monetary Fund, and the highest ranks of world governments - all of which employ or are run by neocla.s.sical economists.

The "investors" are kept in the game by the illusion that they can achieve happiness if they just work hard enough, along with the fact that most of them are heavily in debt. And many happy investors in emerging economies like China and India have seen huge increases in their material standards of living. (We'll leave aside the explosion in inequality in those countries, and also the fact that China - ranked 93 out of 141 countries by the Fraser Inst.i.tute for economic freedom - hardly meets the usual definition of a free market economy.) The scheme can point to an excellent track-record of growth, with consistent year-on-year GDP increases. Finally, and perhaps most importantly, it has that essential device, the very linchpin of its success: the ageing computer in the corner, the equivalent of Madoff's IBM - the NeoCla.s.sic Logic Piano (Mark II).

The inner mechanical workings of this beautiful old machine date all the way back to the 19th century. It was designed by true pioneers - including William Stanley Jevons, inventor of the original Logic Piano. In the 1960s it was updated with efficient market theory, and in the 2000s with the latest risk management techniques, but these were minor tweaks.

Again, it's no accident that the hardware is a little out of date, and incompatible with more recent technologies, because its role is purely cosmetic. The way it functions is very simple. The operator types in a price for whatever they want. The machine then makes a whirring sound, some cogs rotate, and it outputs: exactly the same number! Thus confirming, for all of a scientific bent, that the price is right.

If anyone inquires how the machine works, they are referred to the original doc.u.ments that explain how a pendulum housed inside measures "minute oscillations" of an energy-like quant.i.ty called "utility." Huddled scholars can also print out complex mathematical equations proving that the answer is rational, efficient and optimal. But in reality, of course, the machine just gives the market price, which, following neocla.s.sical theory, is right. As physicist J. Doyne Farmer and economist John Geanakoplos note: "Economic theory says that there is very little to know about markets: An a.s.set's price is the best possible measure of its fundamental value, and the best predictor of future prices."5 For example: in March 1996, and October 2002, the NASDAQ was priced at 1,140. Between those two dates, in March 2000, it reached 5,048. That might seem like an error - but according to the NeoCla.s.sic Logic Piano, the prices were right. There are even academic references to back it up.6 Here's another: the oil spike of 2008. All due to the forces of supply and demand, according to the machine. So again, there was no error. At all times, the price was right.

The same applies to any a.s.set or service, including human labour. Janitorial staff in Harvard not earning a "living wage"? Sorry about that, the price is right.

Sweatshop workers making clothes for Wal-Mart for cents an hour? Tough. The price is right.

CEOs earning hundreds of millions of dollars in compensation? Keep up the good work! The price is right.

Proportion of wealth owned by top 1 per cent of population, currently at 40 per cent and climbing? You're worth it. The price is right.

Bankers earning ma.s.sive bonuses at the same time as they break their banks? Kudos. The price is right.

Even the environment is taken care of. Species going extinct at the highest rate ever? The price is right. Impending risk of catastrophic climate change? The price is right. Carbonated oceans? The price is right.

So if any member of the world economy is unhappy or unsure about their statement, or if regulators smell a fish, or if someone just thinks the system is a little out of whack, or unfair, or in danger of some kind of collapse, then the NeoCla.s.sic Logic Piano will a.s.sure them that everything is OK. Look, it says: the price is right. Everything is in order. It's logical.

It's found that this nearly always helps to restore peace of mind. People go home secure in the knowledge that their wealth is being cared for and all is right with the world.

The money game.

A key difference between the "world economy" scheme and a Ponzi scheme such as Madoff's is that a Ponzi scheme is entirely supported by new investment money, while the world economy is clearly highly productive. Those rising GDP figures aren't an illusion, they represent real economic and technological progress: we're richer, healthier, better educated, and more mobile than at any time in history. However, both schemes are eventually doomed to hit a wall. Economic growth, as traditionally defined in terms of production and consumption, is unsustainable - not in the sense that it will be bad for the planet, but in the literal sense that it's not going to happen.

As discussed in Chapter 8, the world economy can be viewed as a kind of super-organism that takes in energy and raw materials, generates various objects and services for internal consumption, and expels waste to the environment. If we think of capital in terms of natural resources - e.g. sources of energy and raw materials - then we are living off the existing stores. Not a good thing. (I'd say they teach that in Economics 101, but apparently they don't.) At the same time, our waste products are actively degrading the world's forests, oceans, and atmosphere, thus leaving a horrendous bill for future generations. As ecological economists point out, it's like a Ponzi scheme, except that the new investors - "suckers" in investor parlance - who support the whole thing haven't been born yet. They say a sucker is born every minute, but in this case it's not quite true. As Herman Daly wrote in 1991: "The current beneficiaries ... try hard to keep up the illusion among those doubters at the end who are beginning to wonder if there are really sufficient resources in the world for the game to continue very much longer."7 Like the Ponzi scheme, the world economy funnels wealth up to a tiny elite. The other investors think or hope that one day they will join that select group. But again, it's not going to happen. If everyone on the planet lived like Americans, with the same environmental footprint, then we would need ten planets to support us all - and we don't have them. It's about as likely and as feasible as Madoff suddenly deciding, before he got caught, to return all his money to the investors, with interest. If everyone lived like Wall Street bankers, we'd need an entire galaxy.

Of course, with the world economy there is no single mastermind or organisation at the top. The scheme is not being orchestrated by the World Bank, or Goldman Sachs, or Bernie Madoff from his jail cell. It wasn't designed by William Stanley Jevons or Vilfredo Pareto or Milton Friedman. It is better described as an emergent feature of our society. The masterminds/investors are you and I.

And while Madoff was called a monster by those he ripped off, the world economy does not have evil intent. It's more of a giant game that has run out of control. One of the more entertaining moments of the crisis came in March 2009 when Mad Money's Jim Cramer was invited to appear as a guest on The Daily Show with Jon Stewart. For several days, Stewart had been mocking the financial forecasts of Cramer and his colleagues: "If I had only taken CNBC's advice, I would have a million dollars today - provided I started with $100 million." During the much-hyped showdown with Cramer, viewed by over 2 million people, Stewart accused him of trying to turn finance into entertainment, but "it's not a [expletive deleted] game." He also showed old videos of Cramer explaining, a little too clearly, how hedge funds manipulate the markets.

While Stewart's point is well taken, the truth is that markets are in large part a game - it's up to us to set the rules. Unlike Madoff, we may have the self-control and the motivation to wind the scheme up before it does more harm. Without the neocla.s.sical "price is right" machine, the scheme can't function. The story won't stand. The whole structure will come cras.h.i.+ng down of its own accord.

All we need to do is break into the metaphorical 17th floor, open the gla.s.s case, pick up the old computer, and smash it into pieces.

The price is wrong.

The tricky part, obviously, is that the machine is guarded and maintained by an elite group - the orthodox economists - whose sole function is to protect it from interference. Their loyalty is guaranteed by the special bond of tenure - described by Pablo Triana as "perhaps the biggest incentive for toeing the official line ever invented by humankind" - and occasional lucrative contracts in the private sector.8 Even the recent economic crisis, or the looming environmental catastrophe, is not enough to create more than a seed of doubt in their collective mind. Economist James K. Galbraith, a critic of conventional theory, notes that: "I don't detect any change at all ... It's business as usual." The behavioural economist Robert J. s.h.i.+ller, who knows a thing or two about human behaviour, told the New York Times: "I fear that there will not be much change in basic paradigms. The rational expectations models will be tweaked to account for the current crisis. The basic curriculum will not change."9 So what we can do instead is build an alternative, based on 21st-century knowledge and technology. Or better yet: a number of alternatives, all reasonably plausible, all giving answers that, although not in perfect agreement, still make more sense than those of the machine. The sound of "the price is right" being called out over and over will be drowned out by a cacophony of new voices.

These new theories will draw their inspiration from new areas of applied mathematics, such as network theory, complexity, and nonlinear dynamics. The economy has always been a complex, dynamic, networked system; but the development of the internet, increasingly globalised supply chains, and computerised banking mean that it is more necessary than ever to model it with the appropriate tools. By mining and exploiting the vast amounts of data now available on economic transactions, these techniques will revolutionise the way we understand and visualise the economy.

The theories will treat the economy not as an inert machine, but as a kind of living organism. The models and techniques will therefore resemble those developed for life sciences like systems biology or ecology or medicine. Instead of seeing the economy as a self-contained, closed box, the theories will include interactions with the environment over long time-scales. They will also avoid over-simplifying complex issues such as inequality, happiness, or climate change.

As an example of this approach, an editorial published simultaneously by the British Medical Journal and the Lancet in 2009 wrote that our high-carbon economy is causing a range of environmental, political, and health problems, particularly in poor countries. These include atmospheric pollution, deforestation, loss of biodiversity, extreme weather, drought, water shortages, spread of diseases, famine, and conflict. On the other hand: "The measures needed to combat climate change coincide with those needed to ensure a healthier population and reduce the burden on health services. A low-carbon economy will mean less pollution. A low-carbon diet (especially eating less meat) and more exercise will mean less cancer, obesity, diabetes, and heart disease ... This is an opportunity too to advance health equity, which is increasingly seen as necessary for a healthy and happy society."10 We need joined-up solutions to joined-up problems.

The theories will relax the neocla.s.sical obsession with "hard" equations and numbers, and adopt a more nuanced and multi-faceted approach. While they will take advantage of the new social and financial and environmental data being produced, they will not devalue things such as happiness or sustainability or the worth of other species just because they are hard to measure. They will consider new metrics, such as the Genuine Progress Indicator or the Happy Planet Index. They will also acknowledge the limitations of mathematical models and statistical measures, and balance them with words and narratives.

The theories will benefit from the insights of a diverse range of people including environmentalists, feminists, psychologists, and political scientists. Such collaborations will not be easily forged in traditional university settings, which divide researchers into finer and finer specialities. We therefore need new multi-disciplinary centres that place experts from diverse backgrounds into close proximity to work on shared projects. The centres developed for systems biology, such as the Inst.i.tute for Systems Biology in Seattle, can serve as a template.11 And once we start to treat the economy as a living thing rather than a machine, we will have to consider a field that dates back even further than the "price is right" logic machine: that of ethics.

Fuzzy logic.

According to mainstream economics, both the economy and the entire planet are inert objects that blindly go about their actions, slave to the law of cause and effect. Apart from extreme cases like murder, there isn't much point in trying to decide whether an action is good or bad, because the answer is implicit in the market price. As economists M. Neil Browne and J. Kevin Quinn note: "economists distinctly do not question the moral worth of market prices and wages."12 If something is good, then many people will want it, and its price will go up. The price is right. Neocla.s.sical economics isn't a theory, it's an excuse.

If, however, we abandon the idea that the economy is an efficient machine, and the markets are as all-seeing as the eye that adorns the pyramid on the US one-dollar bill, then we need an alternative frame of reference. Unfortunately, our reliance on the "price is right" principle seems to have atrophied our ability to make ethical judgements.

Three examples: one trivial, one medium, one large. The trivial one occurred around 2000. The single currency had recently been adopted in Europe, and a number of department stores and other outlets were offering to exchange pounds for euros. One night on TV, a news show interviewed a teenage boy who had spotted that one of these outlets had mispriced euros. He bought some euros from them at a low price, then sold them back elsewhere at the usual price, which made him a small profit. Then he went back to the first place and did it again. And kept doing it until the store caught on and corrected its mistake.

The TV interviewer did not take Jon Stewart's position and tell the boy off for playing a game with the market. Instead, she gave the impression that he was very clever and destined for a successful career in finance (probably true).

Indeed, a principle of economics is that arbitrageurs who buy low in one place and sell high in another perform a useful service by correcting market "anomalies." But just because a particular behaviour is fine when done in the context of a job, that doesn't mean it's something that is generally deserving of praise. The boy could have corrected the mistake just by courteously pointing it out to the teller. Instead he chose to make a profit. The ethical context has s.h.i.+fted - the behaviour isn't terribly bad, but it's slightly shameful, and certainly not worth celebrating. The point is not that traders should suddenly stop trying to take advantage of one another - that's the game they are paid to play - but we shouldn't get confused and think that those norms are correct in every situation.

Taking market norms to their logical limit ends with situations like the mortgage mis-selling that contributed to the subprime crisis; or the commodity price spike of 2008, when the financial community transformed basic necessities like wheat and oil into volatile and unaffordable a.s.sets.13 As investment manager Michael Masters testified to a US Senate committee: "If Wall Street concocted a scheme whereby investors bought large amounts of pharmaceutical drugs and medical devices in order to profit from the resulting increase in prices, making these essential items unaffordable to sick and dying people, society would be justly outraged."14 To address such issues we need a system of ethics that allows for fuzzy, graded statements instead of binary right/wrong, good/evil divisions. Trading for profit isn't always good or always bad, it's on a sliding scale that depends on the context. Adair Turner: "It is much easier to proceed in life on the a.s.sumption that either all markets are axiomatically good, or all speculation evil. The reality is more complex and requires us to make trade-offs and judgements. But there is no alternative to that complexity."15