Posts Tagged ‘rational irrationality’

I ended Friday’s post with the point that, contrary to what John Cassidy and Barry Ritzholtz assume in their arguments, what is rational is not necessarily good. The blurring of the line between reason and goodness comes, ultimately, from the ascendancy of atheism and, hence, materialism among intellectuals. In place of fundamental and eternally-established goods present in a theistic worldview, materialism turns to reason as capable of determining what’s good. I don’t know where Cassidy and Ritzholtz stand on the existence of God, but they both argue from materialist assumptions. To illustrate the difficulty that causes in seeing how to deal with the sources of the financial crisis, let’s take a look at a few quotations from Cassidy’s arguments.

In explaining the problems with getting cooperative behavior in a prisoner’s dilemma, Cassidy writes:

Attempts to act responsibly and achieve a coöperative solution cannot be sustained, because they leave you vulnerable to exploitation by others. If Citigroup had sat out the credit boom while its rivals made huge profits, Prince would probably have been out of a job earlier. The same goes for individual traders at Wall Street firms. If a trader has one bad quarter, perhaps because he refused to participate in a bubble, the results can be career-threatening.

In these two examples, Cassidy assumes that, at base, the good is self-interest. He notes that Prince would have been out of a job if he did not lead Citigroup into the credit boom and that individual traders who do not participate in bubbles stand to lose their job or see their career prospects damaged. All of those things may be true, but we can see fairly easily that, although the decision of a trader to participate in a bubble may be rational if he has the end of keeping his trading job, it would be irrational if he has the goal of only earning a living through activity that did not lead to long-term harm to himself and others. Indeed, if he has the second goal, his behavior in participating in the bubble would be illogical.

Let’s take another example. Writing about the subprime mortgage boom, Cassidy notes that

…many mortgage companies extended home loans to low- and middle-income applicants who couldn’t afford to repay them. In hindsight, that looks like reckless lending. It didn’t at the time. In most cases, lenders had no intention of holding on to the mortgages they issued. After taking a generous fee for originating the loans, they planned to sell them to Wall Street banks, such as Merrill Lynch and Goldman Sachs, which were in the business of pooling mortgages and using the monthly payments they generated to issue mortgage bonds. When a borrower whose home loan has been “securitized” in this way defaults on his payments, it is the buyer of the mortgage bond who suffers a loss, not the issuer of the mortgage.

Here, Cassidy gives the basic logic of companies giving home loans to people who cannot afford them. (For a first-person account of this logic in action, listen to This American Life, Episode #390, Return to the Giant Pool of Money. The whole episode, really the whole series of episodes about the economic crisis, is great, but the relevant section starts at about 17:05 on my podcast version.) Again, we can call the logic rational, but only if the goal of the mortgage company is to make money on a product that doesn’t have intrinsic value. If we assume that a mortgage company’s goal is to make money by providing loans to people who have a good likelihood of paying them back, then the mortgage companies Cassidy describes were acting completely irrationally.

So, if we cannot judge the goodness of an action by its rationality, we need to have another way of determining whether an action is good. This is where externally-established standards come into play. In a column in last Monday’s New York Times, David Brooks wrote about such standards and the role they have played in American national history. After quoting several statistics about ballooning personal and public debt in the U.S., Brooks makes the following observation and recommendation:

These may seem like dry numbers, mostly of concern to budget wonks. But these numbers are the outward sign of a values shift. If there is to be a correction, it will require a moral and cultural movement.

Our current cultural politics are organized by the obsolete culture war, which has put secular liberals on one side and religious conservatives on the other. But the slide in economic morality afflicted Red and Blue America equally.

If there is to be a movement to restore economic values, it will have to cut across the current taxonomies. Its goal will be to make the U.S. again a producer economy, not a consumer economy. It will champion a return to financial self-restraint, large and small.

In the broad strokes, Brooks is exactly right. We do need a “moral and cultural movement” to confront the shift in values away from discipline and rectitude, and it must be broadly-based. Whoever would like to be a part of that movement would do well to consider these two exhortations from The Hidden Words of Baha’u’llah:

O MY SERVANT! The basest of men are they that yield no fruit on earth. Such men are verily counted as among the dead, nay better are the dead in the sight of God than those idle and worthless souls.

O MY SERVANT! The best of men are they that earn a livelihood by their calling and spend upon themselves and upon their kindred for the love of God, the Lord of all worlds.

Only with such standards in mind can we use rationality to determine which actions are good and which are not.

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