What is, or should be, the link between morality and narrow economic rationality?which in turn causes him to ask a second question,
should maximizing behaviour really be tempered by considerations of morality?His answer begins,
In many cases, the answer is clearly yes, because there is in fact no trade-off between rational maximization and moral conduct.As Deirdre McCloskey has argued, "bourgeois virtues" of prudence and temperance enrich both individuals and societies. Trustworthiness is one way of overcoming the problem of asymmetric information which can cause markets to fail to develop.But could you ask in this case, Are you in fact being moral or just rational? If being moral is a purposeful act then is acting in this way moral? Morally seems to be externality here.
In other cases, though,there is a sharp trade-off between morality and economic maximization.So what we see here is that having a stronger moral code may make us worse off in economic terms. Thus there is a trade-off between morality and economic well being, something that those who argue for economic agents to act in a moral way should keep in mind.
This is most clear in the euro. The moral belief that reckless debtors and lenders must suffer ther consequences of their imprudence is perhaps the biggest obstacle to a resolution of the debt crisis.
But it's also true in other areas. For example, social solidarity and fellow-feeling can retard growth by encouraging the emergence of "Olson groups" who lobby for special favours.
And one might argue that the trade-off also exists in the cases I started with:
- The same sort of desire to follow rules that would have prevented Barclays from manipulating Libor can also inhibit innovation. One feature of genuine entrepreneurship is the desire to reject established ways of doing things. A society in which people followed unwritten rules would have fewer Libor manipulators - but also fewer good entrepreneurs.
- Greater tax morale would encourage governments to spend more, not necessarily on useful projects.
- A stronger work ethic would make the unemployed even more unhappy.