Bailouts are bad but didn’t cause riots
THERE are lots of problems in our society, much hypocrisy and many bad practices. White collar crime in the City or the House of Commons should be pursued and punished; it is right to cast the spotlight on the misdeeds of those at the top of society as well as those at the bottom.
But it is not the case that the behaviour of some bankers during the bubble or of some MPs over their expenses either helped precipitate or in any way morally justified the riots. It is also wrong to draw moral parallels between the credit crunch – which was primarily caused by monetary policy errors, global imbalances, moral hazard and intellectual error – and the riots. And even if I’m wrong, all of this would still be irrelevant to the underlying issues: appallingly, the UK suffers from a tragic underclass excluded from society; and the police seems unable to protect law-abiding citizens. I was asked to discuss this on BBC2’s Newsnight yesterday; here are some of the points I tried to make.
The argument is too middle class, too media-centric. I can’t believe there is a single kid on a council estate whose actions were influenced by inappropriate expenses or by the belief that our deplorable bank bailouts justified looting, arson and smashing shops. We are over-intellectualising last week’s events; they were acts of loosely coordinated theft, not a political protest or a moral statement.
Many of the looters – especially the younger ones – would have had no idea that MPs abused their expenses. Britain’s dispossessed minority does not watch the news or read papers; many are functionally illiterate, having been let down by sink schools, collapsed families, terrible neighbourhoods and gang culture. The vast majority are so far from the mainstream of the economy that they don’t understand what investment bankers do. The only rich people they are properly aware of are footballers, entertainers or local gang leaders. There is no empirical link between the crisis of 2008, the subsequent bailouts and the looting of 2011.
Another flaw in this argument is that one can’t equate errors of judgment – even unforgivable ones – by CEOs, and condoned by shareholders and regulators, to the violent, illegal smashing of a furniture shop or the murder of innocent bystanders. It is not illegal to go bankrupt or to take business decisions that turn out to be destructive and cost thousand of jobs. Some top directors are incompetent but very few are criminal.
You can’t even equate rewards for failure, however reprehensible, to muggings, beatings and arson. These are completely different categories of actions. Rewards for failure happen when the owners of a firm stupidly agree to pay senior staff even if they fail; the process is voluntary. It doesn’t take place at gunpoint in the middle of the night.
The problem is not greed per se – it is greed in the absence of the legal constraints created by property rights and the rule of law, or greed unconstrained by the fear of failure as a result of misguided bailouts. The genius of our civilisation is that it usually harnesses and channels our most base instincts – greed, fear, aggression – into productive pursuits. In a Hobbesian, all against all, zero-sum, pre-capitalist world, the only way to obtain something is to steal it from somebody else.
Bailouts and rewards for failure must end – but they had nothing to do with last week’s riots.
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