Dr Butler Wants You To Look Over There

July 2, 2012

I know I’ve been blathering on about the Adam Smith Institute quite a lot lately (my reasons for doing so aren’t unique, though), but this is particularly egregious:

“Do we need an inquiry on the Libor scandal? No. The boom phase of every boom-bust cycle breeds this sort of excess and dishonesty. It is to be expected. All another banking investigation will conclude is that we need more curbs on the banks. That might cure the symptoms – quite probably by killing the patient – but it will not prevent the disease from coming back.

Instead, we would be much better investigating and curbing the excess and dishonesty of the politicians who created the artificial, unsustainable boom in the first place, and thereby encouraged the banks – and we borrowers too – to make some pretty massive mistakes and do some pretty colourable things.”

Dr Butler, Director of the Institute, is asking us all to ignore the actions taken by bankers over the period during which Barclays, amongst others, were purposely manipulating the LIBOR rate in order to gain pecuniary advantage. Instead, we should blame the politicians who were responsible for the cheap credit that inflated an unsustainable boom. Apparently, bankers are incapable of controlling themselves in the presence of large amounts of money, and so should be left well alone:

“And sure, in the process, a lot of people did a lot of stupid things, and a lot of bad things. It’s pointless, though, for the people who actually hosted the party now to wring their hands, blame the people who got drunk on their easy credit, and say that we need new investigations over what went on, and new restrictions to stop them doing it again. What went on is perfectly obvious. And it was encouraged by government-created disincentives and excess.”

What Dr Butler is saying is that if you host a party and provide alcohol, you’re to blame if people get drunk and vomit all over the upholstery. This provides an interesting, but I’m sure inadvertent, insight into Dr Butler’s social life: at parties hosted by the Adam Smith Institute, the host always pays to clean up when people get too tipsy for their own good.

I regret to say, at my parties people who act like twats get kicked out (although in one notable instance, they did try to kick down the door afterwards). Perhaps I’m insufficiently libertine for the ASI, but I think the problem lies in an interesting inversion of standard left-wing tropes about the poor.

During the London riots, the instinctive response of many Guardian-reading types was to point to the social conditions of the rioters as an explanation for their actions. They were always very careful to say that these conditions did not excuse the riots, but they were something we should bear in mind when considering our policy response. This is in much the same vein as Dr Butler’s plea that the venality of the bankers involved in manipulating LIBOR should be understood in the political context of the times.

Both parties are making the claim that the structure of incentives surrounding the actions of their preferred social group at a given point go at least part-way to, if not justifying, then explaining their actions, and demanding that Government action bear this explanation in mind. Both parties are making the fundamentally patronising and dehumanising claim that their preferred group is incapable of making moral judgements because of a nice big fat pile of cash or a lovely pair of trainers. Both parties are guilty of spouting bollocks.

No-one can claim that someone else is incapable of making moral judgements, because no-one gets exclusive access to morality. Making such a claim is tantamount to saying that only your moral vision is true and pure, and that the vision of other people is in some way fogged by returns on interest-rate derivatives or a flat-screen telly.

In this case, Dr Butler is doing precisely that. Moreover, he is doing so in a way which ignores the facts of the case, and the sheer spivvery of the people involved. The role of Government and the Bank of England in setting LIBOR is tangential – the short-term interest rates which are in the BoE’s gift do have an impact upon on it, but the strongest influence rests with the group of banks whose estimates for the rates other banks will charge them for money go into deriving it. Blaming Government for this is rather like blaming the party host for the people who make ‘cocktails’ using every available kind of alcohol, and are surprised when they’re violently ill. The best way of dealing with such people, of course, is to not invite them back to the party.


2 Responses to “Dr Butler Wants You To Look Over There”

  1. andrewdsmith said

    I think that there has been a bit too much talk of incentives here from all parties, including those who want more regulation, and not enough consideration of institutional culture.

    • Adam Bell said

      An anthropological survey of banking culture would be fascinating. The impression I get from insiders’ accounts like ‘Liar’s Poker’ is of institutions with more in common with cults than with ordinary companies. They work to engender a very specific form of morality through their internal culture.

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