Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others

Must-Read: Matthew Yglesias puts his finger on a strong antinomy between right-wing economics and right-wing sociology. Right-wing (and some other) sociology puts a great deal of blame on the breakdown of social connections that lead people to act benevolently toward others who are not kin--for example, Banfield's blaming of southern Italian poverty on "immoral familism": "a dynamic of low trust, excessive localism, and extreme reliance on family networks". Right-wing economics requires that in making their economic decisions people and businesses focus only on how they themselves profit. But, as Matt points out, the corporation that is acting immorally if it maximizes anything other than its stock price bears more than a passing similarity to the bureaucrat who regards himself as acting immorally if he does not embezzle and transfer funds to his family.

A market economy is based on human gift-exchange psychology. And is remains, in large part, based on value-for-value gift-exchange rather than on the mutual pursuit of advantage in a network of con games. And wherever it does turn into a con game, it tends to break down:

Matthew Yglesias: Sounds like a lot of money: "Robert 'Making Democracy Work: Civic Traditions in Modern Italy' Putnam...

...isn't a conservative. When I asked Tyler Cowen how he explains Southern Europe he pointed to Edward Banfield's 'Moral Basis of a Backward Society'. Francis Fukuyama has also treated the subject well in his recent books 'The Origins of Political Order' and 'Political Order and Political Decay'.... Southern Europeans are stuck in a dynamic of low trust, excessive localism, and extreme reliance on family networks. There is a lack of impartiality in institutions and an ethic that 'doing what's right for my family' rather than 'following the law' is the right thing to do. A country that gives you the mafia rather than a correctly functioning legal system and police services is also not going to give you highly effective schools or job training programs. What nobody seems to think is that Greece is poorer than Denmark or Spain is poorer than Germany or Italy is poorer than France because those countries spend more money on their welfare states. It's convenient that people don't think that because it's not true....

The... relevance of Southern Europe to the United States is the current high social prestige enjoyed by the twin ideas that the social responsibility of a corporation is to be profitable and that the primary moral and legal obligation of a corporate manager is to enrich shareholders. These ideas combine to create a toxic moral climate.... In a healthy society, a business leader might invest time and resources in rent-seeking, but he wouldn't brag about doing so and certainly he might choose to take the honorable path and not do it. But the current paradigm in the implicit US political philosophy is that he has a moral obligation to divert resources away from R&D and toward lobbying... find ways to trick customers into overpaying... violate regulations if the Net Present Value of paying the fines when you are caught exceeds the cost of compliance... [thus] replicat[ing] Banfield's amoral familism, but with shareholders replacing the nuclear family as the local of ethical thinking. This is all further exacerbated by the ideas of Public-Choice Economics which tend to move from (correctly) asserting that government institutions' performance is often undermined to some extent by the self-interest of government officials to a kind of perverse fatalism which suggests that wholly selfish and inept behavior is all that is possible from public institutions.