Should the virtues be revered?

When people are conscious that they are doing good they sometimes feel that they are serving something larger than themselves. It has been suggested that this feeling of elevation is necessary to have a meaningful life. For example, Martin Seligman defines a “meaningful life” as “using your signature strengths and virtues in the service of something much larger than you are” (“Authentic Happiness”, 2002: 263).

Such feelings of elevation do not always have to be present for people to behave morally. As Lynn Stout has pointed out, civilized life in urban societies depends to a large extent on passive altruism – people do not generally steal, even when there is a very low probability of being caught (‘Taking conscience seriously’, in P Zak (ed), “Moral Markets”, 2008: 157). We feel elevated or inspired only when doing good involves some effort or sacrifice.

In the final chapter of his book, Seligman speculates that human history is a process that is heading ultimately towards “nothing less than omniscience, omnipotence and goodness”. He suggests that the best we can do as individuals is to be a small part of furthering this progress: “this is the door through which meaning that transcends us can enter our lives” (260).

However, it seems to me that issues relating to historicism are more relevant to people whose aim in life is to be on the winning team – history’s hastening agents – than to those who want to live a meaningful life. I find it hard to see how it could be elevating to choose to do good just in order to be on the winning team.

I think it would be better to view the impulse to serve a good purpose in challenging circumstances as the door through which meaning that transcends us can enter our lives. Seligman discusses evidence earlier in his book (chapter 8) which suggests that the concept of goodness is ubiquitous rather than relativistic. We all tend to have similar views about what constitutes goodness despite differences in our individual tastes, social conventions and religious beliefs. Six virtues are endorsed by almost all religious and philosophical traditions: wisdom and knowledge, courage, love and humanity, justice, temperance, and spirituality and transcendence.

Is it possible for meaning that transcends us to enter our lives if we do not believe that the virtues are the result of divine intervention? I don’t see why not. We can view the expression of goodness as a potential of all humans while remaining agnostic about the source of this potential. The expression of goodness may be viewed as a natural part of what it means to be human. The actualization of this potential is a transcending experience for each individual because it requires us to move beyond the consideration of personal pleasure and pain. At the same time, because of our nature, the actualization of potential is an individual experience requiring the exercise of practical wisdom – there is a universal potential, but no universal recipe for the expression of that potential.

If we view the expression of goodness as a human quality, does this mean it cannot be revered? Why not? If we feel inspired by the virtues of others and elevated by our own efforts, surely be can permit ourselves to feel reverence for the potential for good that resides within every one of us.

William Wordsworth captured something of the feeling of reverence I have in mind in a poem written in 1802:

My heart leaps up when I behold
A rainbow in the sky:
So was it when my life began;
So is it now I am a man;
So be it when I shall grow old,
Or let me die!
The Child is father of the Man;
I could wish my days to be
Bound each to each by natural piety.
(Source: here)

Does self-help enable people to live more happily?

According to the usual market tests, the self-help industry seems to be successful. People are prepared to pay substantial amounts for the goods it offers and it seems reasonable to presume that they obtain benefits that are commensurate with the amounts they pay. But some people claim that these benefits are illusory. Does the self-help industry just produce psychobabble that gives people false hope? Or, does this industry assist people to achieve lasting gains in happiness?

Although the research has not yet been done that would enable these questions to be answered in a definitive way, a recent issue of “The Journal of Happiness Studies” contains articles that discuss some relevant issues (Issue 3, 2008, here). In particular, an article by Ad Bergsma examines a sample of best-selling self-help books that have themes relating to personal growth, personal relations, coping with stress and identity. (Authors of the selected books include Gray, Goleman, Dyer, Csiksezentmihalyi and Carnegie). The books were examined to see how closely their messages fit with observed correlates of happiness derived from scientific research. The results seem encouraging. The factors that the books strongly advocate (calmness, independence, internal locus of control, intimacy, love-life and marriage, mental health, self-actualization and tolerance) are nearly all positively correlated with happiness. (The exception is independence, for which results are ambivalent.) The books also strongly recommend against aggression, which has been shown to be negatively correlated with happiness.

Bergsma also refers to research on self-help that has been undertaken by others. This research suggests that most readers of these books are not chronically unhappy. Reading self-help books seems to be part of a coping style of people who are attempting to improve themselves. There is also some evidence that reading problem-focused self-help materials can be effective in the treatment of disorders, and even have outcomes comparable to therapist administered treatments. Bergsma suggests that the books may function in a way that is similar to travel guides: “Most readers will not follow
the book page by page, but will study parts of the book and will select some travel
options they would have never heard of without the book”.

In order to be successful in enabling people to live more happily self-help books would need to encourage people to reflect on their own patterns of thinking and behaviour and to consider whether changes are necessary. That is certainly true of Martin Seligman’s book, “Authentic Happiness” (2002). Seligman suggests: “Insufficient appreciation and savoring of the good events in your past and overemphasis of the bad ones are the two culprits that undermine serenity, contentment, and satisfaction” (70). The remedies he suggests are gratitude, to amplify the savoring and appreciation of the good events gone by, and forgiveness, to loosen the power of bad events to embitter. Seligman also makes many other suggestions, including making an annual appraisal of your life’s trajectory, covering the domains that are of greatest value to you. This accounting “pins you down, leaves little room for self-deception, and tells you when to act” (82).

Some people manage to turn their lives around simply by reflecting on such things as their most positive beliefs, their role models, the things they are grateful for, their goals and their commitments. For some examples, see Let’sReflect (here).

My personal preference for self-help is a process explained by Michael Hall in his book, “Unleashed”. This involves: developing an understanding of your potential; accessing the executive levels of mind to re-construct your intentions; and actualizing your best meanings and intentions in performance. (The approach developed in Hall’s book can be sampled on his self-actualization web site, here.)

There are many different ways in which people can help themselves to live happy lives. The important point to recognise is that it is in our nature as humans to reflect upon our own lives and to seek to improve them. It seems to me that in developing that skill most of us can learn a lot from “travel guides” written by qualified professionals.

Does more regulation provide the answer to greed?

An article by Ian Harper which discusses this subject was published in the Australian Financial Review of October 18-19. I have reproduced the article below (with the author's permission) because I believe it deserves to be widely read.

There’s a poignant moment recorded in the New Testament when the Jewish leaders bring a woman caught in the very act of adultery to Jesus. They point to the requirement of the Jewish Law that such a person be stoned to death and demand to know what he thinks. He famously responds that those who have never sinned should be the first to throw stones at her.

It’s all too easy to blame our present troubles on the unbridled greed of high-flying bankers and their financial accomplices. After all, like the hapless adulteress, they too have been caught red-handed. Some people might not even flinch from stoning the perpetrators if they had the option. Absent that, calling for tougher sanctions against greed and recklessness will have to do.

But as Jesus of Nazareth pointed out long ago, it’s impossible to punish sin without condemning every one of us. Who wants to say they’ve never been greedy or behaved recklessly with their own or someone else’s property? It’s one thing to identify greed and imprudence as the basis of the behaviour we decry but quite another to think it can be eliminated by decree. King Canute was wise enough to know the limits of his power over the elements, let alone basic human nature.

So do we just shrug our shoulders and splutter or sigh according to our temperament? Of course not. There will be punishment aplenty as the law slowly sifts through the ashes of this particular bonfire of the vanities. We haven’t even begun to see the class actions mounted by dispossessed shareholders let alone the retributive justice of corporate regulators. Some of the behaviour responsible for the mess we’re in will be shown to be illegal and some people will go to jail. But stupidity is not illegal, nor is making the wrong call on the future growth of house prices.

The law can only protect us from our darker selves up to a point. There is clearly a need, once the dust has settled, to review carefully and dispassionately how various financial rules and regulations failed to protect us from the worst of what we are experiencing and what might be done to avoid a repeat performance. There is a danger, however, in thinking that more and better regulation is the obvious and only answer. How are we better served by rules limiting the earnings of bank executives? Is the fact that senior bankers are paid so much more than the rest of us really at the root of our financial problems? How are we better off if people capable of earning such sums choose to do so outside of banking or outside of Australia? Surely it’s not what they earn that matters but what drives them and restrains them in the decisions they make.

Passing more laws makes little difference if the people making decisions lack the basic virtues of moral courage, prudence and self-control. If you can’t legislate against greed, you also can’t
legislate for moral courage. These virtues must be inculcated through instruction and experience.

Somewhere along the line, virtuous behaviour fell out of fashion. Rather than reaching for a
legislative response, we have to think long and hard about how to refill the wells of basic virtue in commercial life which have so evidently run dry. It’s not that there’s no scope for tightening rules and regulations. Rules play a vital role in helping us to make virtuous decisions, often by keeping temptation at bay. Incentives favouring prudence in financial decisions are entirely appropriate and may well need to be strengthened. There is much good sense in the rule applied by one large financial institution in Melbourne that being caught in the casino during work hours carries a penalty of instant dismissal.

But no set of rules can ever completely prevent imprudent decision-making. If decision-makers lack basic self-control and a well-calibrated moral compass, they will not be contained by rules or even threats of severe punishment. It was Paul of Tarsus, another New Testament figure, who lamented that the very thing he detested - the thing he knew was wrong - was the thing he found himself doing. That’s what we’re dealing with here.

Greed, like the other vices, is a perversion of something good. We actually want to encourage
people to look to their own interests and improve their material circumstances. Innovation, risktaking and entrepreneurship are good things. They make us all better off. We must strenuously avoid confusing the underlying virtues with their perversions. In our efforts to ban greed, we will inevitably overreach and obstruct the virtuous behaviour of prudent risk-taking. In our rush to rail against “obscene” incomes, we run the risk of besmirching legitimate reward for effort and the courage, commitment and fortitude that true enterprise entails.

There is no reason why an enterprise based on virtuous choices can’t make money. Equally it is far from obvious that someone who earns a very large income by community standards is ipso facto immoral. In any case, banning people from earning large salaries is no way to make them moral if they’re immoral to begin with.

Ian Harper is a Senior Consultant with Access Economics and was a member of the Wallis Committee.

Why did the rating agencies put their reputations at risk?

Is there anything less useful than AAA ratings of mortgage backed securities by S&P and Moody’s prior to 2006? The obvious answers, like “tits on a bull” or “an ashtray on a motor bike”, don’t deserve a passing grade. Tits on bulls do no harm and it is conceivable that an ashtray on a motor bike might actually be useful (see here).

I can understand some of the important elements that brought about the current financial crisis. With the benefit of hindsight it is now obvious that the U.S. Federal Reserve was allowing excessive credit expansion. A few economists – such as Roger Garrison and Steve Horwitz – are probably entitled to say “I told you so”, but most economists would have to admit that they didn’t think that low interest rates were a problem while consumer price inflation remained low.

I can also understand that government policies in the U.S. that were encouraging financial institutions to relax their lending standards would be likely to lead to an increase in defaults. That should have been obvious to anyone who didn’t come down in the last shower, but as far as I am aware few economists other than Stan Liebowitz and Theodore Day raised objections to the policies that were succeeding in lifting home ownership rates. As early as 1998, Day and Liebowitz warned that the method that government was using to increase home ownership among the poor – weakening underwriting standards so that mortgages required virtually no down payment – would lead to problems. They wrote: “After the warm and fuzzy glow of flexible underwriting standards has worn off, we may discover that they are nothing more than standards that led to bad loans”. The quote comes from an excellent article on causes of the mortgage meltdown that Stan Liebowitz has now written for the Independent Institute (“Anatomy of a train wreck”, October 2008, here).

However, I still can’t understand why the rating agencies would risk their reputations by giving AAA rating to innovative mortgage-backed securities. Liebowitz includes some discussion of the behaviour of rating agencies in his article. He suggests that their behaviour was “shortsighted to the point of incompetence”. The rating agencies were apparently strongly influenced by evidence that default rates on the more risky lending were no higher than on standard mortgages. The problem with that approach is that they derived their evidence solely from the period at the beginning of the housing price bubble. They apparently made no attempt to think about what might happen in the event of a such things as an economy-wide rise in interest rates, fall in house prices or increase in unemployment rates. Liebowitz also mentions that government regulation that requires many financial organizations (e.g. insurance companies and money market funds) to invest in securities that are highly rated by incumbent rating agencies may tend to shield these agencies from competition and make them reluctant “to create political waves by rocking the mortgage boat”.

Perhaps I should just accept that the rating agencies behaved incompetently. But there is something disturbing about the idea that firms that presumably can only exist so long as they maintain reputations for offering a trustworthy service would allow any of the common varieties of human fallibility – such as incompetence and greed – to put those reputations at risk. If a rating agency felt that it lacked the competence to rate a particular security I would have thought that it would be prudent for it to refrain from making a rating until it acquired the necessary competence. It is hard to imagine any organisation that would have a greater incentive to behave prudently than a rating agency. Government regulatory authorities are certainly not faced with such unambiguous incentives to maintain a reputation for prudence and competence.

It seems to me that, unlike the rating agencies, I should admit my incompetence. I do not yet understand why the rating agencies would put their reputations at risk.

Postscript:
Steve Horwitz has made the following comment that helps to answer my question:
"One reason the agencies rated the bonds so highly is that, thanks to some changes in SEC rules, the agencies switched their audience. For decades, they rated for an audience of investors. But in recent decades, they rated for the SELLERS of the instruments, who would then "agency shop" to get the best rating they could. This gave the agencies strong incentive to rate more highly than justified."