Yves here. This article broaches a very large issue, and it pains me to be able to offer only a few additional thoughts. I don’t think risk aversion is quite the right frame for why destructive conduct has become so pervasive. For instance, as we’ve documented, casual lying is pervasive at CalPERS even though nearly everyone below the CEO is a civil service employee. Generally speaking, that means they are hard to fire. At CalPERS, the motivation seems to be that a lot of people find lying to be much easier than doing things well.
Some of the factors that I believe have contributed to the increase in the propensity to bury problems under rugs, even when everyone can see the rug is lumpy and moving, are:
Diffusion of responsibility. Some of that is not accidental, but you have a great deal of people in corner offices making decisions that they know will hurt people (numerous cases of companies covering up or worse publicly denying health risks of their products, servicers foreclosing on borrowers who could have been saved) and distancing themselves from them because other people are on the front line doing the dirty work.
Increased effectiveness of PR and propaganda. If you can get others to believe it, surely it is real.
Lowering of collective standards from what is proper to what is legal (aka what you can get away with). When I was growing up, it would have been inconceivable for a prominent felon like Mike Milken to rehabilitate himself. I can’t prove it, but I believe one factor in the erosion of norms has been corporate consolidation. In the stone ages of my childhood, there were many more mid-sized companies whose executives were important figures in their communities, often cities in flyover like Dayton, Milwaukee, St. Louis. Being a biggish fish in a small pond meant your personal reputation mattered for more than it seems to now. And those business and community leader therefore felt the need to keep up appearances, which in turn imposed some limits on their conduct.
By Chris Becker. Originally published at MacroBusiness
The HBO series Chernobyl wasn’t about the dangers of nuclear power but rather the ability of societies at large to lie, obfuscate, conceal and pass off individual responsibility to create huge “mistakes”. The collapse of the Soviet Union was due to this cascade of lies, that its economic and social system was literally built on sand and the “meltdown” was just a plain admission by Gorbachev and others that Stalinism and the perversions he created was all a lie.
Luckily, this can’t happen in the West. Can it? We’ve never seen a whole swathe of society lie, defraud, or pass off individual responsibility to create a “big short” have we?
A system that may well be as perverted as communism is the rocky “foundation” of capitalism itself – the financial sector. And the near capitulation of one of its many tentacles this past week, Deutsche Bank, has echoes of Bear Ste