The Dynamics of Financial Immorality

Cause and effect are not closely related in time and space.
Underlying all of the above problems is a fundamental characteristic of complex human systems: "cause" and "effect" are not close in time and space. By "effects," I mean the obvious symptoms that indicate that there are problems - drug abuse, unemployment, starving children, falling orders, and sagging profits. By "cause" I mean the interaction of the underlying system that is most responsible for generating the symptoms, and which, if recognized, could lead to changes producing lasting improvement. Why is this a problem? Because most of us assume they are - most of us assume, most of the time, that cause and effect are close in time and space.
- Peter Senge, The Fifth Discipline

"The typical response is to blame whoever it closest to the problem."
[paraphrasing] W. Edwards Deming

Here is a potentially great column by James Boyce making his case for how we came into this financial crisis. The column could have been great but it so reeks of accusations of immorality as to miss the real point: questioning the dynamics of the financial system and the rules and behavior that might make it more stable.

Thousands of years ago, disease was obviously the product of sin. Why? We blame the one closest to the illness and we didn't understand illness - didn't understand germs or viruses.

Today, financial catastrophes are obviously the product of greed, of excess, of immorality by the players closest to financial markets - those in debt or those who created the instruments of debt.

There is probably no system more complex than a global financial system. No one completely understands it. And yet it is not obvious that accusations of sin make for good explanations or offer good solutions.

One of the more counter-intuitive conclusions of Keynes was that "good" behavior could actually hurt the financial system. When people chose to save during a down time, they merely exacerbated the down turn.

One of the more counter-intuitive conclusions of Copernicus is that those of us sitting around on planet earth are hurtling through space at thousands of miles per hour.

What seems obvious in systems is not always right.

If you hear someone struggling to explain the system dynamics of the global financial system, know two things: they are probably wrong and they are on the right track.

If you hear someone blaming immorality for the collapse of the financial system, ask them whether the outbreak of winter colds and influenza is a product of worsening morals in cold times or a form of penance for bad behavior during summer.