So yes, we need new regulation, but the financial community also needs to establish new norms, and people who step outside of those norms must be socially ostracized in whatever sense is required in those markets. Rules and regulations are not enough by themselves, community attitudes must change as well.
Mark Thoma. I agree that a world with stronger ethical norms in the financial community would be preferable to one without. I don’t know that we “need” these norms. I think it’s a question of trust: the better the ethical “checks” of the community (as opposed to regulatory checks), the stronger the trust.
Smith actually wrote about this in Theory of Moral Sentiments:
But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.
Is it possible to have a financial system that is an object for disapprobation — for its self-interested, short-sighted and negligent behavior — yet still be just? In other words, are we obligated to impose upon it some kind of ethical reform, be it through punishment or incentives?
