Collective Conscious

Bryan Caplan won­ders about the find­ings of a new study, which show a strong neg­a­tive cor­re­la­tion between per­ceived prof­its and per­ceived social value (by com­pany, by sec­tor):

Could the pub­lic really over­look the social ben­e­fits of the profit motive in favor of crude populism?

I sup­pose the answer is no — but only because the pop­ulism might not be so crude. Tyler Cowen’s arti­cle today helps point out why we might be wor­ried so much about those I-​​bankers, health insur­ers, and credit cards (empha­sis mine):

[B]anks take far too many risks and go way out on a limb, often in cor­re­lated fash­ion. When their bets turn sour, as they did in 2007-​​09, every­one else pays the price.

And it’s not just the tax­payer cost of the bailout that stings. The finan­cial dis­rup­tion ends up throw­ing a lot of peo­ple out of work down the eco­nomic food chain, often for long periods.

It’s as if the major banks have tapped a hole in the social till and they are drink­ing from it with a straw. In any given year, this prac­tice may seem tolerable—didn’t the bank earn the money fair and square by a series of fairly nor­mal look­ing trades? Yet over time this sit­u­a­tion will cor­rode pro­duc­tiv­ity, because what the banks do bears almost no resem­blance to a process of get­ting cap­i­tal into the hands of those who can make most effi­cient use of it. And it leads to peri­odic finan­cial explo­sions. That, in short, is the real prob­lem of income inequal­ity we face today. It’s what causes the inequal­ity at the very top of the earn­ing pyra­mid that has dan­ger­ous impli­ca­tions for the econ­omy as a whole.

I believe that peo­ple are dis­tinctly aware of the dis­tance between them­selves and the cor­po­rate world. I think peo­ple are quite cog­nizant of the dra­matic inequal­i­ties between them­selves and the peo­ple who fre­quent the best Wall Street bars or Capi­tol Hill clubs. And I think, in the wake of the Great Reces­sion, peo­ple are fully aware of the dan­gers posed by such a con­cen­tra­tion of wealth, par­tic­u­larly in the finan­cial sec­tor.

Some of the other worst offend­ers (and high­est earn­ers) are sec­tors which have immense unad­dressed exter­nal­i­ties: firearms, fast food, automak­ers, and, of course, oil com­pa­nies. To real­ize that the social harm done by these sorts of com­pa­nies is roughly pro­por­tional to their prof­its is an insight you might not make explicit with­out a degree in economics.

So, unlike Mr. Caplan, I applaud the aver­age Amer­i­can for real­iz­ing just exactly what society’s inter­ests are — and for see­ing that, despite the immense social gains of the free-​​enterprise sys­tem, the most prof­itable cor­po­ra­tions are indeed often the most evil. At least, if you define “evil” to mean “inequality-​​increasing, externality-​​inflicting, and stability-​​reducing”.