Part 11 (1/2)

That's entertainment

The next example is the vexed issue of bankers' bonuses After the crunch, these were defended by bank executives on the grounds that bankers are like entertainet the best talent Their activities also nificant contribution to GDP Stuart Gulliver from HSBC compared his team to Hollywood actors John Varley, the chief executive of Barclays, preferred the soccer analogy ”There is siher priority than to ensure we field the very best people That in a sense is exactly the sa to win Our obligation is to ensure we pay appropriately”16 Bill George, a director of Goldman Sachs, went for both: ”It's much like professional athletes andan AIG-style backlash, the London Invest Goldan Chase - criticised a plan to publish bonuses on the grounds that it would ”create the potential for ill-informed and populist public commentary on reasonable reht see up a nu technical points that also apply to other aspects of the economy: The salaries of bankers do follow the same dynamics as those of CEOs or entertainment stars (Chapter 7) That doesn'tto one UK survey, 96 per cent of people believed that preue soccer players are overpaid19We are a little h salaries in the case of actors or sports stars because they are entertaining and don't crash the econoraphs

Nonetheless, ue and the National Hockey League in North A field

In England, professional soccer players today do earn massive salaries similar to those of top bankers But they don't play that well as a tealand won the World Cup was 1966, when salaries were orders ofmovie box office returns have shown that actors and directors play a surprisingly s ticket sales20 Salaries therefore say more about the Hollywood star system than about profitability Harrison Ford became famous because of Star Wars, not vice versa

Banks have an ie in the economy For example, the fractional reserve system sanctions the out hts and benefits are a property of the financial network as a whole, rather than individuals

Companies are also reliant for success on institutional reputation, not just lone stars Lehman Brothers, for example, was founded in 1850 and had a formidable reputation that helped it attract business

In finance, skill is ih-risk leveraged bets over a period of several years, there will be a big spread in results by chance alone That doesn't e bonuses incentivise traders to ative externalities” such as global recessions

In the UK, the financial sector did make an outsized contribution to GDP before it had to be rescued following the credit crunch21 However, its growth coincided with a decline inwhen the default destination for talented science students is finance - along with a rise in proble protection,

Finally, you don't need to be the Pope to see that there is an ethical dih as it happens, the Pope did speak out against the culture of greed, saying that: ”He who builds only on visible and tangible things like success, career and money, builds the house of his life on sand”23 As discussed in Chapter 4, when sand piles get too high they have a tendency to fall down Rowan Williams, the Archbishop of Canterbury, told the BBC that bonuses should be capped, and said: ”What we are looking at is the possibility of a society getting more and more dysfunctional if the levels of inequality that we have seen in the last couple of decades are not challenged”24 When a sector like finance or natural resources beco behaviour (extracting incorowth of a corrupt and dependent political class

At a speech to a banquet of dignitaries in 2009, the Lord Mayor of London, Ian Luder, said: ”It is banking activity, international banking activity, whichis just one ofthat makes it unusual, for such an important profession, is its failure to develop sound ethical standards Doctors and engineers have ethical codes; bankers have dress codes

One positive aspect of the controversy over banker compensation was that it helped destroy the illusion that salaries accurately reflect a person's contribution to society, and showed the importance of ethics and fairness A more important issue is of course the salaries earned by the bottom 50 per cent of the world's population In tery, they are currently the equivalent of the extras in a Hollywood filet their appearance cut fro soccer on the Brazilian beach who don't get spotted by talent scouts and sold to Manchester United But if we change our definition of economic efficiency to that of the Happy Planet Index - in which the ai few resources - then they have more to teach us than our financial elite A suitable subject of study, perhaps, for a multi-disciplinary Institute of Systems Economics26

Dirty oil

The third example of an ethical quandary is from Alberta, whose boundaries happen to include the planet's largest reservoir of bitumen - a form of crude oilSuncor, Syncrude, and Shell have found that they can extract the crude oil, either by first scraping up the land or by using newer in situ techniques, and sell it on the openprocedures, the operation ative side, it also destroys vast swaths of the boreal forest, consumes incredible quantities of water, emits equally incredible amounts of pollution in the extraction process, and has blackened Canada's reputation as a green country27 The expression ”low-carbon econo been local opposition to oil sands developroups, acadeh, the oil sands becaian company Statoil started a 2 billion project in Alberta in 2007 But during the 2009 election caainst the involvement An editorial in the overn a ”collective denial of responsibility” for oil sands efinn Hoybraaten, said that: ”in our view, this is ular business issue It's an overall ethical issue”29 The response of Alberta premier Ed Stelmach was: ”I'm not aware of Statoil All I know is these last couple of weeks there has been just a huge renewed interesters that are looking at Alberta as a great place to invest”

Albertans are fae said resources It is also probably true that oil sand emissions are less of a threat to the planet than, say, Chinese or As are clear First, Hoybraaten is right - there is an overall ethical issue, which needs to be discussed Second, pension fund ers aren't paid to make ethical decisions or enforce standards That's one of the jobs of governate sensitive decisions to pension funds, there is a probleue that we cap the rate of oil sands production, give the land tiy, if these harain, market norate ethical decisions to our role as consumers or investors One property of ethical violations is that their impact seeht our clothes directly fro conditions would probably looer in our consciousness than they presently do With global supply chains, it's rarely clear where the objects we consume even coe institutions and laws that enforce ethical standards at source in a unifor that developly being framed in an ethical rather than a purely ements are established, in the for and will eventually outweigh even the profit motive30 Market forces enerations, but our sense of ethics can

Markets are enor a number of economic decisions As someone orks for a small company, I'ths are overrated by ideologues Markets by themselves are not responsible for innovation Many of the technological advances of the 20th century - including the decades of developovernraiven that the development of neoclassical econoovernical battles of the Cold War)31 We live longer and healthier lives in large part because of work done at publicly-funded hospitals Research and development is often best carried out in less competitive, less bottom-line, more cooperative environ the best new technologies and turning them into successful products The public, private, and non-profit sectors have synergistic roles - we need they would be nowhere without the basic tools of mathematics and physics, which were also not developed by markets or private corporations This points to the role of universities in shaping our attitudes towards the econoic Piano owes its continued existence in large part to university academics, who keep it buffed and eneration This involveoes well beyond the economics departments Universities divide subjects into minute specialities and have traditionally tried to keep thee)32 Economic decisions affect h, so everyone else should at least have an opinion

So questions:

How does the physics depart as laws of nature?

Do the huree with the story that society is made up of individuals who act independently? If not, how is that being reflected in the education of future business leaders?

Is the mathematics department OK with the kinds of s like stability plausible?

What do in used by ”financial engineers”?

Is the gender studies department cool with the definition of horee that societies always behave rationally? Do neoclassical tools ly networked society in which one of the most valuable commodities - information - can be distributed at near zero cost?

Are political scientists sure that economics is politically neutral? Are historians convinced that neoclassical economics is an objective science and not a cultural artefact shaped by a certain period of history ? What will be the i consumer power of women, or of non-Western countries with different political and econoists think that the environh in econoer of a survival-threateningly huge environmental crisis, is the introductory econo the risk?

What does the psychology department think of the definition of utility, or the econoreement that markets can make ethical decisions?

And finally, how do elite institutions like Harvard University, Oxford University, Massachusetts Institute of Technology, or California Institute of Technology feel about the fact that in 2007, 20 or 30 or ht into the financial sector? Are these institutions being used as a filter or barrier of entry to select talented students for this over-paid and socially under-productive area?33 If that is the case, shouldn't the universities at least revise their teaching to better reflect new theories and approaches, not to mention ethics?

Until university departments break down the artificial divisions that separate their subjects, the NeoClassic Logic Piano will be safe The best hope for change probably comes not from university administrators, but from the ones withfed the story about the economy If they decide not to buy in, then that will be it

One excuse heard for the lack of progress in econoes only slowly But that isn't true at all Nothing e comes, it is often sudden and violent - like an earthquake, or indeed a financial crash Early in the last century, physics was coy has been revolutionised by recent technological advances such as the huenome project

So: students Decision time You live at what many believe is a bifurcation point in hu up like a ski jump Human population Gross domestic product Species extinction Carbon ees You know that soot an idea that the price isn't right Maybe you're even suspicious that, if the world economy does turn out to be a Ponzi scheame

You therefore stand at a fork in the road You can take the orthodox route - and risk ending up with a qualification as iht after the fall of the Berlin Wall Or you can take a chance on regi open to disruptive ideas, and generally acting as an agent of change34 You can insist that the economy is a complex, dynamic, networked system - and demand the tools to understand it

You can point out that the economy is unfair, unstable, and unsustainable - and demand the skills to heal it

You can tell the oracles that they have failed

You can go in and break thenew

A new econo such a path But it is no bigger than the one taken by those maverick outsiders Jevons, Walras, and Pareto when they developed neoclassical economics