In practice, it is only banks that have access to cheap borrowing, so they can reconstitute their balance sheets by borrowing cheaply and lending expensively. This is why banks suddenly look so unexpectedly profitable. But the contrast between bank profitability and the woes of everyone else turns up the political heat on the central banks, which have to explain why it is only their “friends,” the banks, who are standing under the helicopter when it drops money.
Frustration with the complexities of trying to provide ready fixes leads to attempts to find even more radical solutions. Some try to deal with basic human proclivities and to modify behavior to make people better. It is in times of crisis that Utopian ideas about ways of guaranteeing human happiness flourish, often claiming some scientific basis.
For example, long before the financial collapse, experimental economists joined psychologists in attempting to measure varying propensities to greediness. Some evidence suggests that there is a link between the level of dopamine, addiction and greedy behavior.
Since a common diagnosis of the problems generated in the financial services business holds that human greed is to blame, a German think tank recently suggested that people with a genetic proclivity to high dopamine levels should be barred from taking leading positions in financial institutions.
But such apparently attractive strategies aimed at making better people turn out to be exclusionary — and based on rather arbitrary testing. If implemented, the German proposal would most likely exclude behavior that involves acceptable risk, as well as sidelining those who take wild and inappropriate decisions.
Both the institutional and the behavioral responses to a crisis are fundamentally problematical. The search for technical solutions leads to political polarization, and may produce a stalemate. The search for deep human roots of the crisis, by contrast, leads to attempts to change human nature, which are futile — and also inherently much more dangerous.
Harold James is professor of history and international affairs at the Woodrow Wilson School, Princeton University, and professor of history at the European University Institute, Florence.
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