Wednesday, 20 January 2010

Wolf's wisdom and the appeal of authority

In a difficult moral situation, we like to have someone to tell us what to do. The hard work of weighing up factors and working through the consequences of our choices is confronting - not least when the conclusions risk conflicting with some existing assumptions about the world or ourselves.

This is where I find myself with respect to the Icelandic banking crisis.

I generally think the UK government - especially the civil service - is pretty sensible, well-intentioned and respectful of markets and the rule of law. Thus, the idea that they might have attempted to extort money out of an innocent little third-world country like Iceland raises my cognitive dissonance hackles.

The Icelandic government has done what most governments would have done in their situation - put a hold on everything while they try to sort it out and decide how much of their banks' liabilities they will stand behind. The UK's reaction - invoking anti-terrorism legislation to freeze several billion pounds of Icelandic assets - while politically understandable, is probably an overreaction; disproportionate and maybe even illegal.

But because of my innate trust of the Treasury's instincts - built up from years of observation, I hasten to add, and not just because I think they're good chaps - I find myself more sympathetic to the UK's side of this argument than perhaps I should be. I'm genuinely torn on an issue which I should be able to analyse economically and take a clear position on.

This is why it was a great relief to see Martin Wolf's article on the subject in the FT Economists' Forum. His view:
So do the ordinary Icelandic taxpayers have a legal obligation to meet the liabilities of their collapsed deposit insurance fund? The answer to that is, to say the very least, that it seems to be very far from evident. Moreover, any British or Dutch depositors who thought their money was safe because the government of Iceland guaranteed it were mad.

Do Iceland’s taxpayers have a moral obligation to pay this loan? My view is: no. The delusion that finance was the path to riches was propounded by countries that should have known far better. I cannot blame Icelanders for succumbing. I certainly do not want generations of Icelanders to bear the cost.

The final and, in truth, most important question is whether these demands are reasonable. After all, in every civilised country it has long been accepted that there is a limit to the pursuit of any debts. That is why we have introduced limited liability and abolished debtors’ prisons.
Whatever the merits of Martin's views - and there are bits that I might argue with technically - it is genuinely a relief to have an authority figure pronounce on the issue. It provides me with, in cognitive rather than literary terms, a moral anchor.

I can now forgive myself for being conflicted about the question, while settling on Martin's suggested compromise as an appropriate and balanced outcome to the fight. I will delegate all future dilemmas on this subject to Wolf's wisdom.

This must be what it's like to have a priest, or a rabbi. Or even, for that matter, a thesis supervisor.
* at least, one well on its way to the third world

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