The LIBOR scandal rolls on in the UK, eagerly observed by the rest of the world. This scandal has reached mammoth proportions and has become deeply political with politicians past and present rushing to tell the media: ‘nothing to do with me’. What people in the UK seem most upset about is ‘the greed of bankers’, but I think what this feeling is really articulating is ire at the rewards for greed in an industry that enjoys an implicit state back-stop. Us Brits have little issue with the likes of Richard Branson, James Dyson or Alan Sugar earning large amounts of money; these individuals’ futures are properly governed by the success of the decisions they make.
It’s all about the money
The LIBOR scandal is at the very heart of our financial system, the apparent manipulation of the cost/price of money itself according to political and profit motives. Money is the basis of society, the great facilitator, the measuring stick. What should upset people in the UK most is the fact that the value of the pound, the cost of money, and financial instruments that affect us can potentially be fiddled. Could it be this scandal feels typical of this contemporary era of ‘high finance’?
However, greed and at least a profit motive are just parts of human nature; remember our general respect for the entrepreneurs mentioned above. The problem here is greed being found on the banking gravy train, a locomotive that is bailed out by taxpayers when it goes off the rails. Normally greed and hubris, where they contribute to a resulting misallocation of capital, are punished by market discipline.
When digesting the LIBOR scandal, and hearing more neo-Keynesian clap trap from the likes of Paul Krugman, I couldn’t help but remember why I was drawn to the Austrian school of economics.
Is there another way?
The still largely overlooked Austrian way of thinking is one that recognises humans and the heart of everything. There is no use devising systems and rules, if the humans existing within their frameworks are not properly understood. It seems to me the classical school of economics (e.g. Austrian) is concerned with what does happen, whilst the contemporary neo-classical school (e.g. Keynesianism) forgets humans, has become deeply financialised and thinks only of what ought to happen ‘ceteris parabus’.
Amongst other things,…
