What would Adam Smith say?

Mark Thoma (Economist's View) shares an extended excerpt this evening of a fascinating blog post by Maxine Udall, aka "girl economist." She speculates how the great 18th c. economist Adam Smith would view recent events in the world's advanced economies. At the end of her essay, she says that Smith's greatest concern would be for the downward affect of the rash of irresponsible actions for which there has been little or no accountability. If the people at the top can wreck the economy or wreck the Gulf of Mexico with impunity, it is unavoidable that popular awareness of this will lead to a detioration of social relationships and interactions at all levels. Thus, we are confronted again with the ancient biblical question: "Am I by brother's keeper?" It's worth an extended quote:

I find myself asking: how are the recent failures of large corporations, recently granted by law the right of a citizen to participate in and shape political discourse, sentiment, and outcomes, but apparently exempt from a citizen's obligation to refrain from harming others (even in the absence of alert regulators) shaping norms and institutions in the 21st century? How does failure to hold investment bankers and rating agencies accountable affect the hard-wired sense of fairness and the moral sentiment of resentment that many of us feel? If BP is not held accountable, how will that trickle down and shape the moral sentiments of the citizenry? Will our inner impartial moral arbiter waiver as we confront decisions about how we should act toward our neighbor, our community, and our nation?

Adam Smith believed humanity (or at least England) was progressing in wealth and in ethics. To date, we have all tended to focus on the financial aspects of these crises in corporate judgment and management. I'm pretty sure Adam Smith would also have noticed that the potential for moral hazard extends far beyond the relatively unscathed main players. There will almost certainly be a moral trickle down that corrupts production and exchange at all levels of our society. An advanced, technologically complex nation that cannot or will not achieve the basics of accountability and restitution (aka justice) with financial and corporate entities that have harmed its citizenry deeply and lastingly is (I very much fear) evidence of the beginnings of a failed state. That the failure will be economic and moral, as well as political, is probably no coincidence.

The full essay titled "21st Century Regress" can be found at Udall's blog.