Friday, January 08, 2010

Ratings agencies to consider social cohesion?

Gillian Tett is on form again in the FT, in an unusual article entitled "Funding and the patriotism test." Here's the key paragraph:

"In recent months, some of the brightest minds at Moody’s rating agency have been mulling a fascinating question: should they introduce a formal rating of “social cohesion” into sovereign debt indices, when they judge whether a government is likely to default on its debt – or not?"

Tett worked as a reporter in Japan for a while, and learned how Japanese institutions shared out pain without triggering social unrest.

"Whenever companies ran out of cash, for example, their instinct was usually to spread the impact (by, say, cutting everyone’s salary) rather than pick winners and losers (sack a few staff.)"

In the United States, by contrast, the mentality is very different:

"Instead, in a land built by pioneers, Americans prefer to spend time thinking about how to make the pie bigger – or to find fresh frontiers – than about making shared sacrifices. Thus it remains an open question whether Washington will be able to slash without real political or social upheaval."

Taxation is, of course, the central economic nexus in the contract between rulers - the people's representatives (or at least they are supposed to be) - and the people themselves. The mainstream anti-tax, anti-government strains that have developed in the United States (see here for an interesting part of that history) are a central part of that. It's a bit of a stretch to imagine it right now, but perhaps some time in future someone might stand up and point to the Grover Norquists of the world ("My goal is to cut government in half in twenty-five years to get it down to the size where we can drown it in the bathtub") and blame them for damaging America's bond ratings.

Who knows: they might also blame those clever folk behind Public Choice Theory (which seeks to analyse public officials not as servants of the public interest, but as self-interested individuals.) Margaret Thatcher famously (and shockingly) said: "There's no such thing as society. There are individual men and women and there are families."

Public Choice Theory is a perfectly legitimate subject for analysis, but it's been taken up and wielded in extreme forms by many anti-taxers to reject the notion of society and the common good. Take a look at this encyclopaedia definition of Public Choice Theory, which includes:

"Public choice rejects the construction of organic decision-making units, such as “the people,” “the community,” or “society.” Groups do not make choices; only individuals do."


The bond markets, it seems, may beg to differ. Fascinating times.

1 Comments:

Blogger Physiocrat said...

It is easy to test if there is social cohesion in a country. Travel by train and check the toilets. It is an absolute litmus.

In Denmark and Sweden there is a brush in the toilets on the trains and good quality paper towels are provided. In the UK the train toilets are highly sophisticated, with automatic taps and hot air hand dryers, and they are often locked out of use, while the carriages on some modern British trains are filled with the smell of toilets. Enough said, eh?

4:55 pm  

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