The Profits of Blame
by Theodore Dalrymple (January 2013)
Who is more to blame, asked the seventeenth century Mexican nun, Sor Juana Ines de la Cruz: he who sins for pay or he who pays for sin? It is not an easy question to answer.
One does not generally look to the Financial Times for answers to moral dilemmas or conundrums, but yesterday (as I write this) there was an article in it by an Argentine banker who had once also been a director of the Bank of England, that tries to answer a cognate problem. His article was about a new crisis that threatens to destabilise the world banking system further, if such a thing were possible.
Clearly there is something in this. If I know you to be an habitual spendthrift, a person who has repeatedly reneged on debts, but I nevertheless lend you money, whether from softheartedness or in the hope of interest payments, I shall be entitled to limited sympathy when you fail to pay up. An outsider would say, and rightly say, that I had been foolish, however dishonourable you, the borrower, had been.
The situation with sovereign debt is, of course, much more complex and morally ambiguous. There is first the difficulty of the distinction between an inability to pay and a refusal to pay. By inability is meant an inability to pay while maintaining, approximately, present levels of individual consumption of the population, for example of those who had no part in borrowing the money, may not have had a part in or any benefit from the spending of it, and may not even have voted for the government that borrowed or defaulted, or both. To insist that they, who may be very numerous, pay the debts of those who contracted them is to insist upon collective responsibility, a very doubtful form of moral reasoning.
This is a purely utilitarian argument: it is better on the whole for humanity to force creditors to accept losses than to allow those same creditors to inhibit overall economic activity, and thus the prosperity of millions, in pursuit of their right to be repaid in full. We cannot let the heavens fall so that their debts might be repaid.
While the Argentinian bond crisis was developing, Hewlett-Packard was engaged in a war of words with the software company, Autonomy. Only a short time after it bought Autonomy for $11 billion H-P had to mark down its assets by $8.8 billion because Autonomy failed to produce the results that it, H-P, had hoped for and expected.
H-P alleged that Autonomy had misled it over its sales and revenues, and there is probably an element of truth in this allegation. However, the extent of the fraud (if that is what it was) was very a small by comparison with the size of the writedown. H-P was, in effect, trying to blame others for its own bad business decision.
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