foreclosures and then what?

Sam has an update on some new numbers about foreclosures in the region.  Something related that is not new, but a bigger and bigger issue for us is what happens to the homes as they move in and out of foreclosure and the role of banks in that process.  Just something we are spending more and more time looking at because of the impact on neighborhoods and communities. Here is an illustration of the banks involved in local sheriff sales in Allegheny County through most of last year:

Does Adam Smith's 'impartial spectator' provide a sufficient basis for cosmopolitian ethics?

One of the benefits I have obtained from reading Nicholas Phillipson’s excellent book, ‘Adam Smith, an Enlightened Life’ is a better understanding of what Smith was trying to achieve in writing ‘The Theory of Moral Sentiments’ (TMS). He apparently saw the book as a contribution to a ‘science of man’ based on the observation of human nature and human history. As such, it provided a theory of sociability as well as a theory of ethics.

Adam Smith: An Enlightened Life (The Lewis Walpole Series in Eighteenth-C)
Phillipson suggests that TMS can be viewed as a response to earlier writings of other scholars. In the interests of brevity, an appropriate place to begin the story is with David Hume’s view that human personality had been refined by the civilizing process – that humans were happiest when they were active and were best able to live an active life in a commercial society. By contrast, Jean Jacques Rousseau claimed that humans were naturally indolent and had only been truly at one with themselves in the ‘savage state’, before they discovered commerce and developed a vain desire for superiority over one another. Smith agreed with Hume – the TMS provides his view of how humans learn morality from the experience of common life and how this can lead to the improvement of society.

Smith acknowledged that everyone wants to better their condition. At one point he even seems to imply that everyone places higher priority on improving their relative position in society than on achieving an easier and more pleasurable life (TMS: 50). (My grandmother, whose life became easier and more pleasurable in the 1950s after she obtained her first refrigerator and washing machine, might have thought that comment to suggest that Smith was not sufficiently aware that he lived a privileged life. But I digress!)

Smith also makes the point that individuals should be responsible for looking after their own interests: ‘Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so’ (TMS: 82). (I think Smith makes a stronger case for individual freedom here than who make the dubious claim that each individual is always the best judge of his or her own interests. But I digress again!)

Impartial spectators condemn violations of fair play among individuals competing to better themselves:

‘In the race for wealth, and honours and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is at an end. It is a violation of fair play that they cannot admit of’ (TMS: 83).

Smith’s ethics is based on the simple proposition that when individuals reflect upon their own past actions from the viewpoint of an impartial spectator they feel remorse when they have acted unjustly. His response to critics who suggested that he was reducing the principles of ethics to popular culture was that while children might seek to be universally agreeable, mature people who have important interests to manage find that they cannot please everyone. While some people might be content to follow popular culture, those who are morally responsible and fitted for public life have to establish their own impartial spectators as a judges in their own minds (Phillipson, p164-165).

The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom
Irrespective of whether we find it useful to imagine an impartial spectator embodied within our selves, it is clear that humans do have the capacity to reflect on their own behaviour and to follow the dictates of conscience rather than always seeking immediate pleasure or following selfish interests. This is not always easy, however. As Jonathan Haidt points out, our efforts to become morally responsible may be hindered by our inner lawyers who seek to excuse us and blame others for our misdeeds. Haidt suggests that it is worthwhile acknowledging our faults to ourselves:
When you find a fault it will hurt, briefly, but if you keep going and acknowledge the fault, you are likely to be rewarded with a flash of pleasure that is mixed, oddly, with a hint of pride. It is the pleasure of taking responsibility for your own behaviour. It is the feeling of honor’ (‘The Happiness Hypothesis’, p79).
Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being
Identity economics, developed by George Akerlof and Rachel Kranton, may provide a useful framework to consider the process of character development that Adam Smith was discussing. Everyone obtains satisfaction from acting in accordance with their identity and is discomforted by acting contrary to it. A person who perceives himself or herself as the kind of person who respects the rights of others is likely to obtain satisfaction from acting in accordance with this ideal. This person may develop a reputation for trustworthiness and is likely to be trusted.

However, I don’t think it is particularly useful to try to think about development of identity and character outside the context of social interactions that reward particular behaviours and penalize others. It seems to me to be a fact of life that a person who identifies strongly as a member of a small community and has limited social interactions outside that community is less likely to feel conscience-stricken if he or she acts unjustly towards a stranger than towards another community member. The ethics of respect for the rights of strangers is no doubt encouraged to some extent by abstract ideals that would be endorsed by impartial spectators, but is likely to be more strongly encouraged by mutually beneficial commerce which offers ongoing rewards for ongoing cooperation between strangers.

Economic Events on January 26, 2011

The Mortgage Bankers’ Association purchase index was released at 7:00 AM EST, and there was a week to week decrease of 8.7% in the Purchase Index and a week to week decrease of 15.3% in the Refinance Index.

At 10:00 AM EST, the New Home Sales report for December will be released. The consensus is that 300,000 new homes were sold last month, which would be an decrease of 10,000 from last month.

At 10:30 AM EST, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.

At 2:15 PM EST, the FOMC Meeting Announcement will be made, which will provide insight into how long the Federal Reserve plans to keep rates at 0%.  It is assumed that there will be no immediate change in the Fed funds target rate, but any hint that rates could rise in the future could have an impact on the bond market and stock market.

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