Financial transparency and distributive justice
In the New York Times today, Treasury Secretary Tim Geithner explains that the Obama Administration chose to administer bank stress tests in order “to help replace uncertainty with transparency” in the financial system. The functional purpose of this, Geithner argues, is to help “bring more private capital into the financial system,” thus “increasing the capacity for future lending.”
However, it also begs the question of whether our financial system should, in general, be highly transparent for some normative reason as well.
Activity in the financial system plays a central role in determining the distribution of wealth around the country and the world. Many theories of economic distributive justice require (to some degree or another) responsibility or free choices in order to justify a distribution. In turn, most theories of responsiiblity and free choice (related philosophical topics) require an “epistemic condition” – that in order for an actor to be responsible for a choice, it must be reasonable to expect her to have sufficient information relevant to the choice she is making, including knowledge of the circumstances in which she operates and the foreseeable consequences that she brings about. Of course, it is impossible to have complete knowledge about circumstances and consequences (which begs the question of whether full responsiblity or completely free chocies are even possible), but knowledge is greatly increased by transparency, particularly in a sector as complex as finance.
If one agrees with these premises, it follows that government action, like the bank stress tests, designed to increase transparency in the financial sector are necessary not just to turn the U.S. economy around, as Geithner stipulates, but more fundamentally, to justify the distribution of wealth that results from financial transactions.
-Marc
Related posts:
- What if equality and growth were compatible?
- Nordic self-respect
- Born with a plastic spoon in my mouth
- Morality, meet the financial crisis
- Justice? Yes, but at what cost?
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