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Business Ethics and Business Cycles

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Rios9000 Posted: Tue, Nov 20 2007 8:16 PM

I've been thinking about the way business is viewed in the US and the world at large and why it is, for the most part, so negative. Back in college I was under the impression that business was inherently corrupt, but luckily Mises, among others, helped enlighten me. So I figured then it was more about perception with individual cases being made to appear ubiquitous as to promote statist ideologies. However, recently I've been thinking of how the business cycle may directly cause business corruption.

A great example of this is the shady loans being made during the housing boom. With the discount rate hovering around 0% banks had enormous incentive to give out as much credit as possible and thereby mortgage brokers were much more capable of pushing through dubiously qualified applicants into poorly designed loans. This is just one example though, I think this could be shown with Enron and Worldcom during the stock market boom as well as many other areas of the economy.

Basically, when an economy grows or contracts abnormally fast, greed sets in. During unusual growth, company's have to hire quickly and new employees see an enormous amount of profit potential to grab. Managers thus have a hard time dealing with the rapid expansion and can't reign in their subordinants lust of commissions or promotions or whatever. The same thing happens to the executives as money pours in, expectations grow and the sky is seen as the limit. They push the envelope ever further and eventually some become the Ken Lays of the world. In a recession, the scarcity mentatilty sets in. Company's get desperate and become more apt to commit immoral or illegal acts in the name of survival. It would seem that solid, continuous growth with out huge up and down swings would eliminate many of the temptations for immoral business activity. Did Mises or other Austrian writers ever discuss this concept in length? What are your guy's thoughts?

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Torsten replied on Sat, Nov 24 2007 10:41 AM

Rios9000:
The same thing happens to the executives as money pours in, expectations grow and the sky is seen as the limit. They push the envelope ever further and eventually some become the Ken Lays of the world. In a recession, the scarcity mentatilty sets in. Company's get desperate and become more apt to commit immoral or illegal acts in the name of survival. It would seem that solid, continuous growth with out huge up and down swings would eliminate many of the temptations for immoral business activity. Did Mises or other Austrian writers ever discuss this concept in length? What are your guy's thoughts?

Of course the business culture / business ethics have influence on what is going on within an economy. The booming I would however not alocate towards "more greed" It's most likely that people suddenly have more money to spent (for what ever reason) - Greed and bad business practices are more likely to chip in during a bust.
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