The following excerpt is taken from Joseph Healy’s new book ‘What would Adam Smith make of modern Australia?’.
Adam Smith reminded us of the importance of moral conduct – the standards of good or bad behaviour, fairness, honesty, prudence, and so on – when he concluded that without reverence for the rules of moral conduct, ‘society would crumble into nothing’.
He also helped us understand that happiness and fulfilment in life were not a product of financial riches when he wrote, ‘What can be added to the happiness of the man who is in health, who is out of debt and has a clear conscience?’
In The Theory of Moral Sentiments, Smith writes about a world defined by the people closest to us that define our community – family, friends and neighbours. The reality of the world we live in is that family and community have been allowed to weaken as essential foundations of a healthy society.
Today, too many people we interact with are remote and impersonal, a situation made worse by the inflexible working-from-home (WFH) movement – WFH quickly moved from a commitment to flexible working arrangements, which is a good thing, to an inflexible cultural movement that insists on always WFH on certain days of the week.
We live in a world defined mainly by impersonal exchange, yet we crave human connections as individuals. Many would quickly agree that the lack of interpersonal interaction is a significant loss. Yet, so many business models are defining what we do and need to drive us towards digital, remote, impersonal interactions.
It is rare to find a parent who is not concerned about how much time their children spend on digital devices at the expense of human interaction, sport, cultural activities and community.
Australia’s spiritual decline
Many people see the demise of faith in Western culture as a form of nihilism, which has seen traditional religions replaced with a new ‘religion’ of consumerism and wokeism, which is equally intolerant of alternative views.
There is little argument with the view that we have seen a diminishment in spirituality in our communities. Spirituality is more than being religious; it can mean finding a sense of meaning and purpose in our lives. This reality of shallowness and spiritual void was captured by the then CEO of the AFL, Andrew Demetriou, when he said to a group of Melbourne businesspeople that because of the demise of the Catholic Church, ‘Australians are now looking up to the AFL for guidance’.
Adam Smith would agree with his fellow Kirkcaldy native, former British PM Gordon Brown, who observed, ‘I don’t think we should underestimate the motivational power that religion and ethics provided to people.’ This sentiment was echoed by former UK Chief Rabbi Jonathan Sacks, who complained that without God, we have increasingly adopted a utilitarian and economic definition of human worth, and questions of meaning and value have been relegated to the private sphere.
Dopamine nation
Smith, reflecting in his ‘be lovely and be loved’ philosophy, would be concerned about the way Australia has become a ‘dopamine nation’ and how a culture of individualism has dominated the community. Consequently, sympathy and care are weakened in the pursuit of self-interest.
The practice of putting ourselves in the shoes of others and imagining how they might feel because of our actions is not, unfortunately, a feature associated with modern society. Our ability to see ourselves as others might see us is not what it once was and not as Adam Smith saw how people should view their actions.
It is not the love of humankind that makes the ‘man of humanity’ willing to make sacrifice, but because he sees himself through the eyes of the impartial spectator. In an individualistic society – the one that defines Australia and much of the West – this is sadly less of a consideration.
Smith also highlights the dangers of allowing the quest for material wealth to dominate and corrode our moral values. The search for more dopamine and the risk of anhedonia is evident in Australia’s alarmingly high levels of household debt, which only adds to the stress on household budgets, particularly in times of rising living costs more generally.
In the 20 years to 2023, household debt increased from half to twice the average disposable income, and from 40% of GDP to 120%. The average house price in Australia in 2023 was 7.5 times the average income, up from 3.5 times 20 years earlier, the space of one generation.
A twisted national obsession
Alan Kohler, in his essay on housing, observed that the houses we live in have become speculative financial assets rather than simply family homes.
The amount of wealth Australians have concentrated in their homes has created a national psyche obsessed by property prices – and for many, with excessive levels of debt used to buy their home, a terrible burden which views the likely next interest rate move by the Reserve Bank of Australia (RBA) as national news of the highest importance.
The incentives caused by negative gearing are one cause of this high-risk profile, and so is the banking system’s insatiable appetite for lending on housing – in my view, a huge misallocation of capital because of the low-risk profits it generates.
These factors should not negate the accountability of poor government policy and individual responsibility. If people choose to take on high levels of debt, and banks, lending prudently, think that is a sensible thing to do, then people must accept the consequences of their decisions in the very same way that a driver of a car under the influence of alcohol must accept responsibility for his or her decision.
Yet today, nearly one in four households faces mortgage stress or the so-called mortgage cliff, and the likely date of the next move in interest rates has become a national obsession.
The dangers of speculative lending
Through APRA and the RBA, the government must be mindful of the risk to the economy of the build-up of speculative lending in the housing market and remember the wisdom of Smith on the risk to the economy of excessive bank lending.
This is a risk that builds slowly and hits suddenly. As John Maynard Keynes observed in 1931, the banks can be prone to ‘herding’ behaviour. They can fall into the trap that then Citibank CEO Chuck Prince did in 2007 when he said, ‘As long as the music is playing, you’ve got to dance. We are still dancing.’
This unfortunate quote is reflective of how banks think. Citibank was close to becoming insolvent during the GFC, absent government support (which was true also of some other banks in both the US and Britain). Smith understood this risk, as did Keynes, who famously said in 1931, ‘A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows so that no one can really blame him’.
High debt levels and a crisis in housing supply are just two of the stressful challenges facing many households. Dr Anna Lembke asks a pertinent question relevant to Australia: ‘Why, in a time of unprecedented wealth, freedom, technological progress, and medical advancement, do we appear to be unhappier and in more pain than ever?’
Joseph Healy’s book ‘What would Adam Smith make of modern day Australia?’ is out now. Joseph Healy is an international banker and mental health entrepreneur. He held senior positions at two of Australia’s major banks and was a co-founder of Judo Bank.
