By: Aaron Karesh | Business  | 

The Liberal Capitalist

My political and social views are pretty liberal, but I am a capitalist, and ever since I learned what those words meant, I’ve struggled to reconcile the two. It started with my desire to be rich — every kid grows up wanting to be “a gazillion-shmillion-aire,” right? — and evolved into an “if it will make money, let’s do it,” approach to investing. I am currently interning at a hedge fund who’s modus operandi is just that, but despite all of the perks and resume-recognition that come along with the job, I still find myself struggling to balance what I view as just and right — my morals — and my economic stance. Michael J. Sandel’s Market Reasoning as Moral Reasoning: Why Economists Should Re-Engage with Political Philosophy is a vehicle through which I am able to make progress in my attempt at that balance.

I was able to piece together segments of Michael J. Sandel’s article and compose a passage that embodies both my capitalist self and my more liberal self, while maintaining the integrity of the text and the author’s intent: “Mainstream economic thinking asserts its independence from the contested terrain of moral... philosophy. Economics textbooks emphasize the difference between… explaining and prescribing. The popular book Freakonomics states the distinction plainly: ‘Morality represents the way we would like the world to work and economics represents how it actually does work.’ Economics ‘simply doesn’t traffic in morality.’ But this… division of labor is misleading… as… ‘economics is a moral science’… and… some market transactions are objectionable on moral grounds.” Despite the harmful societal effects of differentiating between our morals and economics, Yeshiva University students perpetuate the distinction on a daily basis by separating Judaic (moral) and secular (economic) studies. In addition, come midterm season, we go from emulating Gedolei Hador in the morning to exhibiting an “anything goes” culture in the afternoon — emulating con artists like Frank Abagnale in an effort to achieve the highest grades possible. Let me be clear, I am not above this, but I can admit that it is extremely hypocritical.

If morality and economics do not intersect at the world’s premier Torah U’Madah institution, where do they intersect? The answer lays in our country’s free market, which despite being “free,” has built-in constraints based on society’s baseline moral conscience. For example, despite the profit trading the rights to unborn babies may yield, we do not do that because as much as people say they believe in a true, bare-bones free market, no one really does — no one in their right mind believes that baby-trading as a method of alpha-generation is okay.

This leads me to a subject matter in which I developed an interest this summer: ESG. ESG stands for “environmental”, “social,” and “governance,” and they represent a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria look at how a company performs as a steward of the natural environment, social criteria examine how a company manages relationships with its employees, suppliers, customers and the communities where it operates, and governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights. Now, ESG is a relatively new concept, and as such, there is no clear set of rules that govern whether a company is considered to be “compliant with ESG factors,” because what may be socially conscious enough for one investor may not be enough for another. That aside, there is data supporting the positive impacts considering ESG factors has on an investment portfolio.

A 2014 report by the University of Oxford concluded that 80% of the studies show that stock price performance of companies is positively influenced by good sustainability practices. Similarly, a 2015 study conducted by Morgan Stanley concluded that sustainable equity mutual funds had equal or higher median returns for 64% of the periods examined over the last seven years.

There is clear data – both qualitative, as presented by Sandel, and quantitative, as presented by Oxford and Morgan Stanley – supporting not only the intersection between morality and economics, but the profitability of it as well. The conclusion to Sandel’s article exemplifies this best: “The more economic thinking extends its reach into social and civic life, the more market reasoning becomes inseparable from moral reasoning. If economics is to help us decide where markets serve the public good and where they don’t belong, it should relinquish the claim to be a value-neutral science and reconnect with its origins in moral… philosophy.”