Rejecting De Bruin’s Argument for the Normative Ground of Epistemic Virtues
For de Bruin’s argument to go through, there must be a normative force for the epistemic virtues—that is to say, they must be things we are in some way required to acquire. To provide this normative grounding, de Bruin appeals to an antecedent commitment in the financial services sector to what he terms the “Argument from Liberty”, where the premises of the argument are as follows:
Argument from Liberty (de Bruin
2015: 35–36
)1.
It is a good thing to increase the personal responsibility people have for satisfying their own preferences.
2.
Increasing freedom of choice leads to an increase in the personal responsibility people have for satisfying their own preferences.
3.
Liberalization (i.e. reducing restrictions on freedom of enterprise) increases freedom of choice.
De Bruin ascribes acceptance of these premises to, amongst many others, Ronald Reagan, Margaret Thatcher, Bill Clinton, and Tony Blair (2015: 44) and suggests that these ideas have been influential in reforming policy in countries ranging from China, India, Mexico, and Ghana, to South Africa. De Bruin notes, “This reasoning inspired, amongst other things, the privatization of pension schemes in the UK and the liberalization of legal regulations on mortgage lending in the United States” (
2015: 36–37). The rationale that the financial services industry offers for opposing restrictions on freedom of enterprise is that such restrictions get in the way of customers’ optimizing the allocation of their resources and thus get in the way of customers’ maximizing their wealth and well-being (2015: 43). So the financial services industry is de facto committed to the Argument from Liberty.
Before we engage with de Bruin’s own discussion of the Argument from Liberty, we should note that the argument, as de Bruin lays it out, is incomplete as the conclusion is left implicit. What is the conclusion supposed to be? Presumably, it is:
However, to drive this conclusion
validly, the argument needs a fourth premise:
4.
Something that leads to a good thing is itself a good thing.
This extra premise, in this unqualified version, would be difficult to defend. True, many good things lead to other good things. However, it is also the case that many good things are caused by things that are in themselves neither good nor bad. Furthermore, the real problem is that sometimes something bad leads to something good. Here are two of countless possible examples. War is bad and social solidarity is good, but war can lead to social solidarity. Disease (in something good) is bad and love (of a good thing) is good, but John (who is good) becomes diseased and then John’s disease leads to Sukh’s loving him.
In the light of such obvious counterexamples to premise 4, we would have to qualify 4 to:
4*.
Something that leads to a good thing is good in at least one respect—namely in leading to that good thing.
But now the problem for the Argument from Liberty is that:
needs to be more qualified. Once premise 4 is replaced with premise 4*, the conclusion that can be validly drawn is the much more modest:
This much more modest conclusion is perfectly compatible with acknowledging that liberalization is bad on balance, that is, once all things are considered.
We suggest, then, that it is not possible to deliver a version of the Argument from Liberty which is both valid and capable of supporting the conclusion that most proponents of the argument presumably want (namely, that liberalization is good
simpliciter, or at least
on balance once all things are considered). Instead of criticizing the Argument from Liberty along such lines, however, de Bruin writes, “my interest in the argument is mainly driven here by the project of finding a normative starting point of epistemic virtue. I do think of the argument as potentially a quite powerful source of policymaking, but only if a number of epistemic assumptions be satisfied, which it is the unwarranted tendency of many commentators and policymakers to neglect.” (
2015, p. 36) De Bruin makes the excellent point against a general application of the Argument from Liberty that it presumes people are aware of and understand the choices they are being offered. People’s doing what they want is unlikely to maximize their wealth and well-being if their preferences are based on ignorance, misunderstanding, illusion, unreliable information, or illogical reasoning (
2015, p. 40). In de Bruin’s words, “people need genuine knowledge to benefit from increased freedom” (
2015, p. 43). Likewise, insofar as the focus is on increasing people’s responsibility for their own choices and welfare, people need to know what courses of action or inaction are available to them, what the possible consequences are of these, and what the probabilities of these consequences are (
2015, p. 41).
So far, we have seen that the Argument from Liberty presumes people need knowledge. If we distinguish having knowledge from having epistemic virtue, we have not yet seen why the Argument from Liberty presumes people need epistemic virtue. A plausible idea is that knowledge and understanding are very unlikely in the absence of epistemic virtue. We will return to this idea later, after raising some other worries.
A first worry is that, even if de Bruin is right that there is a de facto acceptance of the Argument from Liberty by financial institutions, it is a further question whether financial institutions are
right to accept the argument. Perhaps the Argument from Liberty should be rejected (de Bruin acknowledges this question can be raised (
2015: 42–43)). If the Argument from Liberty should be rejected, a further question is posed: would the normative ground for the epistemic virtues be lost if we reject the Argument from Liberty, at least as it stands?
4 If the normative ground for the epistemic virtues is tied to the Argument from Liberty, de Bruin should have provided a stronger argument for accepting the Argument from Liberty itself.
A second worry here concerns how the appeal to the Argument from Liberty sits within de Bruin’s overall conception of what a financial institution is. He discusses at some length how we should construe institutions and ultimately assumes (he says for the sake of argument) an extremely minimal conception of what a corporation is. Following Milton Friedman, de Bruin conceives of a corporation as a fictional body introduced to facilitate voluntary contracts. On this view, there are no properties other than this that are necessary in order for something to be a corporation. As corporations, financial institutions have no necessary goals, although of course there will be the goals of individuals within these corporations. De Bruin writes, “It is a category mistake to derive a corporate purpose from [these] multifarious individual purposes” (
2015: 31).
However, we might wonder whether the “category mistake” is assigning a corporate purpose per se or assigning a purpose derived from individual goals. Admittedly, in line with the Fallacy of Composition, there need be no purpose that can be simply extracted from the goals of individual members. But avoiding the Fallacy of Composition does not preclude recognizing the possibility of some kind of emergent purpose.
A familiar case here in favour of the possibility of emergent purposes is the function of an army: X, Y, Z may each have a goal of defending only their own family and goods; however, they realize that it would be more effective to join together to prevent attack. Thus they form an army, which has an emergent goal of defending the whole territory (a goal not endorsed by any individual independent of the formation of the army). If this kind of institution-level purpose is possible, then Friedman’s and de Bruin’s minimal conception of a corporation can be resisted, in favour of a more substantive account that leaves room for “the proper function of a financial institution” to be something more than merely facilitating voluntary contracts.
5
De Bruin might accept this point, for he explicitly notes that he advocates the minimal conception of a corporation only for the sake of argument. His aim is to show that the normative construal of the epistemic virtues can be properly grounded without making any substantial assumptions about the nature of corporations at all. If a more substantial conception of a corporation turns out to be correct (say one which allows for institutional purposes), taking on board this more substantial conception of a corporation might still be perfectly compatible with de Bruin’s stance. (Whether or not this more substantial conception of a corporation is compatible with de Bruin’s stance depends of course on what this conception is.)
Yet even if we set that point aside and grant to de Bruin his minimal conception of a corporation, there remains a problem here for him. Given the extremely minimal conception of a corporation he adopts, is he then entitled to maintain that financial corporations must be committed to the Argument from Liberty? If a financial corporation is nothing more than a nexus of voluntary contracts, there seems little reason to assume that this corporation possesses a commitment to anything (perhaps beyond those contracts). It seems odd that de Bruin on the one hand adopts such a minimal account of what a corporation is and yet on the other seems to adopt such a substantive view of what a corporation accepts or views as desirable. Yet if the minimal conception of a corporation is incompatible with the idea that financial corporations must be committed to the Argument from Liberty, then we do not in fact have the normative grounding for the epistemic virtues that de Bruin promised. To provide the normative ground that de Bruin promised, he has to show that financial institutions, as minimally construed, are committed to the Argument from Liberty. We are sceptical that this can be shown.
Finally, whilst de Bruin is right to note that there is a place for improved epistemic practices here and that regulators “have to acknowledge that the mere provision of information concerning freedom is only partly going to address the needs of people facing financing decisions” (
2015: 90)—i.e. as we might put it: information is not the same thing as knowledge—still he seems wrong to maintain that this reveals a
special place for epistemic virtues over a focus on ethics more generally. For even if de Bruin is granted the special place he wants for the Argument from Liberty, still this argument has other preconditions besides the epistemic ones. For the Argument from Liberty to work, customers need practical virtues (e.g. courage, strength of will) to exercise their choice and they must have the political liberty and financial resources to put into effect a preference for one basket of goods and activities rather than another. So the Argument from Liberty itself requires more than epistemic virtues. Thus, even on de Bruin’s favoured conception of the landscape, knowledge matters but certainly isn’t the whole story.
Rejecting the Claim that Internalization of Epistemic Virtue is the Best Way to Address the Problem
De Bruin’s positive answer to the question of how things can be improved in the sector is that agents need to acquire and exercise epistemic virtues (
2015: chs. 3, 4). We counter with the observation that the epistemic worries themselves could be addressed in ways that need not involve internalizing the virtues. For instance, consider the epistemic asymmetry that exists between customers and professionals in the financial sector, such that customers are often lacking in both the kind of financial literacy required to understand the products on offer to them and are often lacking in the appropriate kinds of information required to allow them to make a well-informed decision. There are two obvious ways in which to address this problem. First, an attempt might be made to improve the financial literacy of customers (potential as well as actual) of financial services. Second, customers might be encouraged to get more and better advice. Of course, both these options might be taken together—improving the financial literacy of customers and offering them better financial advice. However, de Bruin assesses them as separate options. And he argues that neither of these two alternative moves is adequate.
First, considering moves to improve financial literacy, de Bruin (
2015: 72–73) cites a study showing that university students who had undergone a nineteen-hour financial literacy programme were more likely to purchase less comprehensive health insurance policies, thereby taking a higher risk. He concludes (
2015: 73) that there is no proven connection between financial literacy and intelligent investment: “[T]o date, no study seems to have broached the topic of the correlation between financial literacy and
wise investment”.
Second, he argues against treating the provision of financial advice (customers’ taking financial advice is a prime example of what he terms “outsourcing epistemic responsibility”) as an adequate solution. He provides four considerations against treating the provision of financial advice as an adequate solution. First, trust in financial advisors has diminished (2015: 73). Second, those most in need of financial advice are the least likely to buy it (2015: 73–74). Third, people often don’t do what advisors suggest (2015: 74). Fourth, although some evidence suggests that requiring customers to seek financial advice does improve financial outcomes (2015: 103), this may be through ancillary effects (e.g. that such legislation reduces the provision of financial services to high risk clients—banks stop offering mortgages to those required to seek advice).
From these considerations, de Bruin concludes that the way forward is not to try to improve customers’ financial literacy or to provide customers with financial advice, but for customers to internalize and practice the epistemic virtues (
2015: 74):
The question … is not what levels of knowledge about finance are sufficient for adequate financial planning. On the contrary, I investigate the epistemic virtues leading people to acquire the knowledge and the vices that result in their failing to do so. Doing this suggests ways to strengthen financial literacy. But financial literacy is not always accompanied by epistemic virtue, nor does financial illiteracy imply epistemic vice by necessity.
As this passage indicates, de Bruin maintains that financial literacy and advice are distinct from epistemic virtue in this area, with financial literacy and advice being neither necessary nor sufficient for epistemic virtue.
Of course, we agree that financial literacy is possible without epistemic virtue (“financial literacy is not always accompanied by epistemic virtue”). However, de Bruin also claims that one can fail to have financial literacy (i.e. be in a position of financial illiteracy) and still have epistemic virtue (or at least absence of epistemic vice—“nor does financial illiteracy imply epistemic vice by necessity”). We doubt that, in today’s increasingly complex financial marketplace, there are many people who have epistemic virtue with respect to financial matters and yet do not have at least a significant degree of financial literacy. As a matter of conceptual analysis and metaphysical necessity, we acknowledge that, since literacy/illiteracy and virtue/vice are contrasts of scalar terms, there is room for argument about whether one must have at least minimal financial literacy in order to have at least minimal epistemic virtue about financial matters. As a practical matter, however, we think that nowadays no one could be plausibly described as epistemically virtuous about financial matters if this person was almost completely illiterate about such matters.
Furthermore, and even more problematic for de Bruin, if financial literacy and advice were able to solve the problems, this independence would show that a move towards epistemic virtue was not necessary for addressing the problems here. Moreover, we are not persuaded by de Bruin’s arguments against trying to improve customers’ financial literacy and against providing customers with financial advice. The fact that financial literacy is difficult to improve certainly does not in itself militate against attempts to improve it. Perhaps the attempt just needs more effort (after all, lots of worthwhile goals are difficult to achieve). Furthermore, only one study is cited to show that financial education doesn’t help.
6 So the evidence base for dismissing financial education is far too thin.
De Bruin’s argument against the provision of financial advice is even weaker. First, the worry that trust in financial advisors has declined doesn’t speak against provision of advice; it speaks in favour of improving levels of trustworthiness of financial advice. Second, the worry that those most in need of financial advice are least likely to buy it speaks in favour of provision of free or very inexpensive advice, not in favour of no advice at all. Third, the recognition that people often don’t do what advisors advise may point to possible problems with the way advice is provided. But in general if people ignore appropriate and appropriately given advice without good reason, then they have to shoulder the liability for their decisions; otherwise, personal responsibility is undermined.
We therefore contend that the options de Bruin rejects—improving customers’ financial literacy and education and the provision of good, accessible financial advice to customers—remain firmly on the table as ways to reduce the risk of further problems in this sector. The combination of these options does not entail the acquisition or practice of full epistemic virtue by customers. Yet these options seem to us to be very valuable, especially in combination.
Rejecting the Idea that an Appeal to Epistemic Virtue has Practical Application
The correct understanding of the failings in the financial services sector during and after the crisis of 2007–2008 might well suggest practical ways to try to avoid problems in the future. Yet the degree to which de Bruin’s appeal to epistemic virtues can really help us in this respect is unclear.
First, the proposal that customers should acquire the epistemic virtues needed to make wise choices themselves looks even more problematic in practice than the options de Bruin rejects. For instance, products change and multiply, terminology mutates, advertising manipulates, and fashions swirl. In the context of such change and complexity, it is highly unlikely that sufficient epistemic virtue could be developed in nearly all customers of mortgages and other financial services to protect them from ruinous contracts.
Second, not all of the activities that contributed to the financial crisis could be explained by lack of epistemic virtue. For instance, consider the behaviour of the credit rating agencies (CRAs)—such as Moody’s, Standard & Poor’s, and Fitch—that rated complex mortgage-backed security products. The reluctance of CRAs to adjust the ratings of those products to reflect the value of the underlying assets (in particular following an upward spiral in sub-prime mortgage defaults) seems to have been the result of inherent conflicts of interest rather than a failure in epistemic virtue.
7 This example illustrates how a focus on epistemic virtue alone won’t address all issues.
Finally, it is difficult to see how requiring professionals and consumers to acquire and exercise epistemic virtues could be sensibly mandated by regulatory statutes. Financial regulation in the UK is focused fundamentally on duties, not on virtues. For regulations to bring about abstract and qualitative virtues such as love of knowledge, courage, temperance and humility would be difficult, unless these regulations were couched in terms of substantiate positive requirements (in which case, one might think that it was these substantive requirements, rather than the appeal to epistemic virtue per se, which really mattered here).
8
So, in light of our questions about whether good epistemic practices really need to be understood in terms of virtue epistemology (§1), about whether de Bruin establishes a normative ground for epistemic virtues (§2.i), about whether he successfully shows that the situation can only or best be improved by the customers’ acquisition of epistemic virtues (§2.ii), and about whether a requirement for epistemic virtue can realistically be embedded within regulatory statutes (§2.iii), we conclude that the case for prioritizing epistemic virtue as a means of averting another global financial crisis is far from proven.
Having argued against de Bruin’s recommendation that the way forward is to prioritize epistemic virtue, we will devote the next sections to making some positive suggestions about how to move forward, both in terms of conceptualizing the issues and in terms of practical steps.