An article in The Age by Lindy Edwards touches on the important observation that functioning market economies require certain ethical standards. The concluding paragraph gives a good indication of this;
As governments rethink how to regulate their economies after this crisis we might see a rethink in what they need to do to foster robust economies. The focus on incentives and competition may yet give way to a greater focus on the ethical limits that we need for markets to work well. The new era could be one in which the mantra shifts from "greed is good" to one of "ethics is essential to efficiency". Now that would be radical.
A couple of things I'd dispute in the article as a whole though. Most notably the iodea that it needs other social scientists to sort this out - there is a great error in equating economists with orthodox economists.
The second point is that the very vague arm waving about ethics doesn't actually explain what Government needs to do differently. After all, the "economic rationalist" revolution that started in the mid 70s and developed real legs in the 80s was a reaction to government control of the economy. That government intervention had in some part stemmed from a misreading of Keynes - trying to use fiscal policy as a kind of fine tuner of economic activity, or worse a permanent underlying stimulus, rather than as just the equivalent of a defribulator when the economy has seized.
But to think of "ethics" in isolation is to think of only one dimension of the institutional settings that are usually assumed away in orthodox theory - not least of which is the operation of finance itself. The second issue is exactly how economic models or modes get transmitted and the fact that there is something about late twentieth century economies that has allowed selfishness to be successfully transmitted - this takes you to the thery of the evolution of economic forms.
Finally to apply any kind of mathematical rigour to these ideas, to develop theories that relate actual quantities of goods produced and consumed you will wind up in the mathematics of complex systems.
Beinkocker's excellent book The Origin of Wealth covers many of these issues in a good omnibus kind of way. Unfortunately the flavour of the book is that it is written from the point of view of a management consultant rather than theoretician or polocy adviser.
The Edwards article now joins a growing list of attempts to diagnose the problem, but few have practical solutions as to what to do differently. I have some thoughts and they extend all the way from the need to develop a "humanist moral code" to the kinds of ideas that I expect to find in Nudge (see earlier post). What we also need is lots of people to start questioning all the assumptions they make about how the world works.