Thursday, July 16, 2009

Your Recession: Economic theory taken to a religious extreme has put us where we are today.

Finally, a reputable magazine is finally reporting on a problem that has festered for too long among the financial classes in our country, viz., the infection of ideology.

The Economist points out that much of the economic mess we find ourselves in results from slavish adherence by our financial and economic priesthood to the conceptual ideals of economic theory.

I regularly instruct my students on the conceptual assumptions of economics: supply & demand curves, the invisible hand, rational actors, self-interest. I go the extra step to remind them that humans aren't entirely rational. Markets don't always correct properly without some assistance.

The incentives of the financial world boil down to money. When the goal is to maximize the cash, an ideology justifying greed easily takes root. Like all good memes, the language of economics eliminates or hides any threats to its existence.

Those reifying economic theory to validate and justify their self-interest (greed) fell victim to the irrationalities that their faith ignored. They took us along with them.

Religions and ideologies provide ready-made concepts to explain events; it's a type of reductionism to avoid internal inconsistency--Economics As Religion is no different.

We--and by that I mean those pushing the economic levers of power--must disengage from the ecstasy of their ill-conceived, economics-driven faith.

It's time for a reality check. As a nation, we can't afford any more flights of religious or ideological fancy.

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