Browsing the blog archivesfor the day Tuesday, September 2nd, 2014.


Creatures of Myth

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economy

Human behavior makes a lot more sense when you appreciate that none of us are entirely rational. In fact, I’d go so far to say that for most of us rational thinking accounts for very little of our views and opinions about anything. Most of us live inside any number of personal and collective myths that inform us who we are and how the world is supposed to work, and it can be damn near impossible to dispel the myths even with clear and irrefutable facts and data.

This has little to do with IQ, as it’s not at all unusual even for bright people to cling to beliefs that are measurably out of sorts with the real world. As I wrote in my book, to be a reasonably rational person you must first admit to your own irrationality. If you can’t do that, you will remain at the mercy of the various goblins, trolls and pixies in your head.

Paul Krugman — in my judgment, more rational than most people — has a blog post up now called Inflation, Septaphobia, and the Shock Doctrine in which he struggles to understand why allegedly Wise Men (and it is mostly men) guiding the world’s economies are such a pack of idiots.

The bad news from Europe is a reminder that the basic insight some of us have been trying to convey, mostly in vain, ever since 2008 remains valid: the great danger facing advanced economies is that governments and central banks will do too little, not too much. The risk of elevated inflation or fiscal difficulties is dwarfed by the risk of ending up trapped in a deflationary vortex. This view has been overwhelmingly supported by recent experience — if you acted on what they were saying on CNBC or the WSJ editorial page, you would have lost a lot of money. Yet the power of the hard money/fiscal austerity orthodoxy (yes, market monetarists want one without the other, but they have no constituency) remains immense. Why?

Well, that’s the question, isn’t it? Along with charts and graphs showing that the hard money/fiscal austerity orthodoxy is just plain wrong, Krugman speculates a bit about what kind of mythology is driving it. The word septaphobia means “fear of the seventies,” btw, referring to the fact that the 1970s were marked by inflation and were a bad time for investors. The Wise Men may be running hysterically from the ghosts of the 1970s — ghosts haunting their own heads — and ignoring the very different real-world beasts that are the cause of today’s economic problems.

Thomas Frank has an article up at Salon called The 1 percent’s long con: Jim Cramer, the Tea Party’s roots, and Wall Street’s demented, decades-long scheme. As the title suggests this is a lot about how the 1 percent manipulates the world to benefit themselves. But if you read between the lines a bit, this article is also about myths and the way Wall Street portrayed itself in the 1990s as the true friends of Everyman and as shamans of a kind of economic democracy that was more fair and egalitarian than governmental-type democracy.  This is an excerpt from a book, and while I don’t know where Frank goes with this next one suspects he discusses the self-delusions that gave us the financial meltdown of 2008. But it also suggests that the New Deal was still looming in the personal myths even of people too young to remember the FDR Administration.

And there were incredible prizes to be won as long as the bubble continued to swell, as long as the fiction of Wall Street as an alternative to democratic government became more and more plausible. Maybe the Glass-Steagall act could finally be repealed; maybe the SEC could finally be grounded; maybe antitrust could finally be halted. And, most enticingly of all, maybe Social Security could finally be “privatized” in accordance with the right-wing fantasy of long standing. True, it would be a staggering historical reversal for Democrats to consider such a scheme, but actually seeing it through would require an even more substantial change of image on Wall Street’s part. The financiers would have to convince the nation that they were worthy of the charge, that they were as public-minded and as considerate of the little fellow as Franklin Roosevelt himself had been. Although one mutual fund company actually attempted this directly—showing footage of FDR signing the Social Security Act in 1935 and proclaiming, “Today, we’re picking up where he left off”—most chose a warmer, vaguer route, showing us heroic tableaux of hardy midwesterners buying and holding amidst the Nebraska corn, of World War II vets day-trading from their suburban rec-rooms, of athletes talking like insiders, of church ladies phoning in their questions for the commentator on CNBC; of mom and pop posting their very own fire-breathing defenses of Microsoft on the boards at Raging Bull. This was a boom driven by democracy itself, a boom of infinite possibilities, a boom that could never end.

We can always debate how much of this the Captains of Finance actually believed themselves, and how much of it was PR, but I think the financial crisis showed us they really were not behaving rationally at all. They became convinced they were immortal; that bullets would not kill them; that whatever they did was blessed because they were doing it. Greed was driving a lot of this myth, of course. I don’t doubt those who survived the meltdown still believe this, and why wouldn’t they? The government protects them from having to face their own mortality.

More to the point, as Krugman says, sometimes these myths actually are not supporting their own long-term financial health in any rational way.

And this crew of mostly Asuras are ultimately the ones responsible for the fiscal austerity orthodoxy, possibly because in their mythical world somebody should suffer for the setbacks of the 2000s, but it shouldn’t have to be them.

Postscript — one more thing — whenever I cite Krugman for anything I can count on somebody, somewhere, snorting at me that Krugman is an idiot and Krugman is always wrong. But if pushed, such people can never explain coherently what he has been wrong about. Push harder, and it becomes clear that Krugman is “wrong” because he disagrees with the orthodoxies and the myths, not because what he writes is frequently proven untrue. It isn’t, actually.

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