Despite this, over the course of the last 20 years, economists began to act as if we thought we could genuinely predict the economic future. If the universe didn’t oblige, it wasn’t because our models were wrong; “market failure” was to blame. It is not clear how we could know that markets were failing whenever they fell significantly, but believed that we had no business second-guessing them when they climbed. Nor is it clear how we all knew that LTCM’s failure or the post-Sept. 11 malaise posed grave risks to the system, but could seriously doubt that the dot-com craze was a bubble.
We repeatedly rescued bubbles and never deliberately burst them. As a result, our financial markets became a pyramid scheme. Moral hazard, we thought, could safely be ignored, because it is “moral,” which, as every true scientist knows, just means “imaginary.”
But a market is not a rocket, economists are not rocket scientists and moral hazard is, in human affairs, the risk that matters most. The false belief that we can collectively see the future using science has led us all to make various binding promises about things in that future that no human being can possibly guarantee. A promise of something that we should know cannot be guaranteed is also known as a lie. That vast tissue of lies is now tearing itself apart.
Governments think we can stop this process by throwing money at it, but there are many reasons to believe that this won’t work. The banking system is probably already past saving — many institutions simply aren’t banks anymore, but vast experiments that didn’t work out as predicted.
We could easily be “stimulating” and “rescuing” the economy for a rather long time, in ways that only delay the needed adjustment before we are finally forced to allow the required creative destruction to occur. But that is not the real problem. The real problem is the pseudoscientific ideology behind today’s crisis. A final science of man has no room for the unplanned and unpredictable recovery that is the only kind a capitalist economy can have after a crisis of this size.
If we cleave to the false security of a supposed science that isn’t working and forget about the philosophy behind it, ideas like personal responsibility and the right to fail, our leaders will very scientifically give us no recovery at all.
Daniel Cloud teaches philosophy at Princeton University and is a founding partner of two hedge funds.
COPYRIGHT: PROJECT SYNDICATE/INSTITUTE FOR HUMAN SCIENCES
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