the escape from reality
August 17, 2013, 10:34 am
Filed under: brave new world | Tags: , , ,

no 2 flamingoHere is the economist John K. Galbraith making two more excellent points about the popularity and insanity of speculation.  He describes two reasons why after a bubble bursts — as it did in a spectacular fashion that echoed around the world in 2008 — the real reasons for the crash are completely ignored.

The first reason is that we have very little trouble casting blame on one or two people, but have considerable difficulty blaming an entire community – like the financial community or the economists.  We simply can’t bring ourselves to believe that so many people could be so wrong, and also that people with so much money could be so foolish.

The second reason is that we have come to believe in the invisible hand, laissez faire  of the market as an orthodox Truth. The cause of crashes are never identified as the speculative behavior that precedes them in spite of the evident opportunity to head off very real and painful social and personal damage. Here is Galbraith:

in the aftermath of speculation, the reality will be all but ignored.

There are two reasons for this.  In the first place, many people and institutions have been involved, and whereas it is acceptable to attribute error, gullibility, and excess to a single individual or even to a particular corporation, it is not deemed fitting to attribute them to a whole community, and certainly not to the whole financial community.  Widespread naivete, even stupidity, is manifest; mention of this, however, runs drastically counter to the earlier-noted presumption that intelligence is intimately associated with money.  The financial community must be assumed to be intellectually above such extravagance of error.

The second reason that the speculative mood and mania are exempted from blame is theological.  In accepted free- enterprise attitudes and doctrine, the market is a neutral and accurate reflection of external influences; it is not supposed to be subject to an inherent and internal dynamic of error.  This is the classical faith.  So there is a need to find some cause for the crash, however farfetched, that is external to the market itself.  Or some abuse of the market that has inhibited its normal performance.

Again this is no matter of idle theory, there are very practical consequences, and these, as we shall see, are especially evident and important in our own time.  That the months and years before the 1987 stock-market crash were characterized by intense speculation no on would seriously deny.  But in the aftermath of that crash, little or no importance was attributed to this speculation.  Instead, the deficit in the federal budget became the decisive factor.  The escape from reality continued with studies by the New York Stock Exchange, the Securities and Exchange Commission, and a special presidential commission, all of which passed over or minimized the speculation as a conditioning cause. Markets in our culture are a totem; to them can be ascribed no inherent aberrant tendency or fault.

John Kenneth Galbraith

2 Comments so far
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Reblogged this on Reason & Existenz.

Comment by Keith Wayne Brown

Nice post, and it seems that the arrogance of man and the ease to which we leave the responsibility to others (e.g., bowing down to the ‘intelligence’ of authority such as experts in the financial markets) is a process that is guaranteed to repeat itself over time.

Comment by dalo2013

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