David Brooks writes a usual thought provoking piece today in the New York Times about how economic recession has triggered a collapse of classical economic theory, particularly its increasingly badgered anthropology. In classical economics human beings may be a mixture of passions and desires, but ultimately they are governed by reason. Thus the market can be predicted, and supply and demand constellate a relatively stable economic order. Brooks writes,
But an economy is a society of trust and faith. A recession is a mental event, and every recession has its own unique spirit. This recession was caused by deep imbalances and is propelled by a cascade of fundamental insecurities. You can pump hundreds of billions into the banks, but insecure bankers still won’t lend. You can run up gigantic deficits, hire road builders and reduce the unemployment rate from 8 percent to 7 percent, but insecure people will still not spend and invest.
The economic spirit of a people cannot be manipulated in as simple-minded a fashion as the Keynesian mechanists imagine. Right now political and economic confidence levels are running in opposite directions. Politically, we’re in a season of optimism, but despite a trillion spent and a trillion more about to be, the economic spirit cowers.
Mechanistic thinkers on the right and left pose as rigorous empiricists. But empiricism built on an inaccurate view of human nature is just a prison.
2 comments:
I find that trust in the economic system is connected with my trust in the people who I buy from and connect with the in economic realm. Since I have faith in them, I also have faith in the system. That faith then expands to other parts of and players in the system. Local trust for me breeds confidence. While I may scoff at large institutions that have broken trust, my local connections provide a source of on going stability.
I agree. It seems to me that trust must have some kind of relational, proximate component. What strikes me as very interesting, however, is how we come to trust the large conglomerates - which sometimes have relational components, but sometimes do not. I have built up a fairly substantial systemic trust in, among other institutions, the Royal Bank of Canada, although I can't point to a name, or a relationship. On the other hand, I can think of no corporation I despise or distrust more than Bell Canada, who regularly deceive and overcharge their customers.
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