Friday, November 13, 2009

The importance of ignorance ...

... We simply do not know! (Hat tip, Dave Lull.)
The central flaw of the economic orthodoxy against which Keynes fought in the 1930s was to imagine that an insoluble problem – human ignorance of the future – had been solved. The error was repeated in the 1990s, when economists came to believe that complex mathematical formulae could tame uncertainty in the murky world of derivatives. Steeped in history as they were, this was a delusion that none of the classical economists entertained. It began to shape economics only towards the end of the 19th century, with the rise of Positivism, according to which the natural sciences are the only legitimate repository of human knowledge. It was the formative influence of this philosophy on the Chicago School that enabled the orthodoxy of the 1930s to re-emerge triumphant, and the result was an immense boost to the prestige of economics as a discipline. Economists could claim to be scientists, who with the aid of their mathematical magic could pierce the veil that conceals the future.

The reason that markets are not self-stabilizing is that "market" is simply a collective noun designating a complex of human inter-relations. Government is one component of this. It should not be the dominant component - the aim should be to prevent any one component from becoming dominant - because regulations often (usually) have the effect of making it easier for the unscrupulous to game the system.
I don't always agree with John Gray, but this seems an excellent piece overall. Read the whole thing.

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