Professional economists were
asleep at the switch when the economic meltdown of 2008 occurred. Even Allen Greenspan, one of the most esteemed economists, didn’t see the economic crisis coming. Following their best training and the collective
wisdom of their profession, a lot of well-trained, very smart people made
decisions that seemed quite rational at the time. Since those decisions led directly to the
current economic crisis, we really need to understand what happened and why so
we can try to prevent this kind of economic crisis in the future.
Each of these experts, having
tens of thousands of hours of academic and on-the-job training in economics, all
made the same fundamental mistake: they all believed that unregulated, free market capitalism would
behave rationally. It was a fundamental
misunderstanding of how things work in the real world and too much reliance on
theoretical models that didn’t account for all the factors; the biggest factor
being that humans don’t always behave rationally, wisely, or altruistically. In fact, the history of the world teaches otherwise: humans in general are irrational, greedy, self-centered, and foolish. It's the exception to the rule they'll behave otherwise, which is why we need to regulate capitalism.
It would make more sense if
only a few of these experts had made this mistake. But that’s not what happened as far too many
of these experts, suffering from groupthink, came to the same erroneous
conclusions. So which seems more likely that economists all over the world made the same mistake, or their
academic training was flawed? We believe
the latter to be the case. The 2008
economic meltdown was an example of a flawed plan that was brilliantly executed
and the result was a total disaster.
The famous American psychologist, Dr. Abraham Maslow, Ph.D., once said, “I suppose it is tempting, if the only tool you
have is a hammer, to treat everything as if it were a nail.” This concept is known as the Golden Hammer Rule, and it’s simply an
over-reliance on a familiar tool.
Medical doctors, for example, epitomize the Golden Hammer Rule with all the various medical specialties. In the case of economists, they only have one
Golden Hammer in their tool bag to
make sense of the economic challenges we face.
For anyone to buy anything
they must have money. To have money,
they must have jobs that pay enough to buy stuff. So any economic theory that does not hold as
its keystone the availability of jobs and the income level of those jobs is
fundamentally flawed. Yes, the economic measures and theories do include jobs,
but only peripherally and not as the central measure of economic health. This may seem simplistic to someone trained
in “classic” economic theory, but a layperson in their simplicity and innocence
recognizes the principle of good paying jobs as the key to a healthy economy.
The definition of insanity is doing the same thing the same way and expecting different results! We've gotten where we are by following our current economic theories. The only way to reverse our current economic morass is by reexamining our economic theories and chart a course to a more prosperous future.
