SPEAKING FREELY Free markets are not rational By Aetius Romulous
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The markets are rational. From that inviolate truth, a pillar of economic
thought for 233 years, flows all else economics understands about markets, men,
and money - an unalterable belief that markets can be measured, quantified, cut
and pasted in mute acceptance that under it all lies the consistent and
undeniable force of rational behavior, a religion gone unquestioned.
The theory of rational markets - that buyers and sellers will always act in
their best interests - was given life by Adam Smith
in his Wealth of Nations in 1776. The new study of economics, born into
a moment between ages, grew and developed with its gospel already written and
sanctified. Economics became nothing more than competing studies that tried to
squeeze the maximum utility out of the blandness of rational, human behavior.
The competition reached a turning point at the end of two brutal wars and an
economic depression that sent buildings full of newly minted economists running
for their slide rules.
The rational behavior of man had succeeded in removing more than 160 million
rational men, women, and children of free will from the market, and with the
dull precision of 100 million mallets, rationally pummeled the earth to pieces
in its own best interest. Regardless, it still came to pass that "rational", as
they say, was written by the victors, and so from the smoke and ruin of trial
by fire came the forged steel sword of the American Way, embracing its own best
interests by clinging to the myth as flag, an inviolate symbol of the good, the
bad and the ugly.
Patriotism - an exceptionally irrational behavior - became welded to the
economic cause. Free markets are rational. One choice, two options - we are
right, or they are wrong. Walking off the battlefields of Europe and into the
womb of America at Bretton Woods, no one questioned the unconscious absolute
that free markets are rational, blinded as they were by the sheer joy of having
lived to tell. And again, the participants of Bretton Woods, having given birth
to the World Bank and the International Monetary Fun and who built the world we
thrash around in today were doing so in a single moment of time, between two
very different ages.
In the years since 1944, we have clung defiantly to our patriotism, our
democracies, our guns, and our religion. Empires have fallen, backward
societies been saved, and the planet has become a patchwork of nominally free
collections of consumers and producers, all herded into crayon borders that
even at the time defied common sense. The nation state was king, dividing the
earth into sections of untenable, fortified camps.
However, in the latter half of the 20th century, the rational behaviors of
heretofore sequestered buyers and sellers left the confines of their nation
states and roamed the earth, commerce unfettered from the chains of dogma.
Rational became a moving target. Entire populations were making decisions that
were in no way in their best interest (Unless you can explain going into debt
for water toys and plasma TVs).
The computer and the Internet sped self-interest around the earth, leveraged 32
to 1 by irrationality itself. Growth became the new dogma, and any behavior
that helped the cause became rational. In a simpler age, we congratulated
ourselves on the self-interest that had kept our irrational need for nuclear
weapons from killing us all. Now, on the cusp of a thermal nuclear financial
meltdown, we learn for the first time that indeed man, entrusted with the
buttons, will without question slide off the safety and push down hard and fast
with all he's worth - and everybody else's while he's at it.
In this, our age - standing as we are in a moment of time between the old and
the new - man is no longer rational, nor can he be trusted with free markets.
Everything we know about economic behavior must be reviewed and rethought ...
right back to the root, back to Adam Smith, back to the beginning. Back before
nationalism, socialism, capitalism and blind patriotism. Two hundred years is
long enough to live a theory that was clearly wrong.
For after all, we live in a new age of individuals now, connected by the
Internet, thrust apart and together by technology. Democracy has arrived to the
people of the earth, freed of national boundaries by the World Wide Web. Humans
are now at odds with economics, and classically trained economists are as
relevant as the steam engine. Regression to the mean does not apply to bell
curves of one.
There will be a fight to be sure. In America, there is no question but to do
what it takes to get everything back to the past as fast as possible. Americans
want to reset the machine and keep on playing. The rest of the world - who
trusted their blood and treasure with the world's only superpower - feel
differently about things. It wasn't them who killed the golden goose, but they
were paying for the crime. A new global era was taking shape while Americans
dithered over politics, Barack Obama's election being the last America would
make without the input of the world.
There is, finally, a growing consensus (outside America) that in a modern age,
individuals, groups and states do not seek to maximize their best interests. In
fact, it turns out to be quite the opposite. All too often, and in ways that
can demolish civilization itself, rational, free-thinking men with a stupendous
concentration of power and wealth have acted in direct contradiction of what
should have been their best interests - and ours.
Worse it seems, average workaday people in the millions and millions will do
exactly the same thing, making free-market choices with their free will that
will almost certainly lead to their undoing. Examples are everyday and
everywhere, all the time.
Anybody got a smoke?
As he searched his world for data that would reinforce his theory of rational
markets and men, Adam Smith could not have been aware of the phenomenon of
tobacco, and the leading role it would play in future worlds. Would Adam Smith
have written more or less than five large tomes if, a prophet of one, he wrote
the bible of the next two centuries with access to the wealth of quantified and
verified data that our age has developed about tobacco? How would Adam Smith
have squared the absolute certainty of death, misery, and staggering social
cost that smoking entails with the two thousand million free-market consumers
who choose, with their own free will and in markets unconstrained, to pay good
and ever increasing amounts of their own hard labor in exchange for regular
doses of certain and conscious death?
How can states with hegemonic commitments to the scripture of rational markets,
both encourage, tax and stand out of the way in the name of absolute
theoretical freedom, while at the same time ignore the crushing mortality and
exponential costs to society as a whole associated with the results of the
same? The reason lies in the savage juxtaposition of an ancient, out-of-date
philosophy against advances in natural sciences and the increasing ability for
individual choice in a mysterious and complex world.
Rational markets could not have foreseen television, movie stars, and
marketing, could not have imagined a plethora of endless choice, an antiquated
system of competing nation states that would regress towards behaviors that
were unsustainable, in free and open competition to profit from the misery and
death of their own, democratic citizens.
On what rational scale can a classic economist argue that the consumption of
food by wealthy, non-failed nation states is anything but destructive and
self-defeating, when that food is poison at the consumption end of a system of
free choice and unfettered markets? Far from acting in their best interests,
the Western world's diet is killing its host, trading sustainable health,
happiness and manageable costs for spectacular profits for a handful of smiling
clowns, faux kings, and creepy old Kentucky Colonels.
In the end, maximum utility turns out to be a Frankenstein monster. In the
salad days of the American Dream, it appeared certain that the combination of
free, unfettered markets driven by rational, self-interested humans had indeed
conquered nature. Wedded as they were to a glorious American Democracy, it
didn't take a generation before the American Way had swept clean all remnants
of any other time. So successful that all it took was life, liberty, and wads
of printed cash to overcome the Soviet hulk in spending, bankrupting any chance
to notice the failure of fundamental economics, a million miles below the
euphoria.
Carried along by a human explosion, a demographic cohort born into a
post-world-war world grew up and prospered as the human embodiment of
self-interest, free markets and democracy. But somewhere along the line, the
point of equilibrium was reached, passed and toppled over. The technology
caught up to and passed the philosophy, the going got global, and the global
got weird. Once the Excel spreadsheet hit the flickering workstations of the
theoretical man, the invisible hand of Adam Smith had been crushed irreparably
on the ladder of human folly.
Massive amounts of invisible capital poured across fibre optics, filling
computer screens with uncountable digits impossible for coke-addled humans to
imagine or fathom. Nothing less than a computer game ensued, using the
invisible capital of the imaginary American Dream - leveraged beyond any common
sense - in an online team shooter played in a private and expensive forum. All
holy hell was unleashed with a few casual mouse clicks over coffee, by a single
person seeking to maximize his utility, without a care or thought for what the
result might eventually be.
The markets are not rational.
Civilization is only 10,000 years old, modern economics 200, and the great
"success" of American capitalism but 60 of that. The next age will be one that
recognizes that man must indeed have protection from himself, his foibles, and
his technology. Once this economic storm has passed, the wreckage left behind
will have been busted back to humility, and man will take his place amongst -
and not above - the world around him. Man has built a civilization so complex
and over-reaching that it no longer obeys the rules he wrote for it so very
long ago. This, if ever there was one, is not a time for dusty books by dusty
men, from another age, and another time.
Aetius Romulous is an historian, economist, accountant, writer and
blood-sucking CEO born at the wrong end of the baby-boom generation - too late
to enjoy the ride, too early to have missed it, and stuck in the middle with
the mess. http://screambucket.wordpress.com/
(Article reprinted with permission of the author. Copyright retained.)
Speaking Freely is an Asia Times Online feature that allows guest writers to have
their say.
Please click hereif you are interested in contributing.
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