Economics of Illusions

19 09 2008

By Economicsfairy

So, they had a traumatic week at Wall Street? Financial disaster, catastrophe, apocalypse …?

I really love all this typical vocabulary when it comes to an extraordinary event, whether good or bad: “Nothing will be like before …”, “Our world will never be the same again …”, “The world as we know it has collapsed …” People desperately try to find adequate words to express their shock and surprise (!). Because, yes, aren’t we all very surprised about the horrible news from Wall Street?

I can’t help finding this a bit hypocritical. I’m not an expert on stock markets, but, honestly, wasn’t it quite clear that at some point something like this was going to happen? Shouldn’t at least people in the money scene have realized that for months before this new black day in the history of Wall Street there was a lot of moving and shaking going on in the banking world? What about the real estate market crash in the UK last year?

Selling illusions

Everybody knows that you can’t make money out of nothing more than taking high risks and selling illusions forever. Somehow, maybe subconsciously, all of us must have known that there will be a bill to pay at some point. But now: Nothing than shock and utter helplessness when it comes to the need for an explanation. I read the German newspapers quite intensively this week, and while some point to greed beyond any responsibility combined with sheer stupidity or demand the usual “more professional regulation by the state”, others describe how “the responsible people” just hang about in talk shows and declare that they wouldn’t understand today’s complicated financial system either …! One commentator suggested that it looked a bit like scientists who tried to publicly defend an experiment that went wrong. One joked about the much feared “black holes” that the CERN experiment might produce somewhere in the universe … well, obviously, some banks vanished in black holes these days.

This “Oh my God, how could this happen?” and “Oh shit, I’ve lost ten million dollars – how will I survive without my Ferrari?”-attitude including a complete lack of feeling responsible is a bit shocking. These guys seem to live (no, they don’t SEEM to live, they LIVE) in another universe than we “ordinary” people do. They have made up a complete dream (but nevertheless very comfortable) world, and this week it collapsed.

Adrenaline and Megalomania

Well, we could say, who cares? A few ridiculously arrogant and megalomaniac guys who had lost their senses (and any reasonable contact with themselves) anyway and who probably needed this kind of high adrenaline-providing job (for whichever reasons …), turned Wall Street into a casino, and now they have to wake up. Good for them, we could say. Better late than never.

The trouble is that we are so connected these days, that it matters quite a lot for the rest of the world what a few insane brokers at Wall Street do. Look at the trouble other institutes are in, look at the panic at other stock markets, the problems for the world economy (Germany already fears the next recession after a short boom – but okay, we always fear something!) and last, but not least: The vast amounts of money that governments and central banks are currently pumping into the markets worldwide. While I hope that they will be successful in order to prevent a really big world economy crisis, I nevertheless ask myself: Where does all this money come from? What will be the impact on inflation and the value of the dollar? And who will have to pay for these rescue actions one day?

“Crisis of Rationality”

I can’t help it, but I feel that somehow many people are living under illusions and “postpone the real catastrophe”. One German commentator wrote something about an “era of misfortune” that we had constructed ourselves, and that it had already begun with the Iraq war and also (at least in Germany) with a lot of economic and social reforms that would have been too much motivated by shareholder values and demands and not enough by a common vision for the future. I’m not overly happy with the German tendency to be too pessimistic, but I think he has got a point, especially when he describes the current financial crisis as “a crisis of rationality”.

This is exactly the problem: A society (or a world) in which the economy and the stock markets are regarded as the “Mother of Rationality” AND in which nearly everything that happens has to be justified economically AND in which the very economies and stock markets are (ironically!) driven by too much insanity, greed, illusions, … (which “are then sold as rationality”) can not be regarded as sane anymore, can it? How could we ever believe all this neoliberal rubbish??

The trouble is: 1) too much greed and 2) the dominance of “rationality”.

But the REAL trouble is: Greed that comes along as rationality and leads to economics of illusions.

This crash is not sooo extraordinary. Every intelligent person could have foreseen it. Not exactly for this month and this year, but in general, yes. The more interesting question is: What lies behind it? What kind of symptom is it? What does it tell us about the world and ourselves?

Is this the one and only vision people have for themselves and the world: Making money (even out of nothing) and crying if it vanishes into a black hole?

And why?

If you want to investigate the level of development a society has achieved, just look at the Gods it worships.

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