Thursday, June 17, 2010


This article - "Death of an Economic Paradigm" - from's Yves Smith is one of the most succinct and incisive pieces I've read on the state of our economic world.

First, she argues that our leaders have failed miserably in their attempt to fix our reckless and unaccountable market system. Then Smith makes it clear that she believes this occurred because our policymakers seem incapable of understanding that we're "in the middle of a breakdown of an economic paradigm."

I agree. Most of our policymakers don't understand history, can't think conceptually and, as a result, can't be expected to understand how some of our most basic economic ideas have become polluted over time. Here's one of the key set-ups as to why this is the case ...

In 1776, Adam Smith published The Wealth of Nations. In it, he argued that self-interested action sometimes produced, as if by “an invisible hand”, results that were beneficial to broader society. Smith also pointed out that self-interest could just as readily do harm. He fiercely criticized both how employers colluded to keep wages low, as well as the “savage injustice” that European mercantilist interests had “commit(ted) with impunity” in colonies in Asia and the Americas.
Smith’s ideas were cherry-picked and turned into a simplistic ideology that dominates university economics departments and policymaking. This theory proclaims that the “invisible hand” ensures that economic self-interest will always lead to the best outcomes imaginable. It follows that any restrictions on the profit-seeking activities of individuals and corporations are inefficient and nonsensical.

Those of you who follow this blog regularly won't be surprised by what Yves Smith writes. However, you will be interested to find that she - like me - seems to believe that it will take another economic crisis before we find the will to fix this mess. Hope it's not too late by then.

- Mark

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