Free Markets Are Not Rational

The markets are rational. From that inviolatemen with a stupendous concentration of power
truth, a pillar of economic thought for 233 years,and wealth have acted in direct contradiction of
flows all else economics understands about thewhat should have been their best interests, and
markets, men, and money. An unalterable beliefours.
that markets can be measured, quantified, cut,Worse it seems, average workaday people in the
and pasted in mute acceptance that under it all,millions and millions will do exactly the same thing,
lays the consistent and undeniable force of rationalmaking free market choices with their free will
behaviour, a religion gone unquestioned.that will almost certainly lead to their undoing.
The theory of rational markets - that buyers andExamples are everyday and everywhere, all the
sellers will always act in their best interests - wastime.
given life by Adam Smith in his Wealth of NationsAnybody got a smoke?
in 1776. Born into a moment between ages, theAs he searched his world for data that would
new study of economics grew and developedreinforce his theory of rational markets and men,
with its gospel already written and sanctified.Adam Smith could not have been aware of the
Economics became nothing more than competingphenomenon of tobacco, and the leading role it
studies that tried to squeeze the maximum utilitywould play in future worlds. Would Adam Smith
out of the blandness of rational, human behaviour.have written more or less than five large tomes
The competition reached a turning point at theif, a prophet of one, he wrote the bible of the
end of two brutal wars and an economicnext two centuries with access to the wealth of
depression that sent buildings full of newly mintedquantified and verified data that our age has
economists running for their slide rules.developed about tobacco? How would Adam
The rational behaviour of man had succeeded inSmith have squared the absolute certainty of
removing over 160 million rational men, women,death, misery, and staggering social cost that
and children of free will from the market, andsmoking entails with the two thousand million free
with the dull precision of 100 million mallets,market consumers who choose, with their own
rationally pummelled the earth to pieces in its ownfree will and in markets unconstrained, to pay
best interest. Regardless, it still came to pass thatgood and ever increasing amounts of their own
"rational", as they say, was written by the victors,hard labour in exchange for regular doses of
and so from the smoke and ruin of trial by firecertain and conscious death?
came the forged steel sword of the AmericanHow can states with hegemonic commitments to
Way, embracing its own best interests by clingingthe scripture of rational markets, both encourage,
to the myth as flag, an inviolate symbol of thetax, and stand out of the way in the name of
good, the bad, and the ugly.absolute theoretical freedom, while at the same
Patriotism - an exceptionally irrational behaviour -time ignore the crushing mortality and exponential
became welded to the economic cause. Freecosts to society as a whole associated with the
markets are rational. One choice, two options -results of the same? The reason lies in the
we are right, or they are wrong. Walking off thesavage juxtaposition of an ancient, out of date
battlefields of Europe and into the womb ofphilosophy against advances in natural sciences
America at Bretton Woods, no one questionedand the increasing ability for individual choice in a
the unconscious absolute that free markets aremysterious and complex world.
rational, blinded as they were by the sheer joy ofRational markets could not have foreseen
having lived to tell. And again, the participants oftelevision, movie stars, and marketing, could not
Bretton Woods who built the world we thrashhave imagined a plethora of endless choice, an
around in today, were doing so in a singleantiquated system of competing nation states
moment of time, between two very differentthat would regress towards behaviours that were
ages.unsustainable, in free and open competition to
In the years since 1944, we have clung defiantlyprofit from the misery and death of their own,
to our patriotism, our democracies, our guns, anddemocratic citizens.
our religion. Empires have fallen, backwardOn what rational scale can a classic economist
societies saved, and the planet has become aargue that the consumption of food by wealthy,
patchwork of nominally free collections ofnon-failed nation states is anything but destructive
consumers and producers, all herded into crayonand self-defeating, when that food is poison at
borders that even at the time defied commonthe consumption end of a system of free choice
sense. The nation state was king, dividing theand unfettered markets? Far from acting in their
earth into sections of untenable, fortified camps.best interests, the western world's diet is killing its
However, in the latter half of the twentiethhost, trading sustainable health, happiness, and
century, the rational behaviours of here to foremanageable costs for spectacular profits for a
sequestered buyers and sellers, left the confineshandful of smiling clowns, faux kings, and creepy
of their nation states and roamed the earth,old Kentucky Colonels.
commerce unfettered from the chains of dogma.In the end, maximum utility turns out to be a
Rational became a moving target. EntireFrankenstein monster. In the salad days of the
populations were making decisions that were in noAmerican Dream, it appeared certain that the
way in their best interest (Unless you can explaincombination of free, unfettered markets driven
going into debt for water toys and plasma TV's).by rational, self-interested humans had indeed
The computer and the internet sped self-interestconquered nature. Wedded as they were to a
around the earth, leveraged 32 to 1 by irrationalityglorious American Democracy, it didn't take a
itself. Growth became the new dogma, and anygeneration before the American Way had swept
behaviour that helped the cause became rational.clean all remnants of any other time. So
In a simpler age, we congratulated ourselves onsuccessful that all it took was Life, liberty, and
the self-interest that had kept our irrational needwads of printed cash to overcome the Soviet
for nuclear weapons from killing us all. Now, on thehulk in spending, bankrupting any chance to notice
cusp of a thermal nuclear financial meltdown, wethe failure of fundamental economics, a million
learn for the first time that indeed man, entrustedmiles below the euphoria.
with the buttons, will without question slide off theCarried along by a human explosion, a
safety and push down hard and fast with all he'sdemographic cohort born into a post world war
worth - and everybody else's while he's at it.world grew up and prospered as the human
In this, our age - standing as we are in a momentembodiment of self-interest, free markets, and
of time between the old and the new - man is nodemocracy. But somewhere along the line the
longer rational, nor can he be trusted with freepoint of equilibrium was reached, passed, and
markets. Everything we know about economictoppled over. The technology caught up to and
behaviour must be reviewed and rethought...rightpassed the philosophy, the going got global, and
back to the root, back to Adam Smith, back tothe global got weird. Once the excel spreadsheet
the beginning. Back before nationalism, socialism,hit the flickering workstations of the theoretical
capitalism, and blind patriotism. Two hundred yearsman, the invisible hand of Adam Smith had been
is long enough to live a theory that was clearlycrushed on the ladder of human folly irreparably.
wrong.Massive amounts of invisible capital poured across
For after all, we live in a new age of individualsfibre optics, filling computer screens with
now, connected by the internet, thrust apart anduncountable digits impossible for coke-addled
together by technology. Democracy has arrivedhumans to imagine or fathom. Nothing less than a
to the people of the earth, freed of nationalcomputer game ensued, using the invisible capital
boundaries by the World Wide Web. Humans areof the imaginary American Dream - leveraged
now at odds with economics, and classicallybeyond any common sense - in an online team
trained economists as relevant as the steamshooter played in a private and expensive forum.
engine. Regression to the mean does not apply toAll holy hell was unleashed with a few casual
bell curves of one.mouse clicks over coffee, by a single person
There will be a fight to be sure. In America, thereseeking to maximize his utility, without a care or
is no question but to do what it takes to getthought for what the result might eventually be.
everything back to the past as fast as possible.The Markets are not rational.
Americans want to reset the machine and keepCivilization is only 10,000 years old, modern
on playing. The rest of the world - who trustedeconomics 200, and the great "success" of
their blood and treasure with the world's onlyAmerican capitalism but 60 of that. The next age
superpower - feel differently about things. Itwill be one that recognizes that man must indeed
wasn't them who killed the golden goose, buthave protection from himself, his foibles, and his
they were paying for the crime. A new global eratechnology. Once this economic storm has
was taking shape while Americans dithered overpassed, the wreckage left behind will have been
politics, Barack Obama's election being the lastbusted back to humility, and man will take his
America would make without the input of theplace amongst - and not above - the world
world.around him. Man has built a civilization so complex
There is, finally, a growing consensus (outsideand over reaching, that it no longer obeys the
America) that in a modern age, individuals, groups,rules he wrote for it so very long ago. This, if
and states do not seek to maximize their bestever there was one, is not a time for dusty
interests. In fact, it turns out to be quite thebooks by dusty men, from another age, and
opposite. All too often, and in ways that cananother time.
demolish civilization itself, rational, free thinking