Belief in Self-regulating Free Enterprise Based on Another Authoritarian Myth

The 99% are suffering from the Great Recession and it will be years before we recover. At least one conservative economist is willing to admit the free enterprise system is flawed.

Alan Greenspan admitted this failure while testifying to the House Committee on Oversight and Government Reform:

… almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” …

We are in this recession because of the foolish belief in the invisible hand of the free market to self-regulate. The reality is that any system or institution created by ‘man’ is only as perfect as the least perfect human controlling or using that system. Only systems driven by nature’s laws, like the entire universe, are truly self-regulating and man is the only animal on earth that can, and has, altered that self-regulation in innumerable ways.

Why do we have this belief in the invisible hand of self-interest? As explained below, it has to do with our belief in the Cold War Rational Actor. However, research since the 90’s on brain function has shown reasoning is much more than self-interest.

Maybe Greenspan’s “shocked disbelief” and the Great Recession could have been avoided if he and others were aware of the current research on how decisions are really made.

At the beginning of The Political Mind, George Lakoff, one of the researchers on the workings of the brain, stated,

We will need to embrace a deep rationality that can take account of, and advantage of, a mind that is largely unconscious, embodied, emotional, empathetic, metaphorical, and only partly universal. A New Enlightenment would not abandon reason, but rather understand that we are using real reason — embodied reason, reason shaped by our bodies and brains and interactions in the real world, reason incorporating emotion, structured by frames and metaphors and images and symbols, with conscious thought shaped by the vast and invisible realm of neural circuitry not accessible to consciousness.

In other words, our decisions are not just based on self-interest. So, where did the Rational Actor making logical decisions based on self-interest come from? It is a twentieth century Cold War myth.

Joe Brewer summarized it this way in an article at Cognitive Policy Works:

Back in the 1940′s and 50′s, a research center was created to explore fundamental issues of concern to the Air Force. This Research ANd Development institute was aptly named the RAND Corporation. Within the high-security walls of this military think tank, mathematicians developed abstract principles for nuclear strategy during the Cold War. In the midst of this particular, historically contingent environment – and motivated by concerns of defense contractors in the air combat arena – the notion[/myth] of self-interested rational action was born.

Joe Brewer then discusses some of the recent research into the working of the brain that’s disproving the decision process of the self-interested Rational Actor.

In a related article, Lawrence DiStasi states that he supports Joe Brewer’s attempts to “dismantle the conservative corporate juggernaut that has so dominated our political/economic life for the past 40 years.”

DiStasi continues with this:

An essential component [dismantling this juggernaut] involves deconstructing the now widely-accepted notion[/myth] that capitalism works because it is natural, the natural child of human nature pursuing democracy and freedom. And at the heart of this free capitalism idea is the notion[/myth] of the “rational actor” pursuing his own “self-interest.” This notion — not as old nor as self-evident as one might think — argues that capitalism’s “invisible hand,” which runs a free-market economy without interference, is really embedded by nature in us all, millions of us who as “free” individuals make rational decisions in pursuit of our own self-interest.

DiStasi goes on to discuss the RAND Corporation and their development of the “rational choice theory” and their “self-interested strategic rational actor,” and the use of these notions/myths by other disciplines.

He summarizes, although not as thoroughly as Professor Lakoff above, the recent research that debunks the self-interested strategic rational actor:

The full story is complex and still being formed. But the basics are quite simple. Humans do not make key decisions based on the rational part of the brain. Their decisions, rather, come about either before rational consciousness has a chance to even think, or from deeper areas of the brain that govern the emotions. Rational consciousness — the ego in Freudian parlance — is too often a ‘rationalizer.’ …

DiStasi concludes with:

To sum up: the market fundamentalists who have nearly destroyed the American economy have done so under the banner of the so-called free market, raised to the level of an almighty controller of all things, including democracy. They have essentially said that with rational actors making economic (consumer) decisions, not just the market but politics itself, the welfare of the entire nation itself, is automatically and invisibly regulated. There is no need for government to regulate anything. There is no need for compassionate politicians to look out for the welfare of the people. There is need only for “rational” consumers making “rational” decisions. But what their beloved science — now in the form of behavioral psychology, behavioral economics, neuroscience, and linguistics — has begun to tell them is that the whole structure is based on a lie. …

This belief in a debunked twentieth century idea allowed the Great Recession and is killing American. Henry Giroux put the impending death of America this way in a recent article:

In the age of Reagan and Thatcher, neoliberalism [(liberalism tending to favor free-market capitalism)] was becoming normalized all over the globe. This was particularly evident to me by the early 1990s as neoliberal capitalism became more ruthless, consolidated and poisonous in its ever expanding support for a culture of cruelty and a survival-of-the-fittest ethic in which market-driven values and relations acted as the template for judging all aspects of social life. By transforming society into the image of the market, the space and conditions for thinking outside of market values and relations became more difficult, and one particularly grim consequence was the demolition of non-market values, public spheres, and forms of community. As democratic social forms diminished, so did social values, the public good, social responsibility and the very nature of politics. This was a very destructive moment for both the U.S. and the rest of the world. Just as corporate sovereignty replaced or weakened political sovereignty, the attack on the social state intensified, the power of capital became detached from the traditional politics of the nation state, the punishing state was on the rise and there emerged a new set of economic and social formations in which social protections were weakened, social problems were increasingly criminalized and all public spheres were subjected to the forces of privatization and commodification, especially public and higher education.

Under neoliberalism, we have witnessed the rise of an unfettered free-market ideology and economic Darwinism in which market values supplant civic values. Everything is for sale. A hyper-individualism is celebrated. Profit-making is seen as the essence of democracy, and the obligations of citizenship are reduced to the practice of consuming. This is a system in which a dehumanizing mode of consumerism and the unencumbered concentration of capital are matched by the endless disposing of goods, rendering even people now redundant and extraneous. This is also a system in which everything is privatized, with one grave consequence being that the public collapses into the private. It becomes increasingly difficult to translate private concerns into public issues.

Joe Brewer concluded his article on The Death of Self-Interest Fundamentalism with the following:

Yes, it is time to let self-interest fundamentalism go the way of monarchy and feudalism. It may not go silently into the night, but the end is nigh. Pretty soon we will have laid the foundation for a sustainable future – both ecologically and financially. In order to do so, we’ll have to acknowledge how human beings actually are instead of how theorists engaged in military strategy presumed us to be 60 years ago.

The longer we refuse to recognize the imperfections of man made economic systems, the longer it will take to recover from the Great Recession. The demise of self-interest fundamentalism is long overdue and the Occupy effort will hopefully hasten it’s end.