The Global Economic Crisis Is Challenging the Economic Paradigm
According to classic economics, people aspire to maximize profits for completely egoistic motives. The 17th century British philosopher, Thomas Hobbes, put it this way: “Every man is presumed to seek what is good for himself naturally, and what is just, only for peace’s sake, and accidentally.” [1] That view, which is still prevalent, asserts that social behavior is merely an after-the-fact result, and that our forefathers made social treaties only for the profits they yielded, not because they were drawn to each other’s company.
In the last decade, a new school of thought has emerged, known as “behavioral economics.” This new school focuses on the actual human behavior, rather than on abstract market forces, and regards that behavior as a means to understand the way we make financial decisions. Behavioral economics describes the nature and power of human relations, their collaborations, and the extent to which tendencies and fundamental perceptions of human economics rely on values of mutuality.
The current global crisis and our unsuccessful attempts to solve it could mean that the answers to humanity’s challenges lie in those new avenues of research. Indeed, thus far every attempt to resolve the crisis has failed. Interest rate cuts, bailouts, expansion programs, and increasing government deficits are based on classical economics, which rely on a collection of monetary moves (primarily interest rate cuts) and fiscal steps (expanding government budgets, tax cuts and so forth).
Government intervention and central bank assistance was meant to nudge the market back into balance. The subsequent failure to achieve this suggests that it is time to replace the existing economic paradigm. Any new paradigm must rise one level higher and show that the problem and hence the solution are at the level of human relations rather than the monetary level.
[1] Thomas Hobbes, Rudiments, 1651, iii