Tuesday, September 7, 2010

The Nap of Reason: Financial Collapse and the End of Enlightenment

It’s a day of forceful rain here in Tokyo. In fact, it’s the first real rain in at least a month, and while I would prefer to be off using the last few days of my unlimited rail pass to drift lazily through the countryside on a local train, it’s not too unpleasant to clean my temporary apartment and drink green tea. I’ve also just been listening to the latest Deep Read from Planet Money, an interview with Satayajit Das, a longtime trader and analyst, and author of Traders, Guns, and Money: Knowns and Unkowns in the Dazzling World of Derivatives. His basic perspective – that the market is essentially unpredictable - is in line with the ideas presented by many other guests of the show, with Nasim Taleb (The Black Swan) the most entertaining and bold.

While very significant in the realm of economics, what interests me most is that these writers and thinkers are part of a larger explosion into the popular consciousness of a broad set of ideas that refute or revise enlightenment rationalism.  In addition to economics, you'll find these in mathematics and psychology - books like Mlodinow's Drunkard's Walk, Ariely's Predictably Irrational (which I haven't been able to read yet) and the model for most current writing about science and society, Malcolm Gladwell's Blink (A fine book, but all the one-word titles that have coattailed it are infuriating: Sway, Nudge, Click . . . ugh).  These books (at least, the ones not by Taleb) are often tentative and hedged, and generally try to integrate their insights into a larger rationalist framework.  But they have nonetheless managed finally to mass-market a vision of the world - and in particular, the world of human action - as one that we are not at all well-equipped to understand.

I'm far too ignorant as yet to make this argument with any sophistication or detail, but there seems to be a lineage here with the set of philosophers that we associate with poststructuralism - figures like Derrida and Lacan who focus on the failures of dialogue and interaction, on the limits of language and reason, particularly, again, as regards human interaction.  What the economic anti-rationalists have discovered is, basically, the same problem of intersubjectivity at the core of Lacanian thought. In post-rationalist economics, no prediction can be accurate, because that prediction itself has consequences that it cannot have taken account of. Similarly, Lacan's account of human action is one in which all of our targets constantly move exactly because we are pursuing them.  All of the conclusions we draw about the people in our lives are distorted by the lens of our own mind, which erects illusion and image where we lack true knowledge.

Economics is also linked with the Lacanian human in a more emotional way. Finance is supposed to play the role of society's resource-allocator, placing investment where it will best serve to satisfy human desire.  But what if the failure of market rationality is caused not just by our inability to anticipate others' perceptions of our actions, but by the ultimate futility of a finance aimed towards Satisfaction? Bringing to bear the concrete strength of money on such a fleeting, ever-changing, and ultimately unattainable thing is surely a recipe for just the chaos we have witnessed.

It remains to be seen whether the financial collapse heralds a greater consciousness of our own limits, and finally push society as a whole to a stage beyond the Enlightenment progressivism that has been our limit for centuries. Even if this shift does begin, there will surely be those who continue to be victims of rationalism. Most obviously, there’s no sign Wall Street traders are going to give up their formulae or the sense of certainty they’re selling. There’s also a strange sense in which rationalism, albeit in distorted form, underlies one of the most patently irrational phenomena of the past few years - the mania, particularly among those most afraid of collapse, for gold bullion.  Gold is the ultimate illusion of safety, a safety based entirely on the expectation that others will continue to think of it as valuable.  While simple-minded, this is not so much different from the faith that traders put into their models and graphs.  What gold represents is the externalization of faith - and we as a society are beginning to see just how much of a blind leap it is to trust in reason.

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