The Philosopher Ayer states:
To begin with, it is surely obvious that there is something amiss with the attempt to incorporate the world in a deductive system, in which everything follows logically from a set of self-evident first principles…
The more factual content a deductive system appears to have, the greater the likelihood that factual assumptions are concealed in the axioms or the definitions.
An overly rational, reductionist view of human behaviour had tipped the world to the brink of financial collapse with the Global Financial Crisis. With no less than the highly venerated guru of capitalism the former federal reserve board chairman Alan Greenspan stating that “capitalism was built on a fundamental flaw”. The failure of leaders in the financial sector to pursue their self-interests in an enlightened, rational manner, as they were supposed to do. Instead, their common sense was allowed to be overwhelmed by greed, infecting the whole system that is designed to run on the basis of rational deliberation.
The “mistake” the former Chairman says he made was his failure to notice signs of infection early enough to inoculate the system, Sadly, when you are entrenched in the system it is hard to see it from outside its boundaries. The hot water and the boiling frog example comes to mind here.
Soros commented that “market fundamentalism,” a term he coined had rendered the capitalist system unsound, it was based on the dogma that markets work better for the heavy hitters to the extent that they are unregulated and for the great unwashed to the extent that heavy hitters’ capital gains trickle down to them.
He argues that there is a widespread belief that markets are self-correcting and operate like a pendulum, tending towards equilibrium. He states this belief is false.
“Financial markets are given to excesses and if a boom/bust sequence progresses beyond a certain point, it will never revert to where it came from….[instead], financial markets act like a wrecking ball, knocking over one economy over another”.
Ayer’s criticism also applies here, the system is inherently built on a set of false and naive assumptions that disregards the totality of human behaviour, focusing on a rather narrow rational lens.
We don’t have to be rocket scientists to know that this will unfortunately happen again. With the dramatic increase in Algorithmic high frequency trading the risk is now magnified.
A paradigm shift and schism will occur as it has in other areas of human endeavor.
Dr Eugene Fernandez is the Managing Director of Metanoa and has over 25 years experience in consulting, coaching and facilitation, spanning various industries and sectors globally.