The folly of economists and the farce of history.

Two short letters in today's FT (16/03/09) nicely sum up both how the world got into the fine economic mess that its finds itself in and how, in a tragi-comic fashion, it is almost certain to find itself in again in the dim and distant future.

The first points out how 'investors were lazy and did not check the fundamentals of what they were investing in. Auditors failed to report or pick up unreliable data. Everyone seem[ed] to have put blind trust in the rating agencies' and that faith alone wasn't enough to make the market system function effectively. Free market economics, driven by ever-more complex financial instruments marketed at great profit by the banking industry, had become an article of faith for all, from Ivy league graduates through the worker-bees churned out by the lesser universities through to the aspiring would-be entrepreneurs who had been watching too much of TV's 'The Apprentice' and not enough of 'Only Fools and Horses'. As with Communism, it inevitably became a god that failed.

Karl Marx, pilloried during the neo-liberal ascendancy by people who knew little about him or his thought, famously said that history repeats itself, first as tragedy and then as farce. With the current financial crisis the great and the good are scratching their heads, wondering what could possibly have gone wrong, but we have been here before. Over half a century ago Karl Polanyi wrote 'The Great Transformation', a wonderful book chronicling the rise and fall of classical liberalism and its replacement with a more stable and sensible social-democratic compromise; this text wasn't widely read in the City of London.

The second letter looks at how this lethal cocktail of forgetfulness and complacency came about, identifying the rise to ascendancy of economics and the marginalisation of history as key enabling factors. Economics, or econometrics informed by a neo-liberal arrogance, was the 'truth language' of the free-market faith system in much the same way as Latin was the 'truth language' of the equally impenetrable pre-reformation Catholic Church; those who could not speak in its code had not right to speak at all.

Just as the recession and war-scarred post-war generation of politicians were eventually written off as obsolete in their thinking by the likes of Thatcher, Reagan and Blair, the current crop of 'decision-influencers who have been through the current fiasco will remember the lessons for a while, but eventually their memory will fade and it will happen all over again.'