Listener: More Skepticism, Please

Filed under: Letters

Craig, of KXPR land, writes:

I find that the most important thing I have learned while listening to your podcasts, is that no-one really understands our economy. The economists you have interviewed are happy to portray their pet theories as fact, but if we have learned anything over the past year, it is that they are all just theories, and unlike in real scientific endeavors, we don't seem to be getting closer to a generally agreed upon understanding of the economy works.

I have been astounded that huge institutions such as Lehman Brothers etc. (whose entire purpose, if I am not mistaken, is to assess and manage monetary risks) not only put themselves in highly risky positions that led to the nearly instantaneous destruction of these institutions, but didnt even seem to be aware that they had done so.

As an aside, I would ask you to be a little more skeptical about the experts you interview for your segments. One lesson I have learned over the past year is that there are no real experts in financial matters. Certainly we should be highly skeptical of those involved in creating the financial debacle.

Far from leading me to the conclusion that the invisible hand of the free market will keep the financial world in balance, I am more convinced than ever that it cannot be trusted to keep the economy on a relatively even keel.

By comparison, look at any natural system in the world that endures over time. They all maintain equilibrium over time because of a balancing of forces. Engineers design physical systems to ensure that the system maintains stability and operates within its design parameters.

Our economy is a system which seems to be designed to run out of control (both in the positive and negative directions) rather than maintaining stability. By analogy, would you fly on an airline that took you from Los Angeles to New York veering between flying at or near ground level and up to 60,000 feet? Would you fly on an airline that crashed on a periodic basis?

It seems to me that our economy fundamentally runs on trust, and that there must be some mechanism put in place (no Nobel prize for me because I cant imagine what it would be) that measures the level of risk in the system and maintains it within some pre-defined parameters. Had we had such a system, perhaps we could have avoided or at least minimized the economic catastrophe we are in.

Laura Conaway

11:09 AM ET | 01-12-2009 | permalink

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