On May 20th, 2009, in the aftermath of the American-spawned global financial crisis, the United States Congress passed legislation entitled The Fraud Enforcement and Recovery Act of 2009, which simultaneously created the Financial Crisis Inquiry Commission to oversee the recovery efforts and explore the precipitating causes of the crisis (FCIC, 2010). The ten members of this prestigious panel, comprised of leading academicians, seasoned members of congress, and ostensibly successful members of the financial services sector of the economy were given the mandate to conduct a comprehensive examination of twenty-two specific areas potentially related to the cause of the financial crisis. Among the potential causes this august group was given a mandate to explore were issues such as fraud and abuse in the financial sector, a lack of appropriate regulation of financial institutions, the emergence of risky new financial instruments such as derivatives, potential conflicts of interest in corporate governance structures, an increase in the unregulated securitization of financial assets, as well as eighteen other substantive areas of economic activity.
On March 1, 2010, the commission held its first public forum at American University’s Washington College of Law, in Washington D.C., during which leading academics in the fields of economics, business and law were asked to weigh in on each of the twenty-two specific areas the commission was charged with exploring, articulating its potential role in the financial crisis. During the two-day forum the commissioners and invited experts “engaged each other in running debate in which theories about the origin of the financial crisis were questioned and defended. The academics pointedly confronted one another, scoffing openly at various points. The commissioners … were corrected on some points and not so politely interrupted on others” (Nasiripour, 2010, para. 4). Interestingly, during the entire 48 hours of contentious debate and discussion, there was not a single recorded mention of the potential role that unbridled greed or the lack of any moral or ethical core to the practice of neoliberal economics may have played as a primary causal factor.
Three months after the establishment of the FCIC, on the other side of the Atlantic, a group of equally esteemed academicians and economists in the United Kingdom wrote an open letter to the Queen of England, with the purpose of explaining how the economic crisis could have occurred and why it wasn’t anticipated in light of its depth and scope. In part, its authors wrote,
We believe that the narrow training of economists – which concentrates on mathematical techniques and the building of empirically uncontrolled formal models – has been a major reason for this failure in our profession. This defect is enhanced by the pursuit of mathematical technique for its own sake in many leading academic journals and departments of economics.
There is a species of judgment, attainable through immersion in a literature or a history that cannot be adequately expressed in formal mathematical models. It is an essential part of a serious education in economics, but has been stripped out of most leading economics departments in the United Kingdom.
Models and techniques are important. But given the complexity of the global economy, what is needed is a broader range of models and techniques governed by a far greater respect for substance, and much more attention to historical, institutional, psychological and other highly relevant factors … As trained economists and United Kingdom citizens we have warned of these problems that beset our profession. Unfortunately, at present, we find ourselves in a minority. (Hodgson, et. al. 2009, paras 9, 10, 11 & 13)
In essence these leading British academic economists were suggesting that the very way in which we engage in economic discourse and practice is fatally flawed at the root and is a primary cause of the current crisis. The shift from the study of political economy as a social phenomenon in the seventeenth and eighteenth centuries, to the study of economics as a purely mechanistic, empirical, hard science in the nineteenth through twenty-first centuries has removed the ‘human’ element from economics. Today economics is totally disconnected from any meaningful social ontology and is practiced in the existential vacuum of economic laws that mimic scientific laws and the ostensible rationality of Homo Economicus.
In today’s study of economics there is no longer room for the application of philosophical fields of study such as morality, ethics and metaphysics. And yet, it may very well be that it is the absence of these precise fields of study that are at the root of today’s financial crisis. The FCIC report discusses the potential root of the crisis being issues such as lack of regulation, corporate conflicts of interest, the rash of radical securitization of assets, the creation of novel financial instruments such as derivatives and the increase in risk-taking in the financial markets, along with numerous other potential causes rooted in the mechanical aspects of economic practice. Unfortunately few, if any, are asking the more important questions related to what is motivating these financial practices and what are the underlying reasons that allow these activities to go unregulated at best, and legally protected and encouraged at worst.
The time has come to radically rethink economics by rooting its study and practice in social ontology and giving serious attention to the moral, ethical and even spiritual elements of economics that are essential to developing a more integral approach to economics that serves all of humanity, as opposed to a very small percentage of the world’s population residing in Western, economically powerful nations.
Financial Crisis Inquiry Commission (2010). http://www.gpo.gov/fdsys/pkg/GPO-FCIC/content-detail.html
Hodgson, G. et.al. (10 August 2009), Letter to the Queen of England. http://www.feed-charity.org/user/image/queen2009b.pdf