Monday, 15 December 2008

Like e-Bay - but Evil

The economic crisis has led to a sudden and massive collapse in the credibility of previous theories of benign, self correcting free markets and problem free globalisation: for the Masters of our Universe it's like running over an intellectual cliff and looking down to discover there is nothing holding you up.

One of the interesting effects of this is how little shards of knowledge which have always been floating about in obscure bits of academic literature get picked up and re-examined. A new significance is suddenly found in ideas and experimentally grounded data which once, because they didn't 'fit' the prevailing theory, were sidelined as curiosities. This, of course, is classic Kuhnian sociology of knowledge: a paradigm shift occurs. The most obvious way in which this is happening is the sudden and world wide rehabilitation of Keynesianism, 'crass' or otherwise.

But it's not just the economic foundations of previous macro economic norms which are beginning to fail. People are starting to look again at stuff which undermines the very idea of a narrowly rational 'economic man', who bases their decisions on the marginal utility of this or that good or service. It seems Gran was right: most of us really do act as though 'a bird in the hand is worth two in the bush'. This is apparently called 'the endowment effect'.

But it would be a mistake to imagine that paradigm shifts work their way through in the supposedly disinterested cloisters of academe. 'Practical men', as Keynes might have it, may or may not be the 'slaves of long dead economists', but they also create the world which Brahmin intellectuals like John Maynard attempt to corral into some kind of intellectual order. So perhaps we shouldn't be surprised that some bastard has discovered a way of making horrendous amounts of money from 'the endowment effect'. Jeff explains how it works and describes it as,

" ...about as close to pure, distilled evil in a business plan as I've ever seen........ It is almost brilliantly evil, in a sort of evil genius way."

Via Marginal Revolution

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