COMMENTARY As Mario Monti assumes the role of Italy's Prime Minister, the markets were expected to rise, reassured that a 'technocrat' is now in charge of Italy. But I'm not surprised that investors are scared. Why should anyone be relieved that an economist is now in charge? Wasn't it the economists who argued that deregulated markets like derivatives were bound to be the safest? Wasn't it economists who argued that the market knows best? Wasn't it technocrats who invented the Euro in the first place? Isn't it economists who failed to appreciate that not all European countries operate the same way?
That great economist, Alan Greenspan, entirely failed to heed to early warning signs of his beloved deregulated derivatives market. Lawrence Summers, confronted by the insanity of California's energy market, maintained that it could not possibly be manipulated -- a profound insight rendered entirely wrong by the thousands of hours of tape recorded phone calls that demonstrated pervasive manipulation by Enron's criminal power traders. In his marvelous excoriation of economists and financiers, Extreme Money, Satyajit Das dismembers the economists' efficient market hypothesis, comparing it to The Price is Right. In effect his book is a terrifying ride though modern economics, analyzing its repeated failures to see, understand or correct market failures. So what makes us think that putting the economists in charge is going to work?
Not only are the lunatics in charge of the asylum, but it appears we are trusting those same lunatics to tell us how well the asylum is working. Whether or not Monti is doing is a good job is being judged not by the team he is assembling or analyzing the decisions he is taking (or has taken in the past) but by the bond market. If the interest rate on Italian government bonds goes down, Monti is assumed to be doing the right thing. How did it come to pass that we handed over scrutiny and analysis to the bond market -- which is, let's not forget, not a thing but a bunch of bankers. They may have wrecked the West's economy but, somehow, they're still running it.
Since the late 1980s, neo-liberalism (the Chicago School) has dominated all of our economic thinking, despite the woeful lack of supporting evidence. George Soros has made his fortune, after all, not from betting with the market but against it: "I assume that markets are always wrong," he has said. French Prime Minister Lionel Jospin once remarked "Yes to the market economy, no to market society" but what we are seeing now suggests that his caveat was intellectually nice but, in reality, a total surrender to a market that is often, if not always, wrong.
If trusting the market seems bizarre, so too does our sudden faith in technocrats. Jon Corzine was a technocrat as was Robert MacNamara, the whiz kid who provided the technical management for another dismal failure, the VietNam war. Mario Monti is both a technocrat and a member of a prevalent elite that has always been in power, never on its receiving end. I don't have any quarrel with Mario Monti himself. I know he's read my most recent book, Willful Blindness, so of course I fondly imagine he's inoculated against the nonsense that surround him. But it is a dangerous moment in a democracy when we cede all power and responsibility to technocrats and markets. Neither has a great track record. Such an abdication implies that, like Daedelus, we no longer have the capacity to understand the world that we ourselves created.