Why the Current Economic Crisis Is Not Over

Abstract

dominant school in economics, the so called Neoclassical school, seeks to make economics scientific by adopting assumptions and mathematical techniques from nineteenth-century physics. basic units of analysis in this approach are isolated units-independent, self-interested, rational agents with perfect knowledge. Four important lessons are derived from an examination of Candide, Philoctetes, Frankenstein, Rhinoceros, All Quiet on the Western Front, The History of the Peloponnesian War, and The Aeneid. These lessons are used to develop a richer and more realistic view of human action that acknowledges the tendency among humans of developing relations. Humans live in an uncertain world and oscillate between optimism and pessimism. Because of the need to belong, once a movement toward optimism or pessimism develops, it becomes stronger and stronger as the need to belong and the pain of being an outsider leads more and more individuals to become either more optimistic or more pessimistic, according to the dominant tendency. Economic and financial trends are the outcome of such self-amplifying processes. Nontraditional social theorists, such as Pareto, Knight, Keynes, Sornette, and Mackay, have acknowledged this process. It is then argued that the logical structure of the oscillation from optimism to pessimism in a tragedy goes through the following stages: confidence, alarm, relief, panic, false hope, and despair. Because economic and financial processes similarly oscillate from optimism to pessimism, they should go through the same sequence of stages. These stages are identified in the economic processes of the 1930s. model is then applied to the current state of the economy to argue that the economy is in a false hope rally within the panic stage, and the crisis has several stages to complete before it is finished.