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Real-World Conditions

"Out of the crooked timber..."

Sina Odugbemi's picture

There is a global debate going on concerning why the global financial crisis erupted. The technical debate is what it is; so far there is far more heat than light. But in addition to the technical debate is a debate about how certain underlying assumptions about human nature entertained by economists and even famous central bankers have turned out to be incorrect. It turns out that human beings - as consumers, investors, bankers, stock traders - have not behaved in precisely the ways "rigorous" economic theories predicted that they would. Even Alan Greenspan, former Chairman of the Federal Reserve, showed his surprise at human nature at a congressional hearing late last year: "I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms."