The former Chairman of the Federal Reserve, Alan Greenspan has had a long and distinguished career in public service, providing economic guidance to both Republican and Democratic Administrations alike.
Nevertheless, this explanation makes me question Greenspan’s–as well as his cohorts’–naivetÃ©.Â
And surely, his shock at the economic situation as well as his explanation as to why he failed to anticipate the problems with the market resonated with many other key decision makers: the economy had continued to perform well for forty years. Nevertheless, this explanation makes me question Greenspan’s–as well as his cohorts’– naivete.
Unfortunately, Greenspan’s lack of foresight reveals a major lack of hindsight. Forty years is but a blink of the eye in the course of time. Had Greenspan and others looked at the performance of the economy from the perspective of the longue durÃ©e— an approach advocated by the great French historian Fernand Braudel in his book On History (University of Chicago Press, 1980)– he certainly could have fathomed the market crash, even if he were unable to predict it.
One need only consider the insights of Eric Beinhocker, in his recent book, The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics. (Harvard Business School Press, 2006) Beinhocker’s evolutionary approach is consistent with Braudel’s notion of the longue durÃ©e insofar as he emphasizes the on-going cumulative processes that converge in the course of history to yield discernible patterns over time. Pointing to the collapse of the English economy in 1315, Beinhocker notes, for example:
Depressions, recessions, and inflation are not exclusively modern phenomena: they are patterns that have recurred since the beginning of recorded history. There are other patterns in economics that are equally old, including the long-run growth in wealth per person. . . and the distribution of wealth. . . For these patterns to be so old, they must be the result of causes that are deep in the workings of economics, cases that are independent of the technologies, government policies or business practices of a particular age. (p. 161)
As the market crash makes clear: the time for interdisciplinarity is here!
Today’s understanding of the present market crisis should not, therefore, be attributed solely to the failure of politicians to regulate the market so as to promote not just profits but also the public interest. Academia is also partially at fault. As Geoffry Hodgson has argued, in How Economics Forgot History: The Problem of Specification in Social Science (Routledge 2002), understanding the economy as it has evolved over the longue durÃ©e requires not just a dialogue among disciplines but also new theoretical approaches that build on a long view of history and, thereby, provides a more realistic, while at the same time more complex, level of analysis. As the market crash makes clear: the time for interdisciplinarity is here!