The Bubble and the Pump: Globalization, Complexity, Contingency, and the Financial Crisis

Abstract

Scientific revolutions are less in the nature of plate shifts and tectonic upheavals than they are like slow moving tides. The ‘behavioural revolution’, for instance, reached the field of economics considerably later than other social sciences, and mainstream economic theory continues to be moved by the presuppositions of Newtonian classical mechanics. So neoclassical economics models the economy as a dynamic equilibrium on the kinetic model of atomic physics, making no special allowance for human reflexivity. Thus we find Alan Greenspan (2008), one of the principal actors in its creation, referring to the recent financial crisis as ‘a tsunami like event’, as if it were one of those cataclysmic events caused by tectonic plate shifts over which we have no control – this, ironically, in the case of one of the more demonstrable products of the feed-back loop caused by the intersection of individual expectations and the presuppositions of science.

I would like to thank Dieter Boegenhold, who not only brought this article to publication, but also inspired me by his comments . I wish also to thank my colleagues in the School of Economics at the Free University of Bolzano for their comments: Alfred Steinherr, Aidan O‘Connor, Dmitri Boreiko, Pietro Frigato, and Francico Santos-Arteaga.