The counter-intuitive dimension of economic reality – Edward Fullbrook
Scientific education entails taming the authority of one’s intuition. Responsible citizenship in a democracy may entail it as well.
Keynes argued that the markets often create inaccurate expectations of economic reality which people then act upon thereby changing reality. This reflexivity that Keynes identified as central to capitalist markets is the opposite of the basic process described by traditional economic theory, both in Keynes’ day and in our own, whereby it is assumed that market expectations are determined by market reality rather than one of that reality’s determinants.
For most people Keynes’ theory of market expectations, like his theory of aggregate demand, is counterintuitive, and therefore difficult to elucidate and popularize sufficiently to become part of public discussion. That is why George Soros’s role as a populariser of Keynes’ theory of expectations is potentially significant.
It is my view that in democratic societies the ultimate obstacle to implementing and maintaining laws and policies that make their economies function reason- ably well and fairly is the challenge of intellectually enabling their populations, especially their pundits and politicians, to comprehend the counter-intuitive dimensions of economic reality.
Without that comprehension democratic societies will always be highly vulnerable to accepting the advice that follows from economic reasoning which excludes counter-intuitive propositions and which serves the interests of tiny but powerful minorities.
Source: The above observations from Edward Fullbrook appeared in the June 15, 2017 blog of Real World Economic Review.
Edward Fullbrook is the founder and editor of the Real-World Economics Review and a research fellow in the School of Economics at the University of the West of England.