Anonymous asks “.. mate what are you on about? bubbles have repeated throughout the last 500 years, this is just another” and so does mike “Geoffey what are you on about? Asset bubbles have repeated throughout history, this is just another. At the peak of the tulip bubble people were swapping their houses for flower bulbs.. there will be plenty more to come.”

OK, this is what I am on about. Of course there have been bubbles and there will be again. Sure people behave irrationally at times but merely to accept this is a counsel of despair. There are deep causes to the global economic crises and social psychology can aid economics, accounting and finance in helping us understand them, and the whole purpose of better understanding is to help us mitigate the risk of them happening again.

An accessible source of insight from this perspective is the excellent BBC series by Adam Curtis “The Century of the Self” , that you can download for free from the Internet Archive (www.archive.org search “century of the self”). If you missed it, watch it now. There are four programs of one-hour each. If you are only going to watch one, watch number four.

This last part describes how politicians took up “focus groups” and the consequences. It’s possible to argue that the global economic crisis is the result of governments’ indulgence of the view that everyone can be anything, do everything and have everything they want. Here is the conclusion to that series:

“Fundamentally, here we have two different views of human nature and of democracy.

“You have the view that people are irrational, that they are bundles of unconscious emotion. That comes directly out of Freud, and businesses are able to respond to that. That is what they have honed their skills doing. That is what marketing is really all about. What are the symbols, the images, the music, and the words that will appeal to these unconscious feelings?

“Politics must be more than that. Politics and leadership are about engaging the public in a rational discussion and deliberation about what is best, and treating people with respect in terms of their rational abilities to debate what is best.”

Two things have happened since that series was produced. First were the moves to encourage personal indebtedness – to keep the “dangerous crowd” hard at work and therefore more docile – that have culminated in the global economic crisis. Second came 9/11 which turned national security into a party-political issue, giving US and UK governments the pretext to vastly reduce the human rights of their people in the name of homeland security (see Naomi Klein’s provocative “The Shock Doctrine”).

When Christian Barnard was asked why, knowing the risks, he could contemplate pioneering heart-transplant surgery, he replied “because I’d rather put may faith in God than in the Devil”.

It’s true that people behave irrationally at times. But they can also behave rationally. It’s because I prefer to put my faith in people’s rational abilities that I am not so fatalistic, and that is why I have recommended books such as Weick and Sutcliffe’s most excellent “Managing the Unexpected: Assuring High Performance in an Age of Complexity” (2001) in earlier comments on this blog. It ought to be compulsory reading for all bankers and regulators, indeed for all managers who are have to cope in these disheartening times.

.. Geoffey what are you on about? Asset bubbles have repeated throughout history, this is just another. At the peak of the tulip bubble people were swapping their houses for flower bulbs.. there will be plenty more to come.

.. mate what are you on about? bubbles have repeated throughout the last 500 years, this is just another.