For centuries, economists have believed in the power of Adam Smith’s “invisible hand” to steer the markets. But the global financial crisis and a rising income gap has many reconsidering Smith’s theory: that competition channels self-interest for the common good. One economist proposes a new intellectual giant of economics – Charles Darwin. He argues the naturalist’s understanding of competition describes economic reality far more accurately than Adam Smith . And he warns that failing to recognize that we live in Darwin’s world is putting our economy at risk. What Charles Darwin can teach us about economics.
I’m not convinced of his idea but, I want to learn more. I have ordered his book but have not yet read it. I really liked the interview and you can listen to it via the link at the top of this post. You can also read the transcript here….
My favorite part of the whole show was this….
My target really is the movement libertarian, I call them. The people who embrace a very naïve vision of Adam Smith’s invisible hand — one that says that we don’t need government at all. We can just let markets handle all the tasks that are to be done, vis-à-vis banks.
I completely agree we need to regulate them tightly. They shouldn’t be so big that if one fails it threatens… …to take down the system…
…but I don’t think it was the subprime Fannie Mae activity that was the sole cause of the housing crisis. People campaigned for — the banking industry made very donations to the Congress. They bought banking deregulation as a consequence. Those deregulations allowed banks to lend in ways that wouldn’t have been considered prudent in earlier times. They convinced themselves they had rich customers who had a lot of money to park.