I just watched a horrifically bad episode of Nova titled "Mind Over Money."
The thesis of the piece is that the financial meltdown disproved something they labeled "rationalist economics" and proved Keynesian theory and behavioralism.
The program begins by projecting irrational absurdities on rationalism. For example they assert that rationalism demands that rational person would never pay a penny over the real price of a good.
Nova then proves that the irrational absurdities that they project on their enemy "rational economics" leads to irrational absurdities.
Guess what? most irrational absurdities lead to more irrational absurdities. Straw men are made of straw.
Nova pointed out that folks in the Chicago School of Economics spend a lot of time analyzing mathematics models of trading behavior. Nova then made the bold claim that these mathematical models of trading behavior are the beating heart of the "rationalist school" of economics.
They completely failed to acknowledge that the emphasis on mathematical models of behavior were developed by behaviorists and were central to Keynesian economics.
The claim of the show is that the rationalist theory of economics boils things down to a set of equations that are supposed to always seek equilibrium.
They then go on to assert that the deeper thinking behaviorlists have a more holistic approach to economics that examines the reasons people trade the way they do.
I wanted to jump into the screen. Grab the idiot announcer by the scruff of the collar and bang his head against historical fact.
A truly "rationalist economics" would make the rationality of the individual the central focus of economics. A rationalist approach to economics would examine the reasons for individual behavior.
It is behavioralism that makes the mathematical model of trading behavior the central focus.
The propagandists at Nova turned the theories into their opposite.
Now, it is of historical interest that the Chicago School of Economics adopted the methodology of behaviorism.
My understanding is that the founders of Chicago School of Economics adopted the methodology of behavioralism largely because the theory of economics a half century ago was so thoroughly dominated by the Keynesian school that one had to include mathematical formula and behavioral models to get published.
The Austrian School of Economics, which is much closer to a truly rationalist approach to economics, disparages the Chicago School for its addiction to mathematical models.
Interestingly, Austrian economics seems to be a lot more in tune with business cycles and financial bubbles than those schools hypnotized by mathematical models. Adherents of the Austrian School of Economics were the first to scream about the likelihood of a major economic collapse.
I am sad that Nova produced such a poor quality show on the economic crisis.
The vary fact that financial institutions are and schools of economics are so fixated on mathematical models of behavior indicate that behaviorialism might be one of the root causes of the economic collapse.
I think it would be worthwhile to examine a truly rationalist approach to economics would work. As rationality is about reason, such a theory would make reason, not mathematical models, the central focus of study.
I find it unlikely that an economic system that made the rationality of the individual its focus would have the bizarre mix of short selling, insurance pools and derivatives that define our current economy.
The bizarre financial system that we have today is clearly evolved from the behaviorist approach to social science.