Regarding Mark Stein’s Psychoanalytic Analysis of the Underlying Reasons for the 2008 Recession — Even if His Psychology Is Mistaken, His Factual Overview of the Context and Timing of the Economic Downturn Is the Best that I Have Seen

13 June 2012

Well-meaning people caught in the clutches of unconscious psychic forces — or a rationally acting One Percent, wielding power in pursuit of its own self-interests?

I tend somewhat more toward the latter explanation of the 2008 (and continuing) recession.

However, a year ago, Mark Stein brilliantly came up with an alternative explanation. It will appeal to people who have more faith in the well-meaning intent (but flawed implementations) of human institutions than I do.

Citation — to Mark Stein’s unique analysis

Mark Stein, A culture of mania: a psychoanalytic view of the incubation of the 2008 credit crisis, Organization 18(2): 173–186, doi: 10.1177/1350508410390071 (March 2011)

Who is Professor Stein?

Professor Mark Stein directs the University of Leicester’s Department of Leaning and Teaching.

He chairs the University’s Leadership and Management program.

Dr. Stein’s — perhaps not-so-ridiculous — hypothesis about a “culture of mania” and “manic denial”

Anyone confronted with the perfect storm of (apparent) idiocies that underlay the 2008 economic crash has to struggle to explain how a supposedly Great Depression-educated economic system could let this happen.

If one rejects the hypothesis that greedy and powerful people set out to capture our economic and political institutions in order to benefit themselves, one is left with invoking slightly more mysterious forces to account for the economic downturn.

Enter Professor Stein.

His thesis — which I have condensed and made somewhat more coherent — is that a “culture of mania” overtook the West as an unconscious psychological response to three historical developments:

(i) the collapse of Russian Communism as a viable threat to capitalism in 1989,

(ii) Japan’s “lost (economic) decade” that began in 1991,

and

(iii) the Southeast Asian/Long Term Capital Management economic collapse of 1998.

The first of the three elements encouraged capitalistic mania.

The second two fostered fear and a psychically counteracting “manic denial” — which (in turn) motivated the overly active financial risk-taking that led to the economic crisis of 2008.

Professor Stein’s psychoanalytic ideas — spelled out

Communism’s demise gave western capitalists and government regulators the impression that “our” economic system was predetermined to succeed. Hence, our elated confidence.

However, at just about the same time, Japan’s economic quagmire — soon followed by the economic debacle that began in Southeast Asia — unconsciously signaled westerners that confidence in the inevitability of “our” economic success was ill-advised.

Prescient economists and politicians saw that the real estate bubble that underlay our own boom, combined with governmentally withdrawn regulations, exactly paralleled the two broad conditions that had created both Asian crises.

How could even quasi-intelligent beings miss such obvious warnings?

Professor Stein turned to psychoanalysis for an explanation:

First, working with ideas from psychoanalysis and its application to social and organizational dynamics, the theoretical framework of a ‘culture of mania’ is formulated and developed.

This culture is specified in terms of the four characteristics of denial, omnipotence, triumphalism and over-activity. Second, also drawing on psychoanalytic ideas, this article contributes a new notion of denial to the literature.

While denial is usually taken to refer to the overlooking or ignoring of vulnerabilities and problems, the idea of ‘manic denial’ developed in this article refers to the concept that warning signs are indeed noted and observed, but that they serve not as warnings but as provocations to act manically in taking on more extreme risks.

Focusing especially on the Japanese and Asian/LTCM [Long Term Capital Management] crises, I argue that a series of major ruptures in capitalist economies were observed and noted by those in positions of economic and political leadership in Western societies.

I suggest that these ruptures caused considerable anxiety among these leaders, but that, rather than heeding the lessons of these crises, such leaders responded by manic, omnipotent and triumphant attempts to prove the superiority of their economies in relation to the vulnerabilities thrown up by these ruptures.

This response thus entailed the destruction and obfuscation of the data and the dismantling of regulatory warning systems, as well as the creation of reassuring myths such as the ‘great moderation’, all of which led to a culture in which massive increases in risk-taking were seen to be justified.

I go on to argue that this manic culture was influenced by a triumphant response in the West to the collapse of communism. I argue that the conditions for the 2008 credit crisis were thereby set in place.

Is Professor Stein right?

My scientific and medical training doubt the validity of psychoanalysis, as Stein uses it.

In assessing his worthy paper, readers cannot help but notice that whenever the question, “Why would they do this?” raises its head — Dr. Stein replies that the motivation to act irrationally is unconsciously derived.

In effect, he uses the impenetrable “black box” itself as an explanation for the phenomenon it is trying to explain.

That is not a rationally valid way of demonstrating, much less proving, anything.

Even Sigmund Freud felt obligated to cast deeper — predominantly into sexuality — to assemble “stories” about motivation that might make sense to some people.

A second criticism of Dr. Stein’s hypothesis enters at this point. Occam’s Razor.

Why present a more convoluted explanation of a phenomenon that is already significantly better explained by something people readily understand and repeatedly have seen in action — self-interest?

I have difficulty seeing financial and political actors wanting to prove the superiority of capitalism so fervently, that they would stupidly risk its success.

I also doubt that senior government regulators and politicians were so historically naive that they really believed that repealing 1933’s Glass-Steagall Act in 1999 was going to benefit the society as a whole.

Political and personal self-interest more simply explain what happened. When you are beholden for your position (and its companion financial success) to bankers and financial actors, you will do what they want. Hence, deregulation.

Put simply, greed and immediate monetary gratification are better motivators for excessive risk-taking than nebulous wishes to prove the “superiority” of one system in regard to another.

The people who screwed us in 2008 (and still today) made (and continue to make) fistfuls of cash.

They were not looking for the airy satisfaction involved in riding Capitalism’s (theoretically) Golden Horse. They were looking for the actual cash the beast spewed out at everybody else’s expense.

Dr. Stein’s point may, however, apply — not to the actors themselves — but to the people who foolishly vote them into power

Thomas Frank, author of What’s the Matter with Kansas, has made a number of attempts at explaining why people vote against their own economic self-interest.

Why does much of the public — people who lost huge portions of their retirement accounts and real estate equity — continue to vote for politicians and political parties, who consistently empower the One Percent that actively and deliberately emptied their wallets?

Here, I suspect that Professor Stein’s explanation of psychic causes of the 2008 crash better explain:

(a) these voters’ self-destructive behavior

than it does

(b) the profitable behavior of the economic and political actors whose actions he initially set out to explain.

Fact-lacking ideology seems to motivate the “masses” more than it does those with an actively indulged penchant for institutionalized theft.

That is why both political parties — and the plutocrats they toady to — regularly hype irrationally-based “isms” at the expense of concrete facts and proven methods.

The only fools in this pattern of culturally-accepted behavior are, “We the People.”

Those things said, Professor Stein’s paper is a brilliantly concise overview of the context that surrounded the 2008 downturn

I highly recommend Dr. Stein’s paper to people who have a deep interest in what happened and continues to take place.

The moral? — Thinking about our immediate past may illuminate the correct course forward

Or not.

Depending on how much fact-recognizing brain we bring to solving our problems.

Professor Stein is certainly correct in implying that rational behavior in the political arena is rare.

PeteFree.com

Regarding Mark Stein’s Psychoanalytic Analysis of the Underlying Reasons for the 2008 Recession — Even if His Psychology Is Mistaken, His Factual Overview of the Context and Timing of the Economic Downturn Is the Best that I Have Seen