The Cure for Our Economic Ills

Here is a call by Matthew Iglesias for us to abandon economic orthodoxy. It is a wonderful essay. Below is the final paragraph that sums up his position. You need to read the whole article to get the full argument:

The Great Depression led to the implementation of a regulatory regime that, though crude, served to prevent panics from becoming contagious and banks from becoming “too big to fail”. This framework was eroded by the belief that a market populated by rational actors could police and correct itself. After all, why would nearly all investors simultaneously make the same mistake, year after year? The answer, of course, is speculative mania – a concept for which there’s ample empirical support but for which a rationalist model has no place. The cure is not to abandon capitalism, but to ditch excessive faith in the rationalist model and make sure that regulations keep us well-clear of the ledge, lest inevitable bouts of irrationality push us into an abyss.