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Rational Irrationality: Rethinking the Global Economy

From the Archived "Cardus Policy in Public" Series

June 16, 2010

Serious thinkers have advanced the argument that the economic meltdown of the past two years was evidence of something called “rational irrationality” affecting the economy. The term describes a state in which pure reason dictates that it is better to participate in self-evidently crazy decisions than to resist them, because the potential loss from failing to take the risk far outweighs the gain of safer strategies.

Serious thinkers have advanced the argument that the economic meltdown of the past two years was evidence of something called “rational irrationality” affecting the economy. The term describes a state in which pure reason dictates that it is better to participate in self-evidently crazy decisions than to resist them, because the potential loss from failing to take the risk far outweighs the gain of safer strategies.

It’s not just morally bankrupt Wall Street types who are seduced by this kind of thinking. Real people are too, almost every day. Some of them run governments. Many others end up in Gamblers Anonymous, trying to get control of their urges to bet the house against the House in Las Vegas.

What’s curious is that the concept of rational irrationality is accepted as a kind of sage understanding of how real economies work, while alternative proposals for economic behavior are dismissed as idealistic at best, economic illiteracy at worst.

At the recent “God and the Global Economy” conference (co-sponsored by Cardus and Vancouver’s Regent College), for example, one of the most engaging moments was watching a Catholic priest wrestle with the premise of a new papal encyclical advocating an economy based on charity.

Father Raymond de Souza was educated as an economist at Queen’s University and Cambridge before entering the priesthood. His reading of Pope Benedict XVI’s Charity in Truth encyclical clearly left him on a tightrope between these dimensions of his life. Of course, as a priest, Fr. de Souza is fully faithful to, and in accord with, the Holy Father’s assertion that “only in truth does charity shine forth, only in truth can charity be authentically lived.” Yet as an economist, he said, he could not understand the role of charity in a modern economy.

Justice, yes. Freely giving to others that which they are rightfully owed, and living up to our obligations to them, is fundamental to the ideal of contract on which properly functioning economies are based. But charity? Giving gratuitously without expectation of exchange, must less reward, as an economic act? Love as a pillar of the free market?
“How,” Fr. de Souza asked, “do you extend charity to someone selling you groceries?”

His question hung in the air over the remainder of the two-day conference. Some of the predominately Protestant speakers acknowledged, with bemusement and amusement, that they had not expected to defend a papal document from as engaged and sharp a Catholic mind as Father Raymond’s.
It’s only when the question is set against an economic system that accepts madness as a form of reason that we can open the conversation that Benedict’s encyclical invites. In place of grasping irrationality, Charity in Truth proposes an economy rooted in the reasonableness of love.

“The demands of love do not contradict those of reason,” Benedict says early in the encyclical. “Intelligence and love are not in separate compartments: love is rich in intelligence and intelligence is full of love.” In practical terms, what this asks us to do is consider each of our acts, particularly our economic acts, not just on the basis of their return but also for the degree to which they give. In other words, we are to consider them as morally important.

Benedict reminds us of Pope John Paul II’s admonition that “investment always has moral, as well as economic significance” and warns against “modern technological thinking (that) can suggest investment is merely a technical act, not a human and ethical one.” The emphasis on the human is at the heart of Charity in Truth, and must become equally present in our discussions of local, national and, yes, even global economics. Economies are, after all, human creations, and are distorted when they exist only to serve their own ends—or rather, the ends only of those who control them.

And “control” is the appropriate word, for it is delusional to argue that what was going on in Western economies in the lead-up to the collapse of 2008 represented “market freedom”—unless by that term we mean, following Humpty Dumpty in Alice in Wonderland, whatever we want it to mean.
Freedom can never proceed from insanity, no matter how elegant our post-facto rationalizations once the spell has passed.

Similarly, free markets necessitate the recognition in charity—love—of the full humanity of all participants within them. They are not a mere shell game for the sophisticated technological manipulation of others to maximize profit or risk the good of the many for the benefit of the few. That way lies not only madness, but slavery. As Benedict says in Charity in Truth: “Human freedom is authentic only when it responds to the fascination of technology with decisions that are the fruit of moral responsibility.”
We need serious thinking to renew our economic life with that obligation to moral responsibility. We must find new ways to remind ourselves that the actions of charity and the act of buying groceries need never be separated by a tight rope.

Charity in Truth is a call to close the divide that has opened in recent years between economics and ethics, between the rational and the irrational, between markets and freedom. Let us hope reasonable people everywhere will join the discussion that Pope Benedict seeks to open.