SoundSeen: Chris Farrell Puts Neuroeconomics and “Cleansing” in Focus
Trent Gilliss, online editor

The production tour for this week’s program with Paul Zak was rather circuitous. After Krista’s interview in late March, schedules and time lines became hectic and we had resigned ourselves to the fact that it wasn’t going to make for an hour-long production. A couple months later, Kate, our managing producer, asked about the interview and thought it was worth reviewing with fresh ears. Fortunately, she did, and we now have a program.

With all the interesting information about trust and oxytocin influencing personal financial decisions, Paul Zak’s statement about “the cleansing effect of recessions” prompted more questions for me:

"Economists talk of the cleansing effect of recessions. So recessions are necessary because they kind of cull out the companies that are not providing the best customer service, that are not making a profit, that are not providing some product or service that people need. And when those businesses go out of business, then those resources are redeployed to more important uses. The machines are reused; the people get different jobs. And so this keeps the economy kind of efficient. We don’t want to kind of limp along and have high levels of inefficiency just because we love the name General Motors or love the name of some company if they can’t kind of keep up with the herd. So competition drives that and that’s an important part of maintaining efficiency.

But I think the same thing can happen in individual lives. I think as we get towards the end of every boom period, today or two years ago, the end of the 1990s and dot-com bubble, the end of the ’80s and this kind of “me,” “greed” generation, I think we do get out of whack because human beings are adaptable and we are watching what other humans are doing. We also become adaptable to this sort of yuppie, ‘more stuff for me’ lifestyle.

So I think, from a spiritual perspective, that recessions are also cleansing. So I think it’s very important that we don’t shy away from recessions and we don’t try to outlaw them. I think we should say, ‘Hey, there were excesses. This is how the excesses are corrected. And the excesses were both kind of on the macro level and even perhaps in my own life. Maybe I got a little over-excited about the extra bonuses I was getting and the bigger car. And now I want to sit down and reevaluate what’s really important to me.’ So I think there are great analogies between the micro and the macro, and we should embrace that.”

These are bold statements that have implications. So, after our final editorial session, I suggested that perhaps Krista might ask Chris Farrell, APM’s resident expert on economics and all things financial, for a broader perspective on the field of neuroeconomics and its place within the larger world of economics. And, more explicitly, Krista asked Chris about his view of Zak’s perspective on moments of economic and moral “cleansing.” Chris’s historical and critical analysis I found helpful, and surprising.

I’m not sure if there are absolute right or wrong answers to this final point, but there are consequences. How do you think about this?

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