Introduction
The 2008 financial crisis was a brutal test for mainstream economics. Mathematical models intended to guarantee security failed because they favored the order of calculation over the disorder of facts. Yves Smith points out that the true enemy of truth is not the lie, but the myth—a seductive image of the world resistant to empirical evidence. Understanding how economic theories became an apparatus for legitimizing power is crucial for rebuilding a responsible state.
Mainstream Models: Blindness to Extreme Risk
Traditional finance is based on a Gaussian world, assuming that risk follows a predictable bell curve. Meanwhile, reality is a Lévy world, dominated by "fat tails" and extreme events. Here, the paradox of models reveals itself: they are most reliable in times of calm, but become useless precisely when the system approaches a catastrophe. Instead of a tool for understanding, mathematical elegance became a smokescreen for the lack of real oversight.
Modern risk management still relies excessively on quantitative measures such as VaR. They ignore the fact that equity tranches (often representing just 5% of an instrument's value) can generate 95% of systemic risk. It was these small mechanisms, such as those in the Magnetar fund strategy, that triggered avalanches that models failed to predict.
Market Ideology and the Mechanism of "Looting 2.0"
Neoclassical economics transformed simple heuristics into normative dogmas. The myth of the "invisible hand of the market" today primarily serves to legitimize deregulation, though Joseph Stiglitz notes that this hand is invisible because it often simply does not exist. In this ideological shadow, shadow banking flourished, materializing flawed assumptions about the possibility of infinite risk transfer outside the regulated system.
This leads to the phenomenon of "looting 2.0"—the systemic extraction of capital by managers. Through information asymmetry and complex instruments like CDOs, profits are privatized in the form of bonuses, while systemic risk is socialized. In this view, economics ceases to be a science of welfare and becomes a technique for protecting corporate reputation and defending the status quo.
Scandinavia vs. Germany: The Limits of Economic Objectivity
The approach to the market depends on institutional culture. Scandinavia relies on trust and pragmatic state intervention, which immunizes it against market fundamentalism. Germany, despite its ordoliberal commitment to rules, succumbed to the infection of financialization when its regional banks mass-purchased toxic assets, believing in the mathematical infallibility of models.
A slow paradigm revision is currently underway, incorporating behavioral finance and Minsky’s financial instability hypothesis. A new challenge is central bank digital currencies (CBDCs). They could either restore public control over money or become a tool for total algorithmic surveillance. The line between science and ideology is drawn where a model begins to claim the status of a "law of nature," ignoring its political character.
Summary: Democratic Control Over Models
For economics to regain its critical function, it must return to the stage of democratic deliberation. Models cannot be judges, but only "expert witnesses" in the debate over the shape of society. It is crucial to restore control over debt creation and risk allocation, which currently take place outside of social oversight. In a world of digital currencies, will mathematical precision become a tool for transparency or a new form of control? The answer depends on whether algorithms will serve society, or society will serve algorithms.
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