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The euro zone leadership suffers from cognitive closure

If you want a person to pay-off his debts, don’t fire him first.

The euro zone has still not recovered from the global depression of 2009. A major cause is the idea that every member should solve its own problems by lowering prices on all markets, and by reducing the influence of the government. Lower prices stimulate the exports to other countries, which would result in the beginning of a genuine recovery.

Because the interrelationships between the various member-economies are quite strong, and the influence of the big euro zone on the global economy is significant, this policy advice has failed so far. How come leading countries, such as Germany and The Netherlands, are so blind for the economic consequences of their policies? How come they don’t see that enduring wage decline and unemployment rise have severe psychic and social effects? The lessons of the 1930s appear to have been forgotten.

Since the 1980s, the Western world has faced a strong classical-liberal revival. When we compare the educational programmes in economics, as taught in high school and at universities, we see the emergence of an near-monopoly for the neoclassical perspective. It is based on the idea of an economic and rational actor, who also regards relationships between people as of economic nature. In almost all textbooks this paradigm is the only one discussed – without explicitly explaining this set of axioms. On this basis, economists are empirically testing theories, which are based on that paradigm.

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‘Yes and No’. Image courtesy of Piet Keizer. Do not reproduce without permission.

By carefully analysing the neoclassical paradigm, we discover that the typical economic problem of scarcity of natural resources is isolated from the typical psychological problem of irrationality and the typical sociological problem of a lack of status, which is derived from particular group memberships.

An extensive study of a whole series of psychological and sociological perspectives shows that an integration between the three primary human sciences, which are economics, psychology and sociology, leads to more realistic analyses of economies or parts of it. In good as well as in bad times irrational persons group together and develop subcultures, which justify behaviour, which ruins markets and (government) organizations. Psychological analysis shows that irrationality refers to the propensity of individuals to protect their vulnerable Self by ignoring fundamental criticism. Willpower is used to justify rather than to criticise unrealistic views, attitudes and behaviour. Immorality is not something consciously wanted. It is the result of the irrational drive to justify behaviour, which works out bad for many people – mostly people, who belong to a different group. Social divides within a group – let’s say the group of academic economists – are solved by exorcising critical members. They are ignored or thrown out so as to cleanse the group, and restore social equilibrium.

Within the euro zone there is a social divide between North and South. The North is economically performing better than the South, and is prepared to help the South under the condition that they implement neoclassically orientated policies. Since these policies are flawed, the results of the support appears disastrous. This economic process affects social relationships negatively. Southern countries are seduced to ask for help from non-Western powers. Northern countries talk about exits: a Grexit, for instance. These are dangerous developments, which can be avoided if classical liberal economists would open their minds and listen to economists, who approach economic problems differently. In a democratic society with an open economy, pluralistic science is a necessity. For economists, it means that students should be educated in a whole series of approaches, which differ significantly in terms of methodology. Then a scientist can choose how to approach a particular practical problem rather than solve all problems in one and the same way. Economists, do it multidisciplinary!

Headline image credit: EU Flagga by MPD01605. CC BY-SA 2.0 via Flickr.

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