Legion. An amalgamated journal.

Science to pseudoscience

Joseph Stiglitz uses an illuminating turn of phrase in his editorial for the Guardian:

By contrast, US treasury secretary Henry Paulson’s approach is another example of the kind of shell games that got America into its mess. Investment banks and credit rating agencies believed in financial alchemy – the notion that significant value could be created by slicing and dicing securities.

Although Stiglitz’s general indictment of the financial system is well-worth a read, what really sticks out to me is the framing of the credit market as “financial alchemy.”

For the past decade, the nucleation of wealth in the financial-services sector has been justified on the basis that these investment schemes were scientifically progressive. That is, these were mathematically and analytically sound practices whose presence was vital to a dynamic and expanding economy. Whenever someone would argue that perhaps bonuses in the billions were a bit outrageous, the rejoinder would always return that these people were adding billions to the economy, and thus worth it.

But now the credit market is “financial alchemy”—a pseudoscience. Just like alchemy, phrenology, and racial evolutionism, all ‘scientific’ fields which claimed title to factual objectivity in their respective heydays, we have another example of an ideologically normative which greedily laid title to a positivistic high-ground. Only in retrospect do we realize that what presented itself as unassailable fact was, in fact, greed or wishful thinking wrapped in the robes of objectivity.

Garrett Dash Nelson

September 30th, 2008 at 8:08 pm