Beyond Wall Street: Psychoanalyzing the Irrationality of Our Economy

Every day, newspapers and journalists interpret the ups and downs of the stock market as if these indexes represent a single, unified voice. For example, we often hear statements like the following: “The market went down today in response to the president’s speech.” This type of analysis assumes that “the market” is a single, rational entity, and that there is a direct cause and effect between a certain piece of news and the movement of stocks. In reality, markets’ movements are determined by millions of separate decisions made by millions of people for rational and irrational reasons. For instance, many investors decide whether to buy or sell stocks based on their fear about rumors other people have circulated. This system is thus a very irrational way of reading the health of our economy.

While some people see the stock market as the national economic thermometer, it would be better to imagine that the markets are like teenagers with a gambling addiction and a penchant for gossip. After all, most traders are not basing their decisions on a careful analysis of the fiscal health of the companies with which they are interacting; instead, people try to anticipate what other people are thinking about recent news and rumors. It is therefore highly strange that our economic system is so dependent on such an emotion- and rumor-driven structure.

In the case of our recent financial meltdown, irrational decisions were piled on top of other irrational decisions. Thus, people bought houses with loans that they knew they could not afford, and then banks securitized these

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“toxic” investments. In other terms, banks decided to gamble on the ability of these bad loans to turn a profit, and these banks even took out their own bad loans to insure these initial bad investments. In turn, the government gave these losing banks billions of dollars so that they can continue to function. A fear of the unknown is driving these bailouts.

So what does psychoanalysis tell us about this irrational house of cards? One thing that we can posit is that people want to see a single, rational cause in a situation that is based on multiple, irrational causes. Freud himself wrote that the main reason why people deny the meaning and value of the unconscious is because they want to believe in a single, rational explanation, and they do not want to entertain the idea that many of our decisions are dictated by multiple, unconscious, and conflicting desires. In his Five Lectures on Psycho-Analysis (New York: W.W. Norton, 2000), Freud opposes the over-determination of psychological events to the popular desire to find a single cause: “Indeed, they [psychoanalysts] are prepared to find several motives for one and the same mental occurrence, whereas what seems to be our innate craving for causality declares itself satisfied with a single psychical cause” (p. 38). Freud continues by asserting that due to the “arrogance” of consciousness, people reject the unconscious and the irrational and instead try to develop simple, rational explanations for mental events that require a much more complex understanding (p. 39).

If we see the stock market as an essentially unconscious, over-determined, irrational, collective system, we can begin to reject the simple interpretations that we find every day in the media. However, this step will only take us so far. The next move is to realize that it is very dangerous to base so much of our economic system on gambling, rumors, and speculations. What we then need is not only more regulation, but a way of weaning our system off our gambling habit. As a nation, we are addicted to the fantasy of easy

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money, and part of this compulsion is derived from our identification with idealized models of wealth.

The media feeds our desire to identify with wealthy people who seem to get money through instant celebrity and not through hard work or sustained effort. Like adolescent children, we want instant satisfaction of our irrational desires, which are shaped by our identifications and idealizations. The reason then why seemingly rational adults have bought into the Madoff Ponzi scheme and so many other get-rich-quick schemes is that our entire culture has been reshaped to promote instant access and gratification.

Perhaps the scariest thing about this financial crisis is that even the people in the highest levels of government do not seem to be able to accept the reality of how bad the situation has gotten. There are trillions of dollars of “toxic assets” circulating around the globe, and no one knows how to value them or what to do with them. If we cannot clear away these financial time bombs, the markets will never feel secure.

In this state of generalized social insecurity, people have looked for President Obama to play the role of the idealized father figure who will solve all problems and save us from our own infantile helplessness. Once Obama fails at this impossible imaginary task, people will release their frustrations at him and our political system. Who knows what will happen at that point.

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