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Earth, 1946: World War II is over and the Cold War looms. The result, at least for the victorious industrialized nations, is a combination of euphoria with an undercurrent of growing existential dread. And yet, in the long run these seemingly-conflicting emotions lead to the same end, economically: spend freely.

The key to this paradox is the nature of the new threat, largely unprecedented in human history: nuclear annihilation. Humanity lives under imminent threat of destruction, as often before, except now destruction is for practical purposes likely to be over in an instant. As Albert Camus wrote, in The Fall:

I could better understand that friend who had made up his mind to stop smoking and through sheer will power had succeeded. One morning he opened the paper, read that the first H-Bomb had been exploded, learned about its wonderful effects, and hastened to a tobacco shop.

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as much as i’d like to believe this is true…

Traders on the University of Iowa’s real money Iowa Electronic Markets believe control of the U.S. House of Representatives is a toss-up after this fall’s mid-term Congressional elections.

…it vexes me that my university, and a lot of other people who ought to damn well know better by now, are still tacitly promoting the view that financial markets constitute some sort of transcendent superhuman hive mind that can actually see into the future — rather than dumb machines that are occasionally and incidentally useful for purposes of getting shit done, but whose primary function has never been anything more or less than to make certain assholes richer than certain other assholes, usually at the expense of the rest of us.

of course, the Iowa Electornic Markets’ promoters will say, i’m misrepresenting their claims — their futures market is merely an interesting social experiment. they don’t claim to predict the future, only to gauge other people’s predictive instincts in a more reliable way than conventional polling does, by tying the outcomes to participants’ rational self-interest. that’s not out-and-out stupid, i’ll grant. and it’s true that certain kinds of questions — if formulated in the right way, and subject to carefully calibrated laboratory controls — are conducive to being answered in a meaningful way with an approach like this.

but that kind of nuance is secondary to the message that IEM’s “research” is designed to pump out year after year, and generally lost on the readers of newspaper articles like the above, which dutifully publish every copy-pasted press release they get from the UI Tippie College of Business, right down to strategically vague and unsubstantiated claims like the following:

Begun in 1988, the IEM is a research and teaching tool that has achieved an impressive prediction record, substantially superior to alternative mechanisms such as opinion polls. Such markets have been significantly more accurate than traditional tools in predicting outcomes ranging from political election results to movie box office receipts.

the point that’s flogged again and again, in 22 years of publicity literature out of the IEM, isn’t anything so subtle or academic as the observation that human decision-making is a complex phenomenon that’s further complicated by economic considerations. no, the take-away, in case you missed it, is that market behavior — the most potent distillation of human reason, purified of wishful thinking and ideological cant, incentivized with the prospect of real financial reward and punishment, and massively aggregated by high-speed computer networks — is “significantly more accurate than traditional tools in predicting outcomes.” you’re not being asked to consider the truth of this statement within the qualified and elaborately engineered context of the experiments that are actually being carried out, you’re just supposed to internalize the austrian-school dogma that Markets are smarter than mere humans, and way, way smarter than human political and social institutions. the Market, in its most ideal (read: unregulated, unimpeded, unaccountable) form, is an algorithm so powerful that it can actually predict the future.

this may have been a tenable position as recently as early 2008, but anybody still seriously espousing it ought to be publicly ridiculed, then tarred and feathered and ridden out of town on a rail. so the IEM has successfully predicted “movie box office receipts” — good for them! where were they on lehman brothers? on madoff? did the omniscient Market see the BP oil spill coming? if they did, it could only have been because investors knew the company was taking unconscionable risks in order to maximize short-term gains — and the Market has never balked at wreaking massive environmental (or social, or political, or even economic) damage when short-term gains were on the line.

it’s long past time to put this discredited, obsolete premise to bed. the Iowa Electronic Markets, like most attempts to assert economics as a straightforward empirical discipline encompassing a comprehensive and reliable theory of human behavior, is junk science. or rather, at best, it can’t tell us anything useful if we can’t figure out how to ask it the right questions. and as long as the people asking the questions are only interested insofar as they stand to make or lose a buck in the short run, we never will.

You almost had me there, Andrew Sorkin. Financial crises, the boom and bust cycle, hey-ho; that’s life, right? Strikes and gutters. We can never prevent the next one because each one is different, and just like the army, regulators end up always prepared to fight the last war.

I was buying it.

Then you tried to cap things off with a neatly topical quote, and I woke up:

In his memoir, Henry M. Paulson Jr., the former Treasury secretary, recalled telling President George W. Bush in 2006 that it was impossible to spot a coming financial blowup.

“We can’t predict when the next crisis will come,” Mr. Paulson told the president. “But we need to be prepared.”

Whoa. Whoooooooah, there, hold on just one second. Uhm, sir? I remember 2006. I remember that the irrational underpinnings of the mortgage market bubble were quite apparent to an awful lot of people, even if those people happened to mostly work outside of the Dept. of the Treasury. I remember “Flip This House” and “Flip That House,” and I remember people laughing at the term “NINJA loan,” invented for the large number of mortgage recipients with “no income no job (and no) assets.”

Gosh, that one was so funny.

Plenty of thinking people were quite well aware, however, that clever acronyms or no, America’s financial sector was dancing atop a rumbling volcano. The fact that nothing was done to move us to safety was not the result of forecasting economic perils being inherently impossible. It was the result of spineless, useless, worthless, brainless and gutless tools being in positions of “leadership,” with an assist from a journalistic “watchdog” too hopped up on goofballs to offer up even one good “bark.”

Unfortunately, though, Mr. Sorkin’s larger message that the next economic crisis will be along sooner or later is very likely to be proven true, even if his suggestion that the last one was unforeseeable is baloney. Those who do not learn from history…