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Commentary :: International
Modesty as an Economic Model
10 Feb 2014
"This completely deregulated sphere (derivatives) ultimately grew to greater dimensions than the real economy. That was undoubtedly absolute madness.. A smaller financial sector need not be unconditionally bad.. Changes like shriveling the financial sector are an immediate threat for the dominant power structures..."

By Tomas Sedlacek

[This reading sample of the Czech Tomas Sedlacek’s new book “Modesty as an Economic Model” (2013) is translated from the German on the Internet.]

Roman Chlupaty: The economy is the center of interest because of the financial crisis that was followed by an economic crisis and a debt crisis. Newspaper editorials and beer-drinkers are suddenly occupied with the economy. Has anything changed through this?

David Orrell: I have the feeling we have learned something in our way. However this has not led to any fundamental reform in how we see the economy.

In England, for example, the separation of investment banking from commercial banks was resolved. The people carry out their everyday affairs with the help of commercial banks. Thanks to this separation, a possible infection will not expand in the future to the whole organism or at least will not be able to expand as easily. At the same time pressure is exerted to limit the salaries and bonuses of bankers, above all the bonuses for which the bankers take all the risks. That was one of the causes of the financial crisis. The banks’ capital-holding reserves must be raised. That 99% of bank activity is playing with other people’s money cannot continue.

However these are all only minor details in my opinion.

Roman: Many of the rules according to which the financial world runs have already been intensified. A mechanism valid for the whole financial world is working through further measures as in Basel III for example. Do you think all this is in vain?

David: For example, consider the statement that the market of so-called derivatives must be regulated somehow. These derivatives were acquired “over the counter,” as is said in the technical jargon, in “non-exchange trading” beyond the organized markets and the clarity connected with them (which incidentally is a good symbol for the madness of the time before the crisis). Very complicated instrument6s were devised. Trade with these instruments can hardly be monitored. This completely deregulated sphere ultimately grew to greater dimensions than the real economy. That was doubtlessly absolute madness and should be corrected now. People are working on a correction.

Still I do not think we are doing enough. For example, finance minister George Osborne recently sketched what the new economic policy of the British government would look like after learning its lessons from the crisis. He said all economic areas show relatively decent growth rates. Only the financial sector lags behind. This sector must be revived… I would like to emphasize two things in this connection.

Firstly, the striving for growth at any price must be a theme of reflection. We will come back to this.

Secondly, a smaller financial sector need not be unconditionally bad. A very problematic imbalance arose when the financial institutes or the financial sector began to grow beyond the real economy and when sector became greater than the sectors where something is produced. This must be countered somehow.

Unfortunately, changes like shriveling the financial sector are an immediate threat for the dominant power structures. This could mean the powerful suddenly earn less and some of them even lose their jobs. That is one reason why carrying out these changes is so hard. Pleasant chats about regulations that do not seem threatening to regimes that go off course are much simpler.

Roman: Tomas, as a banker you are a part of these dominant power structures. How hard is it to change things from your perspective? Should change happen from the inside or from the outside?

Tomas Sedlacek: I am convinced it is better to live within the system as a critic and not as a kind of priest or hermit who lives somewhere in the wilderness and eats mushrooms, emerges out of seclusion and preaches against civilization. I am not that kind of person and do not want to be.

First of all, my criticism is directed at myself, then at the institutions for which I work and finally at our civilization and its values. That is my role.

I agree with what David said regarding changes in the system. From history, we know changing what people believed was the problem every time. Abandoning faith in something is difficult. The economy is a faith like every other.

In my opinion one of the greatest blasphemies of the modern age consists in the conviction that there could be something not based on faith, something completely real, truthful, absolutely neutral and scientific, something that need not be connected with a faith. I also try to call this into question. Every belief that we confess including belief in the economy relies on myths.

We cannot manage without myths. All we can do is exchange one myth for another. Living entirely without myths and without faith is impossible. The problem facing us can be summarized concisely. We believe purely and simply that people are rational. We believe the future can be rationally described with mathematical formulas. We believe in the possibility of expecting the unexpected which represents an oxymoron…


Kristin Deasy, “Author Tomas Sedlacek Explains Why Economics is All About Morality,” September 4, 2011

Vaclav Havel, Foreword to Tomas Sedlacek’s “Economics of Good and Evil”

Maureen Tkacik, “The Fable of the Beasts: How the study of human behavior thwarts the delusions of modern economics,” Book Forum, Apr/May 2011
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