No, Boing Boing, It’s Not Testosterone That Caused the Financial Crisis

Via Boing Boing, here’s a prime example of where a lack of valid principles creates all sorts of intellectual havoc:

Forget behavioral economics — the Naked Scientists science podcast interviews a scientist who is investigating the hormonal basis for bubbles and crashes. It’s endocrinal economics!

John – We found that the traders, if they had high testosterone in the morning relative the the median levels, they made a lot more money for the rest of the day than they did on the days when they had low testosterone.

Meera – When most people think of testosterone they obviously associate it largely with males. Does this then mean that females are relatively unaffected?

John – Women have about 10% of the testosterone that men do. It’s entirely possible that they’re not subject to this kind of overconfidence.

Set aside the fact that this little clip is also a good example of mistaking causation and mere correlation. I mean, seriously: even assuming that the statistics are valid, did higher testosterone cause their “making a lot more money,” or as implied, their “overconfidence,” or did making a lot more money cause greater confidence and a higher testosterone level (which of course seems far more likely)? Or, were they unrelated or influenced equally by a third, undiscovered factor? Blank out, as Ayn Rand used to say.

However, even more important is the fact that economic bubbles and crashes haven’t occurred in a vacuum. That is, it’s simply not true that bubbles simply happen out of nowhere, that for example with the housing bubble people just suddenly decided to value houses more and more in an irrational upward spiral to be explained by such idiotic notions as studying endorinology or reading tea leaves. And that, when a bubble bursts and a market collapses, that it was simply a reduction in “confidence” that was at fault.

No, there’s always some external factor that explains a financial bubble, and more often than not it’s been government intervention into a market. For example, in housing, it was the confluence of a number of variables, primarily decades of monetary inflation by the Fed combined with a Leftist political desire to increase home ownership among the lower classes that was brought to life by Fannie and Freddie and the Community Reinvestment Act. It was only when such people started defaulting on loans they couldn’t afford that the looming crisis revealed itself.

Once you toss aside the economic principles involved with such government interventions, you’re left without the ability to correctly identify why things happen the way they do and are thus left defenseless against these sorts of crackpot notions. When you’re a Leftist and you’re already looking for anything but your own philosophy as the cause, then you necessarily come up with ideas just as bad as this one. And, for the Leftist, this idea is just as good as any other, with no means to tell the difference.

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