A theme running through the comments of Justin, Matt, and Daniel is the supremacy of irrationality and chaos over enlightened order. I tried to say that this is a fundamental misconception of our problem. I will try again.

There is no lack of irrationality on offer in the behavior of those who make up "the market." And the consequences certainly entail chaos. But the historical record of bubbles is too long and repetitive to ascribe behavior to individual deficiencies. This has happened before. People knew it, people could anticipate it happening again (if not the actual timing). We can know with certainty it will rain again without know the day.

What's missing from the meliorist framework of my fellow bloggers is the concept of Power. We're getting progressivism when we need populism.

J.K. Galbraith used to torment the economics profession about this. If memory serves, he used to get onto the op-ed pages by getting advertising space. I don't know where the money came from. One of his academic articles was "Power and the Useful Economist." You can read it here. In fact, stop reading this and read that.

What's missing from the posts is the populist rage appropriate to the spectacle of how those in power -- both in and out of "government" -- have taken advantage of everybody else. I put government in quotes because one of the power centers is the Federal Reserve Bank. The most important public institution of economic governance is firmly in the deathlike grip of private sector interests. The scope of its economic subsidies to the comanding heights of finance puts the Obama programs to shame.

Is this everybody getting crazy about finance? With their wacky economic theories and equations? That doesn't quite capture the situation, does it?

Let's recapitulate. Big finance ('BF') systematically dismantles regulation of its activities. BF takes taxpayer money and lobbies against the interests of taxpayers. BF shovels money to politicians. BF offers the sunny side of the revolving door to high-level officials in public agencies. BF provides a haven for its minions to make one-way/heads-I-win-tails-you-lose bets with other peoples' money. BF alumni construct new policies, in the wake of the meltdown, to make new one-way bets, with taxpayer money. BF luminaries walk away from this debacle with personal fortunes intact, if not larger, as well as high public office, followed by further personal enrichment. Even the former chief economist of the IMF thinks that government policy has been captured by the bad guys.

Is this about lots of people getting nutty with money or drunk on their equations? The more pertinent paradigm is of activity that is rational and legal that ought to be criminal. The real myth is that market transactions are the basis for economic events. The construction of financial markets is heavily influenced by interested parties who, most of the time, have more juice than you do. Though when they screw up really really badly, new possibilities beckon.