Psycho history

What else do you call it when the Dow is down 500+ points Monday and up 400+ points Thursday (and up another 300+ points so far today, Friday, as I type)? When panic and rumor drive the markets? When the government and central banks make enormous new funds injections, nationalizations, and regulatory changes on a daily basis?

Psychohistory, of course, is the imaginary future social science at the heart of Isaac Asimov’s Foundation series. Blending history, sociology, and statistical analysis, psychohistorians predict the course of societal evolution, and even find the occasional tipping point from which events can be nudged onto a different course.

We are far from having such abilities.

Giant financial companies like Fannie, Freddie, and AIG, with trillion-dollar portfolios, are built on statistical analysis. History, one hopes, plays some role in executives’ understanding of current events and future prospects. History also guides government policies towards markets and regulation. I’ll assert that the processes of any large organization -- whether a corporation, government, or market -- are, at some level, a study in applied sociology.

(Some might argue that the credit crunch and attendant market implosion reflect economics, not sociology. To that opinion, I would answer: Economics describes how a society agrees to allocate its collective resources. If/when/how society regulates its economic institutions -- i.e., how it sets government’s role -- is likewise part of the social compact. If economics isn’t soc, it’s surely akin.)

Now giant financial companies are falling like dominoes. They are, to some part, victims of their own greed -- but also of investor panic. Old fashioned, rumor-driven runs on the bank. Mass phenomena. Within the realm of sociology. And the experts -- inside and outside of these companies -- didn’t see it coming.

Where was Hari Seldon when we needed him?