This is both an explanation of, and a condemnation of, Alan Greenspan's failed "worldview". I think it will be instructive to assess exactly how he was wrong, and how he got to be more and more wrong as time went on. Especially since we haven't shown many signs of actually addressing the things he was wrong about.
Our economic system is now chock-full of perverse incentives, and if we don't understand those incentives, and work actively to correct them, our economic system will continue to falter.
Perverse Incentive:
A perverse incentive is an incentive that has an unintended and undesirable effect, that is against the interest of the incentive makers. Perverse incentives by definition produce negative unintended consequences.
Plus, I really, really like the term "perverse incentives", and think everyone should get more conversant with the concept. Follow me below the fold for the three major perversities afflicting our system, and let's discuss how we can create positive incentives instead!
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