“The backup philosophy for business is pragmatism. In fact, pragmatism is systematically taught in business schools. Many business leaders are proud to be called pragmatists. Pragmatists do “what works.” They are “practical.” However, actually being practical requires that we act on principle. Nothing is less practical than doing what works in the short term. The pragmatic philosophy is based on the concept that there is no permanent truth—that truth is what works today. The validity of a truth is based on its consequences this afternoon, not on any fundamental principles. According to pragmatists, nothing can be known with certainty in advance. Meaning and truth are determined by the short-term practical consequences.

Unfortunately, many things work very effectively in the short run but are extremely destructive in the long term. Negative-amortization mortgages (pick-a-payment mortgages) were “successful” for more than 10 years and then did tremendous economic damage. Subprime lending was “successful” for a number of years and then resulted in a massive destruction of wealth.

“A pragmatist cannot be rational. Rationality requires a long-term perspective. It is a virtue that is based on fundamental truths consistent with the pursuit of long-term goals. A rational person acts in a way that is consistent with his principles and moves him toward long-term success and happiness.”

Excerpt From: John A. Allison. “The Financial Crisis and the Free Market Cure:  Why Pure Capitalism is the World Economy’s Only Hope.” McGraw-Hill, 2013. iBooks.

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