Reasons to be Doleful . . . 1,2,3

Nobody saw it coming – indeed, no one could have seen it coming.

At least that’s what they tell us – the politicians and financial establishments and (with several honourable exceptions) the economists and journalists etc. etc.

John McFall, Chairman of the British Government Treasury Select Committee (and who arguably should be among the last to speak) says now that ‘even monkeys could have seen it coming’ – the ‘it’ being the financial catastrophe that has in recent times engulfed the world.

And how are we to explain the blindness of our own monkeys? Three possible explanations present themselves.

The first one (which, I suspect, applies mainly to politicians) is that they were too dumb to see what was happening in front of their noses.

The second is that they – or at least some of them (especially in the financial establishment) – didn’t want to see it. John Kenneth Galbraith has shown how the American Federal Reserve Board was aware of serious imbalances in the economy some two years ahead of the Great Wall Street Crash. Effectively the members of the Board did nothing about it - because they were afraid of being labeled as the men who brought the boom to an end . . . with all that might have meant for their future careers.

The third and most interesting explanation for our current situation is that some people who should have known better were simply blinded by figures and spin and academic bullshit and simply couldn’t see it coming.

Nobody has been more scathing of the deficiencies of academic economic theory than Nassim Nicholas Taleb – see his 2007 Financial Times op-ed piece ‘The Pseudo-Science Hurting Markets’ (www.fooledbyrandomness.com/FT-Nobel.pdf). His argument is that the business schools have consistently ignored common sense and hands-on experience in favour of purely academic theory - with disastrous results.

But one doesn’t have to listen just to Taleb. The story of Joe Kennedy and the shoeshine boy is too well known to bear repeating. But the crux of it is that Kennedy not alone escaped the Wall Street Crash but made a fortune out of it, not by reading spreadsheets or financial forecasts or brokers’ reports, but through the use of those two indispensable twins: common sense and gut-instinct.

The fact is that (and not just in terms of financial matters) the world has fallen increasingly under the sway of mechanistic reasoning. Scientists are trying to design computers that will replicate humans, when the real problem is that people are more and more coming to resemble machines. The world is being increasingly run by people who have come out of universities with their pragmatic and common-sense faculties clipped in favour of a disembodied system of abstract reasoning that works well on paper, but more often than not proves a disaster in the face of reality.

But that is all by-and-by . . . The purpose of this posting is to discuss why so many people of clear ability and intelligence seemed to go snow-blind in the face of the crisis that was rushing up on us - at a time when so many people in the street could sense that there was something wrong, especially in terms of the property bubble.

Whether we are anyway nearer an answer is something I really don’t know . . .