Adam Smith, or the next best thing

Davos 2009: Beware the Tide of Groupthink

"We understand some of the factors that contributed to the mess we're now in. But I suspect that -- in part to comfort ourselves, as well as to choose villains, and possibly a few heroes -- we are oversimplifying the story line and assuming we know more than we do. There's still much more to be learned, and the exploration of something so complicated requires a good deal of skepticism and humility.

It's true that many business leaders triggered or at least helped facilitate the wild risk-taking that preceded the collapse; many should be faulted for that. And it's true that regulators and regulations failed to protect the public; they should be faulted for that. It doesn't follow that we should entirely disregard the experience, creativity, and even good will within the private sector and replace the professionals' business judgments with those of Congress and government employees. The fact that smart people were wrong doesn't mean there's no value to brainpower and accumulated knowledge, not to mention innovation. Of course smarter, more effective regulation is needed, but we may be fighting the last war -- and reverting to old, unsuccessful models -- if we conclude that because business hasn't behaved wisely, government necessarily will. We need to be as skeptical of one as of the other, and remain open to meaningful, practical solutions from either sector.

The conventional wisdom at Davos in 2007 was that private equity and hedge fund managers were the new power players and therefore knew more than everyone else. The conventional wisdom in 2008 was that sovereign wealth funds were ascendant and would be exerting enormous influence over global businesses. Are this year's collective certainties any more reliable?"

If there is anything that the last 8 years of politics and this financial crash should have taught us, by now, it is this lesson.

Politics is full of people who are too certain of everything. That is the problem. Adam Smith is the best corrective for this tendency in economic matters. In the meantime, a dash of our own humility might be the next best thing.