Krugman: The Power of Conventional Wisdom

[ProSense]

The Power of Conventional Wisdom

Duncan Black, aka Atrios, was startled by my Clinton quote in today’s column, sufficiently so that he went to check whether Bill Clinton really said anything like that – only to discover that he did, and that the full text is even more damning. What Atrios missed, I think – rarely for him – is just how powerful the force of conventional wisdom is.

When everyone – tout le monde, as Tom Wolfe used to put it, meaning a relative handful of people, but everyone who supposedly matters – is saying something, it takes a real effort to step outside and say, wait a minute, how do we know that? It’s especially hard if you spend most of your time hanging out with other Very Serious People; I know that I myself have a hard time saying that people I know personally are talking nonsense, even when they are. The VSP effect is one reason smart bloggers, both on economics and on politics, have generally been a better guide to what’s really happening in America than famous reporters: their distance, their lack of up close and personal insights, is actually an advantage.

And so Clinton, despite what I believe to be genuine concern about the plight of the unfortunate, finds himself parroting the structural unemployment line, probably quite unaware until he opened his paper this morning that it’s a fantasy spun to justify inaction.

This is what you need to know: important people have no special monopoly on wisdom; and in times like these, when the usual rules of economics don’t apply, they’re often deeply foolish, because the power of conventional wisdom prevents them from talking sense about a deeply unconventional situation.

[zipplewrath]

1. This is a VERY serious problem

"This is what you need to know: important people have no special monopoly on wisdom"

Greenspan was being asked about what people should be in a position to advise congress and the president on the banking reform proposal. He of course was suggesting all the typical sources including Bernanke. He was asked if the hedge fund manager who correctly predicted fiscal collapse and effect of the credit default swaps should be advising the president. Greenspan responded with something that I don't even think Greenspan completely understood the implications.

Greenspan said he didn't know if this person would be a good advisor. He stated that just because the guy had correctly predicted something, it wasn't clear it was because he actually understood the problems, or if it was merely a case that the guy was in essence, lucky.

Well, this is true. However, one can take that a tad further to every major bank and industry leader. Are they really good at what they do, or are they just lucky enough to get a job as the head of company that is in the right place in an economy at the right time? Did the board hire the right guy, or did they just put a guy in charge of a company that was doing well? It's the Trading Places plot. Can you put anyone in some jobs, and given a certain amount of support, they will be "successful"?

The question is important for a few reasons. Not the least of which is about whether companies are successful because of the leadership, or because of the majority of the workers. Do leaders truly make them successful, or are they mostly capable of otherwise screwing up good companies. The successful ones are those that predominately "stay out of the way". But it is also important because there is a serious tendency to believe that "important people" have wisdom and skills.

Robert McNamara was considered at one time to be one of the Whiz Kids. He was supposedly this smart guy who was in charge of GM when Kennedy asked him to be the Sec Def. In his books, he often mentioned that he originally turned down the offer because he was "incompetent" for the job. Kennedy talked him into it and he ultimately came to believe that he did a good job. I'm not sure history would agree with him. Being smart, and being "capable" are two different things. And worse, believing you are right because you're smart is a VERY dangerous attitude to take. And it's even worse for "bosses" to take.

We're our politicians bosses.

[kentuck]

2. Don't automatically accept the CW...

It may be wrong?