Lessons Learned?

While we plunge into global recession, Congress and the press are playing “who shot John” and Mr. Greenspan seems to be the current whipping boy. He got it wrong, and people are angry. But would it be impolite to mention that all of the world’s governments got it wrong? Surely Mr. G didn’t have that much influence!

In writing about the financial mess, I keep trying to move to higher levels of abstraction. Even if I knew exactly what should have been done with CDOs, who would listen? And what could they do about it now?

No, if lessons are to be learned, they must be learned at a higher level. And, at the highest level…

Central banks failed. Government regulators failed. Policy makers failed. The reasons are simple:

  • Central planners cannot have enough information to do their jobs very well
  • Central planners respond to a perverse set of incentives

Everything else is detail. Yes, it’s nice to know about the Austrian Business Cycle and Keyne’s musings on uncertainty, but you can’t do much about either one. The lesson going forward is this: calamity is inevitable with centralized planning and control. Resolving the mess with even more centralized planning and control is doubtful unless we just get lucky.

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