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The Great Crash

Galbraithian Wisdom

I've got some great quotes from John Kenneth Galbraith in his mid 20th Century book that bears great lessons for us even today.

Wisdom, itself, is often an abstraction associated not with fact or reality but with the man who asserts it and the manner of its assertion.

And after watching 'Inside Job'; you can't help but wonder if Galbraith's forecast turned out to be true for the SEC:

...regulatory bodies, like the people who comprise them, have a marked life cycle. In youth they are vigorous, aggressive, evangelistic and even intolerant. Later they mellow, and in old age - after a matter of ten or fifteen years - they become, with some exceptions, either an arm of the industry they are regulating or senile.

In any case, the documentary got me reading about some of the economist interviewed in the film. In particular, Glenn Hubbard and Frederic Mishkin were both caught a little off-guard in the film's interview by the director's questions. I thought that they handled the aftermath pretty okay (Mishkin here and Hubbard here). Obviously, the director had something he wanted the two professors to show to the audience and did portray them a little negatively but he did so to demonstrate a wider phenomenon as he justified.

From a human point of view, it is definitely easy to empathize with the director and it is what sells the movie. The policy difficulties and the way the crisis arose make it more difficult for the people in charge to agree with the director. There’s both a lack of certain (vs uncertain) information and cognitive bandwidth to process clues at the time before the crisis and during it. With the benefit of hindsight, the director is empowered to challenge the pre-crisis regime. Dommage pour le financiers!