The Consensus Fallacy
Thomas Friedman suggests that what we need to get out of this financial mess is a little more BOGSATT:
Which is why I wake up every morning hoping to read this story: “President Obama announced today that he had invited the country’s 20 leading bankers, 20 leading industrialists, 20 top market economists and the Democratic and Republican leaders in the House and Senate to join him and his team at Camp David. ‘We will not come down from the mountain until we have forged a common, transparent strategy for getting us out of this banking crisis,’ the president said, as he boarded his helicopter.”
Brendan Nyhan is less than impressed:
I will never understand why so many establishment pundits believe that all problems have a bipartisan solution. From a practical perspective, it’s not clear that a banking policy exists that “20 leading bankers, 20 leading industrialists, 20 top market economists and the Democratic and Republican leaders in the House and Senate” would unanimously prefer to the status quo. More importantly, why would we assume that such a policy is best? There’s no reason (beyond wishful thinking) to imagine that bipartisan compromises are always optimal, particularly on technical issues like banking policy. Sometimes one side is right and the other side is wrong.
Quite so. But which side is which?
When writing my earlier post on Mark Cuban, I stumbled upon a post he wrote for HuffPo in November titled “President-Elect Obama’s First Big Mistake.” He makes an argument that Dave Schuler has been shouting from the mountaintops for quite some time:
Its great to see President-elect Obama aggressively taking on the economy prior to his taking office. Unfortunately, the economic advisory team that he has put together looks more like a semester’s worth of great guest speakers for an MBA class than an economic advisory team that can truly help him.
[…]
Not a single entrepreneur. Yes Warren Buffett started a business, but he will be the first to tell you that he “doesn’t do start ups”. Which means there isn’t a single person advising PE Obama that we know of that knows what it’s like to start and run a business in this or any economic climate. That’s a huge problem.
[…]
Things like forcing companies from being taxpayers to the underground cash economy, or forcing new hires to be independent contractors to avoid having to pay their insurance or higher matching social security amounts. Your current group has no one with 100% of their net worth on the line. I promise you that the possibility of losing it all will provide a completely different perspective than any of the “knowledge” the esteemed, learned members of his current advisory team offer.
Now, Cuban overstates things a bit in his enthusiasm. I’m sure plenty of people on Team Obama are at least intellectually aware of these things. Hell, I’m intellectually aware of these things. But, if we’re making policy by BOGSATT, we should probably have some entrepreneurs at the table.
As to Brendan’s point, I largely agree. Technical issues like financial regulation are more amenable to bipartisan consensus than more purely ideological issues like abortion or stem cell research, since there’s more common ground. Still, Republicans and Democrats differ substantially on goals and philosophy. While it might be useful for Team Obama to have some Republicans in the room, the Democrats won in November and get to try to enact their policy preferences into law.
Photo by Flickr user J D Lasica under Creative Commons license.
I am long since convinced that Tom Friedman sees himself as a commissar in some brilliant, pristine, perfectly organized technocracy. The problem with his proposal is that the financiers in such a committee would undoubtedly include Bernie Madoff, Ken Lewis, and Vakram Pandit, the industrialists would include Ken Lay (if he were still alive) and Rick Wagoner, and the politicians would be more likely to include Rod Blagojevich, William Jefferson, and Ted Stevens than they would Thomas Jefferson, James Madison, and John Adams.
Actually there are a bunch of entrepreneurs and active businessmen involved with the administration not least the big Kahuna “The sage of Omaha.” The fact is on the economic front the admin is faced with dual but related problems. In the real economy it’s fairly straightforward… demand has contracted. Over in the financial system it’s much more complicated and only understood by a tiny fragment of the population most of whom haven’t the faintest idea of the difference between a CDS and a CDO. Fixing the real economy is relatively easy….it’s just a question of pumping in enough demand until the system gets moving again. Despite the protests of Republicans this is happening. On the finance front the key men Summers/Geithner/Bernanke/Volcker have forgotten more about this stuff than anyone likely to post here and they are feeling their way towards a fix. And don’t knock feeling in this context, they’re dismantling an unexploded bomb. They’re clearly not going to adopt any of the populist notions going the rounds like nationalizing banks. At the end of the day if Obama and these guys pull it off Obama is going to be FDR II and the Republicans are going to be out of power for a generation. If he fails he’s going to be out on his ear…..but we’ll all be in the soup.
Tom Friedman is best when he stays within his circle of competence, as I argued elsewhere last month, Circle of Competence in Punditry .
Mark Cuban’s comments about Obama’s team reminded me of Rodney Dangerfield’s character in “Back to School“…
Republican governance was an utter disaster. You’d have to be a kool-aid drinking Beltway Insider like Friedman to think that the GOP signing on to your policy means you have a good policy.