A Tempered and Humane Economy by Highfill Jannett;Webber Patricia Podd;

Author:Highfill, Jannett;Webber, Patricia Podd;
Language: eng
Format: epub
Tags: undefined
Publisher: Lexington Books
Published: 2012-08-15T00:00:00+00:00

The financial crisis was also a vivid reminder that trusting experts to guide us through significant macroeconomic uncertainties is problematic. We quote Kahneman again: “One of the lessons of the financial crisis that led to the Great Recession is that there are periods in which competition, among experts and among organizations, creates powerful forces that favor a collective blindness to risk and uncertainty” (Kahneman 2011, 262). Even worse, experts, financial advisors, pundits on television, and unfortunately many of the rest of us “get credit for prescience that they do not deserve. . . . [The false implication is] that the world is more knowable than it is. It helps perpetuate a pernicious illusion” (Kahneman 2011, 201).

Anyone who seriously tackles the question of whether outcomes correlate well with contributions has to take uncertainty, risk, and thus luck into account. When you don’t know what will happen to the economy you have to guess, and the eventual outcome depends both on the quality of the guess and luck. This is true for individual executives and for the businesses where they work (Kahneman 2011, 200–201). To his credit Bill Gates, of Microsoft fame, forthrightly says so. “I had a better exposure to software development at a young age than I think anyone did in that period of time, and all because of an incredibly lucky series of events” (Gladwell 2008, 55).

For another kind of example, Tagg Romney went into the private equity business and founded Solamere with $10 million in seed money from his family and with his father’s finance chairman as a partner. According to Michael Luo and Julie Creswell of The New York Times (April 30, 2012), sixty-four investors put in $244 million even though Tagg Romney had no prior experience in private equity. Tagg Romney has stated, “Our relationships with people got us in the door, but that did not get us investors.”

Figuring out when goldbricking is happening is sometimes easy, but in an uncertain world it is often quite difficult since market outcomes depend on both skill and luck. We are not necessarily arguing that there is more goldbricking at the upper reaches of the income distribution than at the middle or the bottom. But it is not self-evident that there is less either. For example, whatever your personal views are of year-end bonuses in the financial sector, for the most part there is nothing illegal going on.[4] Goldbricking is a kind of theft which is not illegal.

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