The Madness Of Crowds

I was reading Alan Greenspan on the current economic crisis. A number of economic heavy hitters voiced their opinions and I couldn't resist adding mine.

I’m a layman in these matters so take my comment for what it is worth.

It seems to me that what is being argued is what the proper judgment in any given situation is. Ultimately there is no way to know. We went through a similar exercise in the dot com bubble. Every one knew that the situation was out of whack. (Remember the dot com jokes?) And yet despite every one’s certainty that all the companies involved were over promising the money kept pouring in.

I don’t see any way to correct the madness of crowds except to let it run its course. The corrective is to let some pain into the situation pick ourselves up and wait for the next one.

I don’t think you can cure human nature. Gold is no panacea either. Suppose extracting it from sea water becomes feasible? Or mining it from asteroids? You then have inflation with no way to throttle it.

Our current system is as good as is possible with people at the helm. It gives us growth that is otherwise unavailable in other regimes. Still with men at the wheel there is always the danger of grounding the ship. Even with experienced pilots at the helm. So you do soundings in the bilge to check for holes and then call in the tugs to get the ship back in deeper waters.

All control systems will oscillate (to change metaphors) if the feedbacks and phases are conducive to that. When you have a system as complicated as ours there is no way to know exactly what the proper gain and delays (phase) should be. We rejigger the settings to the new assumed values and try again knowing that every now and then we will have events that exceed the capacity of the control system.

As others have pointed out: you will not have better luck next time. Accept it.

Cross Posted at Classical Values