CPF: Groupthink

Kishore Mahbubani’s first systemic failure is Groupthink. I’m not sure I agree with him, but I’ll first let him describe his idea.

The first systemic failure America has suffered is groupthink. Looking back at the origins of the current financial crisis, it is amazing that American society accepted the incredible assumptions of economic gurus such as Alan Greenspan and Robert Rubin that unregulated financial markets would naturally deliver economic growth and serve the public good. …. In short, the financial players would regulate ­themselves.

This is manifest nonsense. The goal of these financial professionals was always to enhance their personal wealth, not to serve the public interest. So why was Greenspan’s nonsense accepted by American society? The simple and amazing answer is that most Americans assumed that their country has a rich and vibrant “marketplace of ideas” in which all ideas are challenged. Certainly, America has the freest media in the world. No subject is taboo. No sacred cow is immune from criticism. But the paradox here is that the belief that American society allows every idea to be challenged has led Americans to assume that every idea is challenged…

I agree that the financial players were always going to look after themselves rather than look out for the public good. But I don’t agree with Mahbubani’s idea that the problem is “the belief that American society allows every idea to be challenged has led Americans to assume that every idea is challenged.” There were plenty of American’s who predicted the financial collapse, plenty who predicted that the housing bubble would collapse, and plenty who decried the use of derivatives. Why, even Warren Buffet described derivatives as “financial weapons of mass destruction.”

The concept of unregulated financial markets was certainly questioned. The problem is that it was not in the interests of the powerful players to do anything about it except ride the wave. Everyone was making money. Financiers were making billions, and people were buying wonderful houses. Everyone hoped it would continue, at least while they were benefitting. The only people who could really have prevented it, the politicians, were on the take, and thus unwilling to provide the necessary oversight and regulation.

Back in 125 BCE, Lucius Cassius Longinus Ravilla asked: Cui Bono? – Who benefits? That, I believe is a better way to look at the financial crisis rather than through the lens of groupthink.