Boombustology and a New Quote
What a weekend! I just returned from Bali, Indonesia after three nights of very little relaxation (8 blokes on a 3 night holiday = mob mentality in effect, i.e. far too much alcohol consumption and very little sleep) but one thing that stuck with me was a quote by Warren Buffett in Vikram Mansharamani's relatively new book "Boombustology". While the book itself leaves a bit to be desired (to be fair I have not finished it yet; however when the Austrian theory of the business cycle is summarised as "...overinvestment and excess capacity create the bust," it really does make it hard to recover), the following quote struck me not only for its truth about investing but also its applicableness to economics:
"Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ...Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble when investing."
Most of the errors in economics and policy do not result from a lack of intelligence; to the contrary, a lot of economic errors result from a Hayekian "pretence of knowledge," where very - and I mean, very - intelligent people think that they can design society; that they themselves are immune to the errors that their predecessors fell victim to; that their models can "...acquire the full knowledge which would make mastery of the events possible. (ibid)"
The fact is, they cannot. Much harm would be prevented if people applied Buffett's investment advice to economics (himself included!). People voicing their economic opinions need to take Bastiat's advice and look beyond the visible effects for the unseen; the unintended consequences of their policy. Even the most sophisticated models cannot accurately capture these unseens and therefore the best policy advice is one of humility; one that recognises the limitations of the human mind's ability to design society and understands that it is through the market process and the price system (or planning by individuals) and not detailed physical planning that we get the most moral, efficient and equitable method of allocating scarce resources (provided the correct institutional structures are in place - most importantly the institutions of private property, contract and consent - so that the actions of self-interested individuals come together to produce Adam Smith's socially desirable outcomes and not 'grabbing;' where the self-interested actions of individuals are channelled into unproductive and destructive uses such as political rent seeking).