Smart will never mean 'not wrong'
Letter to the editor

Thanks for Holman Jenkins's "The Meltdown Remains a Whodunit" (Business World, Jan. 18) with its instructive discussion of the ideas of Jeffrey Friedman and Wladimir Kraus. Yes, we have to face a key reality: Well-intentioned but disastrous mistakes are made by very intelligent, well-educated, highly informed people, backed by vast computing power and reams of data, but wrong nonetheless. Just consider how the Federal Reserve's transcripts reveal its complete failure to understand the housing bubble. So the principle indeed applies to central bankers and regulators, in whom the Obama administration (like others before it) places so much faith, as well as to private financial actors and, of course, also to economists commenting from the sidelines. They simply did not, do not and cannot know the future that their own intertwined actions and ideas are creating.

As to why they all make the same mistake at the same time, consider that cognitive herding is a natural response to the inexorable uncertainty of the future. So central bankers, regulators, bankers, investors and academics cluster into the cognitive herd. To paraphrase a line from John Maynard Keynes, a prudent banker is one who goes broke when everybody else goes broke.

Alex J. Pollock is a resident fellow at AEI

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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Wednesday, April 16, 2014 | 10:00 a.m. – 11:00 a.m.
Calling treason by its name: A conversation with Liam Fox

Join us at AEI as the Right Honorable Liam Fox sits down with Marc Thiessen to discuss and debate whether America’s intelligence agencies have infringed on the personal privacy of US citizens.

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The curmudgeon's guide to getting ahead

How can young people succeed in workplaces dominated by curmudgeons who are judging their every move? At this AEI book event, bestselling author and social scientist Charles Murray will offer indispensable advice for navigating the workplace, getting ahead, and living a fulfilling life.

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