The third career was in systems management, or maybe it was the fourth – it’s hard to remember now.
No, it’s painful to remember. There was always a new project, and it was going to be different this time – the new project would come in on time and on budget, or even under budget, and the new application would do just what it was supposed to do, as defined by the customer in their initial RFP and then in the contract and then in the project plan, with its careful attention to resource allocation and the cool risk-mitigation tables that laid out just what would be done if what wasn’t supposed to happen by some bit of dumb bad luck did happen – and then in the work breakdown schedule’s discrete events. You had it all covered. And of course you had a change control structure in place – the customer was always thinking up new features, that were critical, that they hadn’t realized were critical when they tasked you with developing the application. They forgot the new inventory application should interface with some supplier’s obscure parts pricing subsystem or some such thing. No problem – you could work that into the plan, and charge them more, and buy a week or two in the schedule, and if you were mean make the customer feel both guilty and stupid for being so casual about things. You, on the other hand, were the professional.
The pain was that things never worked out that way. Everyone knows that maybe eighty percent of all projects fail – when you see a major HMO abandon a hundred million dollar system billing system and just start again with something entirely new from a new vendor that becomes obvious. But it’s not nice to name names, so you get to guess about that.
But really, the painful part was always the post-mortem sessions – everyone meets for a Lessons Learned session, or two or three or four or ten. And you made lists of what you’ll never do again.
And those lists were useless. Sure, you’d never again do those specific things, but everyone also knew that something new would come up next time, out of the blue, and things would blow up again. It was pretty depressing. And the worst thing was that everyone in the room knew, but wouldn’t dare say, that we’d all do pretty much the same dumb-ass things again, because people are like that. It really is human nature to do, again, what hasn’t worked before, because you’re sure it will work this time, because it should, damn it. It’s a matter of what you believe should be so, and willing it to be so – as everyone knows where there’s a will there’s a way.
And everyone knows that’s not true. Samuel Johnson captured it well when he famously said that for a man to marry a second time represents the triumph of hope over experience. He seemed to be saying that humans aren’t that very self-regulating. Sure, once bitten twice shy and all that – sometimes given as once burned. But it doesn’t matter. That flame is quite fascinating. We’ll stick our hand in the flame again, and get burned, and tell ourselves we should have known better – and do it again later. This may or may not involve Lessons Learned workshops, with your expensive therapist.
But as much as we know about ourselves, that we’re not self-regulating at all – ignore those chest pains because your body will find a way to compensate and heal itself and you won’t have that heart attack – we persist in seeing the world around us as self-regulating. The truth will out, and in the end crime doesn’t pay, and the climate will stabilize and balance itself out with our presumptuously thinking we can do anything about it, and what goes around comes around, and all these mean people will get theirs, eventually. All you have to is step back and wait. Things will be as they should be. The evidence runs the other way of course. Crime pays rather well actually – those caught are few and far between. If that were not so there wouldn’t be much crime at all. What would be the point?
And all this applies to the current issue of the day in America, financial regulation. There’s the conservative Adam Smith view of things – that the Invisible Hand will take care of things – as everyone being selfish and looking out for themselves in an unregulated free market means people will compete on price and quality and we’ll have lots of good stuff at low prices – and those selling whatever will get really, really rich, as they should – so there’s not much need to regulate anything at all. That’s the optimistic view of things. The cynical view on the left is that people will try to cheat each other and try to corner the market so they can sell crap with no competition, and things could easily fall apart, so there ought to be some basic rules so everyone plays fair. And each side scoffs at the other, as they say that they have experience on their side, not hope.
First up, on the conservative side, is Jonah Goldberg, arguing here that even in the absence of regulation, well, we’re not going to have another financial crisis. We don’t need more financial regulation because capitalists, like all humans, are good at learning lessons:
By now you’ve probably heard lame duck Senator Christopher Dodd thunder from the Senate floor (or myriad other locations) that unless his bill is passed we are just as vulnerable as ever to what happened on Wall Street. “Nothing has happened” that can prevent the exact same crisis from happening again.
Except that’s not quite true. Something happened: The crisis itself.
Think of it this way. We are just as vulnerable as ever to the threat of Coca-Cola releasing another New Coke. No laws have been passed to prevent it. No new oversight authority has been created to warn of its looming threat. And yet, the odds of Coca-Cola rolling out another debacle like New Coke are severely limited. …
This is not to say that the financial crisis doesn’t justify any reforms. But let’s not forget that inherent to capitalism is the capacity for self-correction. Surely the disappearance of Lehman Brothers and the dismantling of AIG is an example that many can learn from.
People see bad things happen, and they don’t try that sort of thing themselves. It’s simple – so little if no regulation now, if you please. His position is that government is not the only or even the best corrective to the excesses of capitalism, and decides to quote himself from an earlier item:
We are fond of saying that the answer to free-speech problems is more free speech. But we seem incapable of grasping that sometimes – and only sometimes – the solution to capitalism’s problems is more capitalism.
And this might be one of those times.
At the New Republic, Jonathan Chait is having none of that:
It is true that some of the capitalists paid a terrible price. But the vast majority of them did not. Because their collapse posed systemic risks to the entire economy, taxpayers were forced to bail them out lest they suffer even greater damage. The ability to enjoy all the gains from risky investment while socializing potential catastrophic losses is a fairly key variable here. This is rather different than the New Coke fiasco, the costs of which were born by Coca-Cola. Indeed, if anybody has “learned a lesson,” it’s the government, which learned that allowing even one firm (Lehman) to fail can have catastrophic consequences.
Yes, we’ve all been through our Lessons Learned sessions, and they continue. And at Mother Jones, Kevin Drum offers this:
Does Jonah really think that American industry’s capacity to launch stupid new products was diminished by the New Coke fiasco? Does he remember Pets.com? Or Webvan? Or, restricting ourselves just to the soft drink market, Crystal Pepsi?
And Drum mentions “the other fine beverages” on this list – lest we forget Life Saver Soda – and continues:
As for bankers learning their lesson, I’m at a loss for words. If there’s a profession on the entire planet that has aggressively declined to learn any lessons from its periodic collapse over the past several millennia, it’s high finance. In This Time It’s Different, it takes the authors three columns of text spread over four pages just to list the banking crises since 1800. They tally up 51 of them since 1980 alone.
Drum is referring to one of the current must-read financial books, This Time Is Different: Eight Centuries of Financial Folly (Carmen M. Reinhart and Kenneth Rogoff, Princeton University Press, September 11, 2009) – and Niall Ferguson, the author of The Ascent of Money: A Financial History of the World (Penguin Press, November 13, 2008) says this of the newer book – “This is quite simply the best empirical investigation of financial crises ever published. Covering hundreds of years and bringing together a dizzying array of data, Reinhart and Rogoff have made a truly heroic contribution to financial history. This single marvelous volume is worth a thousand mathematical models.”
But Goldberg is human, so we get the triumph of hope over experience, or the triumph of hope over the evidence you choose to disregard.
Drum concludes with this:
God knows I’m sympathetic to arguments about regulatory capture and government collusion in blowing up financial bubbles, but even Alan Greenspan has admitted that financial markets can’t be trusted to self-regulate. Alan Effin Greenspan. Regulatory capture is a reason to try to build a more robust financial control infrastructure, one that at least tries to address the changes in modern finance, not a reason to shrug our shoulders and pretend, yet again, that next time will be different.
As for Alan Greenspan – the pure Adam Smith guy and a devotee of Ayn Rand and her notion of the Virtue of Selfishness and all that sort of thing – he had his wake-up moment in October 2008:
But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.
Adam Smith had been wrong, and Ayn Rand had been wrong, as the congressman representing us out here in Hollywood forced him to admit:
“You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others,” said Representative Henry A. Waxman of California, chairman of the committee. “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”
You can watch five minutes of that here – Greenspan looks pained. And Ayn Rand had stood beside him at his 1974 swearing-in as Chair of the Council of Economic Advisers, and Greenspan was introduced to Ayn Rand by his first wife. Damn. Now he’s married to NBC’s Andrea Mitchell – in 1997 they were married by Supreme Court Justice Ruth Bader Ginsburg. Maybe he’s learned about hope and experience as Johnson suggested. Sometimes hope works, and sometimes it doesn’t.
It’s a matter of lessons learned. And maybe we’ve all been wrong about Adam Smith and not just Ayn Rand. Amartya Sen thinks so, and he’s an interesting fellow – the 1998 Nobel Memorial Prize in Economic Sciences for his work on welfare economics and currently the Thomas W. Lamont University Professor and Professor of Economics and Philosophy at Harvard, up in Cambridge, and also a fellow of Trinity College at Cambridge, the real one, in England.
And in the New Statesman, Sen says we’ve got Adam Smith all wrong too:
The Theory of Moral Sentiments, Adam Smith’s first book, was published in early 1759. …
After its immediate success, Moral Sentiments went into something of an eclipse from the beginning of the 19th century, and Smith was increasingly seen almost exclusively as the author of his second book, An Inquiry into the Nature and Causes of the Wealth of Nations, which, published in 1776, transformed the subject of economics.
But that neglect of Moral Sentiments for the last two centuries “has had two rather unfortunate effects.”
First, even though Smith was in many ways the pioneering analyst of the need for impartiality and universality in ethics (Moral Sentiments preceded the better-known and much more influential contributions of Immanuel Kant, who refers to Smith generously), he has been fairly comprehensively ignored in contemporary ethics and philosophy.
Second, since the ideas presented in The Wealth of Nations have been interpreted largely without reference to the framework already developed in Moral Sentiments (on which Smith draws substantially in the later book), the typical understanding of The Wealth of Nations has been constrained, to the detriment of economics as a subject. The neglect applies, among other issues, to the appreciation of the demands of rationality, the need for recognizing the plurality of human motivations, the connections between ethics and economics, and the codependent rather than free-standing role of institutions in general, and free markets in particular, in the functioning of the economy.
The idea here is that there is more to everything than self-love and selfishness:
In the most widely quoted passage from The Wealth of Nations, he wrote: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.” In the tradition of interpreting Smith as the guru of selfishness or self-love (as he often called it, not with great admiration), the reading of his writings does not seem to go much beyond those few lines, even though that discussion is addressed only to one very specific issue, namely exchange (rather than distribution or production) and, in particular, the motivation underlying exchange.
But in the rest of Smith’s writings, there are extensive discussions of the role of other motivations that influence human action and behavior, matters that folks like Goldberg and Greenspan should not ignore:
Beyond self-love, Smith discussed how the functioning of the economic system in general, and of the market in particular, can be helped enormously by other motives. There are two distinct propositions here. The first is one of epistemology, concerning the fact that human beings are not guided only by self-gain or even prudence. The second is one of practical reason, involving the claim that there are good ethical and practical grounds for encouraging motives other than self-interest, whether in the crude form of self-love or in the refined form of prudence. Indeed, Smith argues that while “prudence” was “of all virtues that which is most helpful to the individual”, “humanity, justice, generosity, and public spirit, are the qualities most useful to others.” These are two distinct points, and, unfortunately, a big part of modern economics gets both of them wrong in interpreting Smith.
And that matters now:
The nature of the present economic crisis illustrates very clearly the need for departures from unmitigated and unrestrained self-seeking in order to have a decent society. Even John McCain, the Republican candidate in the 2008 US presidential election, complained constantly in his campaign speeches of “the greed of Wall Street”. Smith had a diagnosis for this: he called such promoters of excessive risk in search of profits “prodigals and projectors” – which, by the way, is quite a good description of many of the entrepreneurs of credit swap insurances and sub-prime mortgages in the recent past.
The term “projector” is used by Smith not in the neutral sense of “one who forms a project”, but in the pejorative sense, apparently common from 1616 (or so I gather from The Shorter Oxford English Dictionary), meaning, among other things, “a promoter of bubble companies; a speculator; a cheat”. Indeed, Jonathan Swift’s unflattering portrait of “projectors” in Gulliver’s Travels, published in 1726 (50 years before The Wealth of Nations), corresponds closely to what Smith seems to have had in mind. Relying entirely on an unregulated market economy can result in a dire predicament in which, as Smith writes, “a great part of the capital of the country” is “kept out of the hands which were most likely to make a profitable and advantageous use of it, and thrown into those which were most likely to waste and destroy it.”
So we have our current mess. And we learned the wrong things in our Lessons Learned sessions:
Smith never used the term “capitalism” (I have certainly not found an instance). More importantly, he was not aiming to be the great champion of the profit-based market mechanism, nor was he arguing against the importance of economic institutions other than the markets.
Smith was convinced of the necessity of a well-functioning market economy, but not of its sufficiency. …
Smith saw the task of political economy as the pursuit of “two distinct objects”: “first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and second, to supply the state or commonwealth with a revenue sufficient for the public services”. He defended such public services as free education and poverty relief, while demanding greater freedom for the indigent who receives support than the rather punitive Poor Laws of his day permitted. Beyond his attention to the components and responsibilities of a well-functioning market system (such as the role of accountability and trust), he was deeply concerned about the inequality and poverty that might remain in an otherwise successful market economy. Even in dealing with regulations that restrain the markets, Smith additionally acknowledged the importance of interventions on behalf of the poor and the underdogs of society. At one stage, he gives a formula of disarming simplicity: “When the regulation, therefore, is in favor of the workmen, it is always just and equitable; but it is sometimes otherwise when in favor of the masters.” Smith was both a proponent of a plural institutional structure and a champion of social values that transcend the profit motive, in principle as well as in actual reach.
Damn. Adam Smith was a leftist! He’ll be on Glenn Beck’s Blackboard of Shame soon!
There is something quite remarkable in the ease with which Smith rides over barriers of class, gender, race and nationality to see human beings with a presumed equality of potential, and without any innate difference in talents
He emphasized the class-related neglect of human talents through the lack of education and the unimaginative nature of the work that many members of the working classes are forced to do by economic circumstances. Class divisions, Smith argued, reflect this inequality of opportunity, rather than indicating differences of inborn talents and abilities.
There’s much more at the link – but you get the idea. Smith’s argument was that some markets, under some conditions, might be considered self-regulating. But that seems to have been a minor point. There were larger issues that were more important – the good of society and all that.
But no one likes those long Lessons Learned sessions, and people will keep doing the same old dumb things. Still, it is probably best to have those sessions anyway. This was one of them.