Knocking on Heaven's Door - Lisa Randall [99]
Yet despite my confidence that it was okay to rely on experts when evaluating potential risks from the LHC, I recognize the potential limitations of this strategy and don’t quite know how to address them. After all, “experts” told us that derivatives were a way of minimizing risk, not creating potential crises. “Expert” economists told us that deregulation was essential to the competitiveness of American business, not to the potential downfall of the American economy. And “experts” tell us only those in the banking sector understand their transactions sufficiently well to address its woes. How do we know when experts are thinking broadly enough?
Clearly experts can be shortsighted. And experts can have conflicts of interest. Are there any lessons from science here?
I don’t think it is my bias that leads me to say that in the case of LHC black holes, we examined the full range of potential risks that we could logically envision. We thought about both the theoretical arguments and also the experimental evidence. We thought about situations in the cosmos where the same physical conditions applied, yet did not destroy any nearby structure.
It would be nice to be so sanguine that economists do similar comparisons to existing data. But the title of Carmen Reinhart and Kenneth Rogoff’s book This Time Is Different suggests otherwise. Although economic conditions are never identical, some broad measures do indeed repeat themselves in economic bubbles.
The argument made by many today that no one could anticipate the dangers of deregulation also doesn’t stand up. Brooksley Born, the former chairperson of the Commodity Futures Trading Commission, which oversees futures and commodity options markets, did point out the dangers of deregulation—actually she rather reasonably suggested that potential risks be explored—but she was shouted down. There was no solid analysis of whether caution was justified (as it clearly turned out to be) but only a partisan view that moving slowly would be bad for business (as it would have been for Wall Street in the short term).
Economists speaking out about regulation and policy might have a political as well as a financial agenda and that can interfere with doing the right thing. Ideally, scientists pay more attention to the merits of arguments, including those regarding risk, than politics. LHC physicists made serious scientific inquiries to ensure no disasters would occur.
Although perhaps only financial experts understand the details of a particular financial instrument, anyone can consider some basic structural issues. Most people can understand why an overly leveraged economy is unstable, even without predicting or even understanding the precise trigger that might cause a collapse. And most anyone can understand that giving the banks hundreds of billions of dollars with few or no constraints is probably not the best way to spend taxpayers’ money. And even a faucet is built with a reliable means of turning it off—or at least a mop and plan in place to clean up any mess. It’s hard to see why the same shouldn’t apply to deep-sea oil rigs.
Psychological factors enter when we count on experts, as the New York Times economics columnist David Leonhardt explained in 2010 when attributing Mr. Greenspan’s and Mr. Bernanke’s errors to factors that were “more psychological than economic.” He explained, “They got trapped in an echo chamber of conventional wisdom” and “fell victim to the same weakness that bedeviled the engineers of the Challenger space shuttle, the planners of the Vietnam and Iraq wars, and the airline pilots who have made tragic cockpit errors. They didn’t adequately question their own assumptions. It’s an entirely human mistake.”48
The only way