Maybe i’m easily shocked. Like many of you, I’ve been spending the better part of the last year and a half reading and learning about the underpinnings of our most recent financial crisis, trying to make some sense of it all. Most recently, I’ve read Too Big to Fail, A Colossal Failure of Common Sense, and No One Would Listen (Markopolis on the Madoff Scandal). I’ve also had the chance to watch Inside Job, the documentary on the crisis narrated by Matt Damon (whom I have trouble taking seriously).
In nearly all the key elements of the crisis and the Madoff scandal, one can find a deluge of experts from top business schools, top think tanks and the highest institutions in the world (including non-profit and government thinkers) rallying behind some of the most wrong-headed, short-sighted, and dangerous positions we’ve ever held. What lead them astray?
Let’s start out by clearly pointing out that experts are not always going to be right, and often we pay for the vision and insight they can provide on a topic, whether the outcome matches their predictions or not. Clearly, predictions for nearly anything are difficult to put together with any reasonable accuracy, and its easy to look back and identify flaws in the underlying argument.
However, there is also a growing inclination by the expert class to take cash payouts to help determine which side of a position they lean towards. At this point, ‘expertise’ is not really expertise, but rather a ‘paid for endorsement’, no more reputable than George Foreman selling cooking equipment or Katy Perry touting acne medication. The irony is, George and Katy actually need to clearly state that they’re paid to tout their products on those infomercials, while experts in situations with much higher stakes, do not need to do so.
The Blow Up
This week, there’s been lots of talk about Quaddafi’s consultants from Michael Porter’s Monitor Group, to help clean his image around the world. As BusinessWeek reports, over $3m exchanged hands in this deal, involving the design of a massive marketing and advertising effort, intended to encourage world governments and large corporations to look at Libya differently. However, the ‘experts’ hired to build this marketing effort were very outspoken in the media about their feelings on how Libya had turned around and become a moderate and friendly place to do business.
Benjamin Barber, a professor from the University of Maryland, wrote an op-ed piece in the Washington Post in 2007, titled “Qaddafi’s Libya: An Ally for America?“, claiming that we might have been to harsh with the guy. Unfortunately, his ‘about the author’ section only states this:
Benjamin R. Barber, the author of “Jihad vs. McWorld” and “Consumed,” is a senior fellow at Demos, a New York-based think tank focused on the theory and practice of democracy.
Glad to see he left out the Libya and Monitor Group-sponsored trips that helped sway his ‘opinion’.
How Do We Solve This: A Look to Finance
How do we as a society solve this problem? Perhaps with a quick look to finance…
When you watch any financial broadcast, particularly on CNBC, Bloomberg, and Fox Business, you’ll find a very clear list of disclosures when a guest commentator comes onto the program. This is used to help investors understand the agenda of the individual sharing their idea at that given moment.
Much like George Foreman, Jim Cramer’s Mad Money show literally mentions his material relationships with any security Jim chooses to discuss in a given show (can easily be more than 50+) which allows the watcher to know his incentives. The irony is, Jim Cramer is still a big deal and a champion of the retail investor, even when his advice is far from perfect – part of that has to do with the transparency he provides (which is actually required by the SEC and FINRA).
In the business sphere, white papers and research are often written on behalf or with funding from individual companies. These documents are still incredibly useful, even if they have an underlying bias within them. Why can’t this level of transparency be applied across the board?
In the political realm, this same concept should apply. I’d like to see CSPAN list the ‘material contributions’ the speaker at any given point has received from lobbyists and institutions, so that the voters and general public can take that into context.
In the consulting and think-tank universe, it’s about time for proper disclosures on who’s paying the bills. It would’ve helped us better understand the testimony these ‘independent folks’ might be giving to Congress, to students in a classroom, or to other influential bodies. Much like Mr. Cramer and the white-paper business, I’d expect their expertise to be duly noted and leveraged accordingly.
Robert Rubin, Larry Summers and Hank Paulson are still experts in Finance, even if they have clear biases. The Monitor Group is filled with smart people who have studied the science of business, and can provide some thought and guidance to the rest of us at times, but within the context of their biases. It’s time we all accept that biases are out there, make them more visible, and give the people the chance to make a decision with that information.
It will surely help us make better decisions in the future.