Posts Tagged learning from experience

Forgive and forget

This is about an article Cycles of Regulation by Sanjeev Pandiya in http://www.valueresearchonline.com.

To all appearances, it is written in the context of the economic slowdown. My analysis below assumes this, and is also in the same context.

The article is an adaptation of something called  ‘historical process’, discussed by George Soros in The Alchemy of Finance. The argument is that if there is large scale failure in economy (or any regulated system), all the people involved in the failure are generally destroyed by the regulators (or other kinds of people in power). Let’s call the people who were involved in the disaster the “blunder guys”. They are removed from all decision making by one of the following ways:

  1. Firing them from designations of authority
  2. Not giving credit to them and hence make them unable to do business
  3. Making them so unpopular that they are unable to do business

etc. But the people involved in the failure are exactly the people who are not likely to make that mistake again, because they have learned from their experience. So such people should not be eliminated.

Sounds good if you insist on seeing the best in people. But there are a few flaws in this argument.

Firstly, if the blunder guys are not eliminated, the blunder did not cost them anything. So it becomes a disaster for the world in general, but a pleasant ride for our blunder guys. If they learn anything from this experience, it is that screwing the people is a rewarding practice. They also get the idea that they are rather good at this practice, so next blunder might be even more spectacular.

Secondly, recklessness has genetic risk factors. If many of our blunder guys are genetically predisposed to recklessness, they cannot “learn” to be “reckful” even after a lifetime of experience.

A case in point in this very instance of large scale failure, is the AIG bonus issue. AIG being in deep financial trouble, the US government bailed it out by huge cash inflows. AIG’s bankruptcy would have shaken the US economy (and world economy too) badly so under the circumstances this bailout was not unpopular. But senior management of the AIG showed the same greed and recklessness that landed themselves (and more importantly, everyone else) in trouble. They treated themselves to huge bonuses from taxpayer money.

Leave a Comment