Via Marginal Revolution, comes this interview with Warren Buffett, where he makes the case for the current stimulus package. I highlight this excerpt not to argue for the bill, but to highlight one of Buffett's many excellent mental habits, which we should all attempt to imitate:
SG: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?
WB: The answer is nobody knows. The economists don't know. All you know is you throw everything at it and whether it's more effective if you're fighting a fire to be concentrating the water flow on this part or that part. You're going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they've been very, very wrong and most of them in recent years on this. We don't know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don't know how effective in the short run we don't know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.
The important thing to note about Buffett's short answer is that it's mostly about what he doesn't know. It's not until he admits that the answer is uncertain that he begins making a case for his own set of beliefs. Incidentally, Buffett's response neatly demonstrates one of my favorite pieces of decision-making wisdom, which comes from Colin Powell. Although Powell made a number of mistakes in the run-up to the Iraq war, his advice to his intelligence officials was psychologically astute: "Tell me what you know," he said. "Then tell me what you don't know, and only then can you tell me what you think. Always keep those three separated."
Of course, the human brain is spectacularly bad at differentiating between what it knows and what it thinks, which often causes us to think we know much more than we actually do. This is why it's so important to constantly interrogate one's own beliefs, so that we see the facts (or lack thereof) underneath.
Ok, that's enough vague advice for one day.
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Unfortunately, identifying what one doesn't know is often considered a sign of weakness. Buffett carries clout and respect, but if the same words came from a young economist, s/he would likely be eclipsed by somebody who had a more definite response whether it be valid or not.
In my business setting, when I have a contract in hand, it is typically safe, and very valuable, to admit to a customer the areas that I'm unsure of and in need of an analysis to identify the requirements to ensure a successful solution. But if I'm competing for work, that admission is typically a losing strategy even if an opponent is lying when they claim to know the all the answers.
I've written many proposals trying to sell not a solution, but the expertise to identify the right solution. There are, of course, numerous factors that go into either winning or losing a bid and it would be ignorant to make a statement that customers not wanting to pay for an analysis is the reason why we lose some opportunities. But there are contracts, years later, we can observe failure and can make an educated observation that the proper up-front "learning" work was not completed to ensure a successful end solution.
With that thought, I would probably add to the assessment that not only is the brain is bad at differentiating what it knows and what it thinks, that also peer pressure in exposing what is not known exposes weakness (warranted or not) and exacerbates the problem.
Buffet neglects that there can be quite dire long term consequences of these policy experiments - we still live with some failed New Deal policy experiments, such as the attempts to prop up agricultural commodity prices that gave us the ag subsidies that are still with us. Once the goverment starts cutting people checks, it becomes very politically difficult to stop it, even when the policy in question is almost unanimously held to be counterproductive. Uncertainty cuts against intervening in the economy as much as it does against not intervening.
"We do know over time the American machine works wonderfully and it will work wonderfully again."
There he's wrong - he hopes it will work again, and he has good reason for that hope, but there is nothing inevitable about it. He does not in fact know it. There are a number of historical examples of great economies ("working wonderfully") that stumbled and never fully recovered again.
Jonah, if you ever work in consulting at some point, you'll find that the incentives are for claiming you know the answers even when you don't. The boss likes junior people full of bravado and confidence who can impress the clients with knowledge and surety. The last thing the boss wants is consultants who admit there are areas they don't know about.
Buffett is in a position in life where he can be honest, but for many of us, faking it is the best strategy.
Jonah,
Don't sell yourself short, this is wonderfully vague advice! The more ambiguous, yet structured advice can be, the more people will subjectively interpret, arrive at their own subjective meaning, and in turn, internalize/utilize the advice. I think your advice was perfect, give more. But that's just my own subjective advice.