For a slightly different version, see Jim Throgmorton. 2008. Iowa City Press-Citizen (October 1): 17A.
When catastrophe looms, is there a good way of knowing whether we risk being harmed?
Most of us have no idea how to answer this question. Daunted by the complexities embedded within it, we either consciously or subconsciously turn to experts. We presume that they can calculate the risks quite accurately and that they can draw a line signaling whether we are at risk or not.
Maps that plot the contours of the “100-year floodplain” exemplify the point. They seemingly tell us that if we are live on the river side of the contour line, we risk seeing our homes and businesses inundated by a “100-year flood.” But live just one foot on the other side of the line and we would be safe.
Our recent experience with flooding has taught us that such lines are actually quite fuzzy and hence that we cannot fully trust the experts. People who thought their houses were far outside the 100-year floodplain watched them go under and had their lives turned upside down, despite the fact that the precipitation event itself was more like an “80-year flood.”
I don’t mean to inspire unthinking criticism of experts. After all, I am one myself. However, I do mean to suggest that the technical and political complexity of many issues far exceeds the grasp of any one set of experts. As one of the University’s hydroscientists recently said, all river basins can be considered “ungauged” now; changes in global climate and local land use might have altered “normal” patterns of precipitation and run-off, and hence have reduced the ability of scientists to predict how frequently equivalent (or worse) floods will occur in the future.
Where to draw the line? Are we at risk or not?
So too it is with the financial crisis. If you’re like me, you might be wondering how you’re going to be affected. Will the value of your investments (if you’re lucky enough to have any) continue to fall? Will you be able to borrow enough money to buy that new house you’ve had your eye on? Will you be able to sell yours when the time comes? Will you still have your job six months from now? Will the flood of collapsing financial institutions continue to rise? How high? How fast?
As with mapping the “100-year floodplain,” we would ordinarily expect experts to answer these questions. If you’ve been following the financial news closely, though, you probably have concluded that no one knows whether the recent actions by the Federal Reserve will stabilize financial markets. Nor does anyone know what those interventions will ultimately cost, or what their secondary ripple effects will be. Financial institutions have become so globally interconnected and pathways of market exchanges have become so complex that facile calculations are no longer possible.
Consider, for example, what Treasury Secretary Henry M. Paulson, Jr., said when talking about whether only U. S. banks should receive bailouts: “It’s a distinction without a difference whether it’s a foreign or a U.S. one.”
Has not the financial sector become “ungauged”?
Ironically, it is precisely at this moment—when no experts really understand what has caused the financial crisis and what will happen next—that it is most fruitful to hear what experts have to say. By hearing what they know and how they differ from one another, we can learn what they don’t know. Moreover, by listening closely enough, we can also learn how their values and interests shape their analysis and advice, and hence how important it is to elect a President who will appoint good people to key regulatory positions. Most important, by listening to experts at this moment of potential disaster, we can learn where to draw the line between prudent concern and crippling fear and hysteria.
To develop a better understanding of the subprime housing crisis and how it has affected financial markets, and to develop a better sense of what I think should be done, I plan to attend an October 10-11 symposium that my colleague Jerry Anthony has organized on behalf of the University’s Public Policy Center. You can learn more about it by going to the Center’s web site: http://ppc.uiowa.edu.
Maybe I’ll see you there, and together we can judge where to draw the line.