Inexperience is identified as a major factor in other financial crazes than that of the 2008 financial meltdown. To see this we turn to an account of the 1720s financial fiascos of the South Sea Bubble in Great Britain and France’s counterpart, the Mississippi Scheme, by historian Frederick Scott Oliver in his 1930-1935 The Endless Adventure.
The three volumes of The Endless Adventure–long out of print, dated in some of its language, but much worth reading still—were well-regarded by the reading public and luminaries, like T.S. Eliot. The astonishing passage is quoted at length to draw out a key point about inexperience (and anyway, I miss these high-alpine views of history):
At the present day the simplest investor or the most junior Treasury clerk would be suspicious of such over-generous promises; but in 1720 even less was known than is known now of the mysterious laws that control the currents of a nation’s prosperity. Our own generation, as it glances backward and downward into the eighteenth century, can of course discern without difficulty the points at which an earlier race of statesmen blundered off the highway and fell among brakes and briars and morasses. Viewed from our present altitude, the road of safety shows so white and unmistakable in the foothills below us that we find it hard to understand how men of intelligence and probity could possibly have allowed their steps to stray. The most facile explanation is corruption, or else of shameful ignorance.
Our amazement, however, will be lessened, our censure may be tempered, if we pause to consider a nearer past, or if we turn our gaze forward and upward, where the as-yet-unbeaten track of the twentieth century winds out of sight among mists and mountain peaks. What lies immediately behind us is only trifle less obscure than what rises up in front. We are not yet come high enough to survey the last fifteen years in a flat projection. We have travelled, as it were, by a forest path very baffling to an ordinary man’s sense of direction; by a steep ascent, at times darker than twilight, with many a corkscrew turn and hairpin bend. We can recall in a confused and broken memory that we have come through a period of miscalculations without number and that, time and again, the predictions of the wisest statesmen and economists have been proved false by events that followed shortly after. Our guides misled us, though they were for the most part honest men who knew by rote the maxims of their financial craft as it was practised by the civilised world at the beginning of the year 1914….
But new and undreamed-of conditions produced universal derangement. Discredit fell upon the most approved principles, and so many strange heresies appeared to thrive, that mankind, panting for a new heaven and a new earth, was not unwilling to listen seriously to new guides, who vaunted the efficacy of specifics hardly less fantastic than the Mississippi Scheme and the South Sea Bubble. Those new guides were possibly as honest as the old ones, but it was certainly no less dangerous to follow where they beckoned. In doing so how often have we lost our way and been obliged painfully to retrace our steps! And yet it is not unlikely that, a hundred years hence, every political writer, every man of business, every intelligent undergraduate will be able to discern clearly the causes of our recent and present troubles. The road to safety may then appear to them so obvious, that our own failure to find and follow it will excite not only their amazement but their suspicions. They may find it as hard to believe that our faults were nothing worse than the innocent blindness of inexperience, as we do to believe that the French and English nations in the year 1720 were not criminal lunatics, or as we do to acquit the statesmen of those two countries of complicity in a series of gigantic frauds.
“Quite right!” I say, but then again, the quizzical eye turns to that reiterated honest men duped by inexperience.
Does this mean our officials should get a free get-out-of-jail card because they are inexperienced? Stay with Oliver a bit longer.
For Oliver, politics as governing requires apprenticeship because governing is intricate: “Methods that experience and necessity have evolved by slow degrees are bound to be complicated…”, and it takes time to learn what is complicated and how to deal with them. Second, much of what passes for current administration conspires to distance the politician (and senior officials) from gaining more experience:
To-day, when a man of business or a cabinet minister is in doubt, or is at issue with his colleagues, he calls for a report. A host of technical advisers stands at his beck and call. A vast machinery lies ready to his hand. . . .[N]early everything he learns is learned at second hand, so that the true nature of the problem is rarely visible to his eyes. When his colleagues ask him questions—sometimes pertinent and sometimes foolish—he can neither satisfy them out of hand with sound reasons, nor can he answer them according to their folly. He promises a supplementary report; and so the game goes on.
We know that few investors or traders in the mid-2000s leading up to the 2008 financial crisis had any shared institutional memory or working knowledge of the preceding major financial debacle, the 1998 collapse of Long-Term Capital Management hedge fund. We also know that the turnover in political and business experience has been shortening over the last decades, in the one case due to term limits and political burnout and in the other case due to economic churn. The only redemptive feature in this is a messy this-worldly realism, according to Oliver:
If we eventually escape from our present perplexities, it will not be because theorists have discovered some fine new principle of salvation; or because newspapers have scolded and pointed angry fingers at this one or that; or because we, their readers, have become excited and have demanded that ‘something must be done.’ It will be because. . .have ‘jumbled something’ out of their contentions that will be of advantage to their country.
There of course are no guarantees. More important is this for Oliver: It isn’t that experience in the craft of politics enables the practitioner to better see the future. Rather, experience enables the demanding present to be seen more for what it is, now:
The circumstances that surrounded were complicated and bewildering; the gleams that guided him were intermittent and often of a twilight dimness. A statesman so situated must do much by guess-work… Prophetic statesmen are a fairly common variety of the species, but those who not only foresee things but foresee them truly are among the rarest of human products. [The chief minister] made no pretensions to the gift of prophecy. Man of genius though he was, he owed little to his imagination. He excelled his colleagues, and opponents, and indeed every statesman in Europe, not in penetration of the hidden future, but in the clearness with which he saw things present, and in the accuracy with which he could judge by the lights or darkness of the horizon what weather might be looked for on the morrow. And he excelled them most of all in the rapidity with which his mind arranged in their true proportions the most diverse and unexpected events. (my bold)
Whether this description of the chief minister in question has stood the test of time, I can’t say.
What the passage does still describe, however, are professionals who confront and not so much balance as hold experience and inexperience in productive tension and have a track record of learning what they do and do not know to avoid worse. They must be experienced enough to manage inexperience. Note the corollary: Yes, it’s true that inexperience may well start in the individual, but experience may just as well end up across individuals, untraceably distributed and shared.