Herd Mentality

Perhaps another night I will post on why I decided to study communication in college, but for tonight I want to reflect a moment on why I didn't study business. I actually had an interesting professor of business, Brooks Mitchell, at the University of Wyoming. The thing I never liked about students of business was the fact that they all seemed to be part of a herd. They seemed to rarely think for themselves and could never speak for themselves; no, instead we had the dreaded group presentation.

Anyway, it strikes me that the recent turmoil in the markets is yet further evidence of this herd mentality, coupled with some pretty serious greed and hubris. Anyway, I was reading Walter Bagehot's Physics and Politics this week. Bagehot was a founding editor of The Economist, the best weekly news mag, and the paper still has a weekly column named in his honor. Anyway, the book's argument is about the relation of physics and politics, a strikingly apt relationship now that the atom has come apart (as Jacques Barzun observes in his illuminating introduction). Along the way Bagehot has this to say about financial markets and the herds that run them:

The mere presentation of an idea, unless we are careful about it, or unless there is within some unusual resistance, makes us believe it; and this is why the belief of others adds to our belief so quickly, for no ideas seem so very clear as those inculcated on us from every side.

The grave part of mankind are quite as liable to these imitated beliefs as the most frivolous part. The belief of the money-market, which is mainly composed of grave people, is as imitative as any belief. You will find one day everyone enterprising, enthusiastic, vigorous, eager to buy, and eager to order; in a week or so you will find almost the whole society depressed, anxious, and wanting to sell. If you examine the reasons for the activity, or for the inactivity, or for the change, you will hardly be able to trace them all, and as far as you can trace them, they are of little force. In fact, these opinions were not formed by reason, but by mimicry. Something happened that looked a little good, on which eager sanguine men talked loudly, and common people caught their tone. A little while afterwards, and when people were tired of talking this, something also happened looking a little bad, on which the dismal, anxious people began, and all the rest followed their words. And in both cases an avowed dissentient is set down as "crotchety." "If you want," said Swift, "to gain the reputation of a sensible man, you should be of the opinion of the person with whom for the time being you are conversing." There is much quiet intellectual persecution among "reasonable" men; a cautious person hesitates before he tells them anything new, for if he gets a name for such things he will be called "flighty," and in times of decision he will not be attended to.

What seems to have happened, on probable evidence, is that banks won't lend to one another. It's a classic prisoner's dilemna, because all they know is their own balance sheet. They figure, if I'm in trouble, they're in trouble, therefore I won't lend to them. Of course, soon they won't lend to me. Soon, the whole herd is running from lending. So what do we do? We decide to loosen up the lending with a $700 billion metamucil package (and, I hate to tell you, but it will be at least double that before things are moving again), all the while no one is asking why it is we have an "economy" that runs on debt or a government that won't do more to blame and punish those responsible?