[W]hen faced with a Black Swan we often grossly underestimate or overestimate its significance. Take technology. The founder of IBM predicted that the world would need no more than a handful of computers, and nobody saw that the laser would be used to mend retinas.The 'we' in the first sentence is key. If decisions about black swans or any other risky or uncertain venture are made by just a few people, then yes, they will make poor decisions. If those people can do so, they will do everything they can to validate their poor decisions. If they are in government they can do this successfully, so blocking any attempt to investigate or explore new initiatives. It is not just about technology (Concorde (scroll down) and the Soviet experience come to mind) where government has a prodigious record in picking losers. It's also about the range and type of approaches that government through its interventions, encourages or blocks.
A top-down, one-size-fits-all approach to policymaking, just cannot adapt to changing events, nor can it easily vary its approach for differing local circumstances. When a government dictates how problems shall be solved, that can spell disaster. We see this in the failure of foreign aid (see my previous post), as well as the ludicrous perverse subsidies such as those to agribusiness, fisheries or the coal mining industry. Government, unfortunately, is not content to specify outcomes and contract out the achievement of those outcomes to the market (which would be the Social Policy Bond approach). For myself, I'm concerned that government's preferred solution to climate change - cut back anthropogenic greenhouse gas emissions - will not do the job; we could end up with worst of all worlds: rampant global warming, and very high upfront costs. My suggestion? Climate Stability Bonds.
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