Davos Is for Wimps

Michael Lewis nails the professional worriers who gather every year in Davos:

Davos is where people with no talent for risk-taking gather to imagine what actual risk-takers might do. Davos Man needs to sit in judgment; Davos Man needs to brood. So great is this need that he will brood about virtually anything, no matter how little he knows about it.

It’s only January, but I’m ready to name that, the Paragraph of the Year.
He’s exactly right. When analyzing the market or the economy, it’s easy to fall into the “over-worrying trap.” I’m often surprised by how many otherwise intelligent people can fall into this trap and wind up saying silly things. I mean, there’s always something to worry about.
The professional worriers remind me of the Major General in HMS Pinafore who knows many “cheerful facts about the square of the hypotenuse.” They know the facts, but they can’t see them in proper context.
The free market is a highly complex system. It simply has a way of working things out. Naturally there are crises which always seem to be “looming,” but people are surprisingly good about mastering them.
A few years before Y2K, I remember reading a story about a power plant that ran a drill to prepare for the new millennium. The plant failed and everything went to pieces. So a quick-thinking engineer jumped in and reset all the plant’s clocks to 1972, which had the same day and date alignment of 2000 (28 years is seven days of the week times four years in a leap cycle). Presto. The plant was up and running and they had time to fix the bugs.
But in the minds of the professional worriers, that scenario could never happen. They think if some problem comes along, people will never adapt. They assume market participants will run head-first into a brick wall, then pick themselves up, and do it again.
Lewis writes:

Thailand installs capital controls and the markets force it to reverse its policy, virtually overnight — again with nary a ripple. The Brazilian real is now less volatile than the Swiss franc; Botswana’s debt is now more highly rated than Italy’s. Oil prices double, the U.S. housing market tanks — no matter what happens, financial markets adjust quickly and without hysteria.
There are obviously a few things to worry about just now in the world, but the inability of traders to find a sensible price for the spread between European junk and European Treasuries isn’t one of them.

That problem will also be solved. And the answer won’t come from Davos.

Posted by on January 30th, 2007 at 8:57 am

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