Be Wary of Consensus Opinion
A long time ago I saw a documentary on the 1986 Space Shuttle Challenger disaster. How it happened and why it happened. We all remember the story of the O-ring freezing, but what is probably not known are the events leading up to that fatal day. Several engineers at Morton Thiokal, the contractor for the single rocket boosters, had expressed concern to NASA officials regarding the integrity of the O-rings especially when temperatures dipped below freezing. For NASA’s sake, the Space Shuttle program was under pressure to make money and put payloads into space. A delay, especially due to one that was unknowable, was unthinkable. The consensus opinion was to ignore the findings of those few engineers or ignore the fact that the O-rings had never been tested at those temperatures.
The consensus prevailed. The Space Shuttle Challenger launched and blew apart after 73 seconds in flight.
For me, the questions are many. How did the consensus get it wrong? Why did they ignore the opinions, which were just as enlightened, of others? Was it the external pressures (i.e., having a viable program) of putting a rocket into space that blinded the consensus? How could so many people be so wrong? I often think of a bunch of old men sitting around a room congratulating themselves on a job well done. I guess there is safety in numbers.
This brings us to this article in the NY Times (see:”Inside the Fed in 2006: A Coming Crisis and Banter“) about the Federal Reserve in 2006. Essentially, no one saw it coming, and if they did, they could only spin it positively for the economy. How did so many smart people miss the greatest economic crisis of the last 70 years? The consensus opinion clearly was one of how strong the American economy was. Yes, it seem to be a lot of back slapping and good old boys. But no one had their hand on the steering wheel.
The consensus is not always wrong, but when the consensus ignores the potential for other outcomes, then it is time to be careful.
Category: Central bank
