Part one: Beware the Experts!

Last week, I published a paper titled The Consensus Trap with two respected colleagues from Stanford University’s Hoover Institution. We joined forces to examine three of the greatest public policy failures of the last two decades - the Global Financial Crisis, COVID and the Global Campaign for Rapid Decarbonization. We sought common lessons, shared fault lines and possible solutions. We found a bunch of the former, but none more important than this: experts often fail. A simple corollary follows:  we must all be more analytically rigorous with the consequences of our intentions.

Scott Atlas and Steven Koonin – my co-authors – are respected academics in healthcare policy, and theoretical physics, respectively. Their peer-reviewed publications, speeches, research projects, university lectures and general contributions to academia are many multiples of my own. I tagged along as their financial counterpart because my former employers – UBS and BlackRock – had a lot to do with causing and then resolving the Global Financial Crisis. Beyond that, we three share an unlikely badge: we are each experts who other experts spurned. Like Scott with COVID and Steven with climate, I challenged a broad consensus about ESG investing when it was painful and highly unpopular to do so. I warned ESG investing as comprised in 2020 would never achieve what it promised. I also argued – then and now – that mindful investors should consider moving from ESG and sustainable investment vehicles to verified impact investing funds. Today, IEL is the market leader in impact fund verification. 

Epidemiology, securitization, greenhouse effects, Milankovitch cycles, virology and global capital markets are complicated – and that’s precisely the point of our paper. In search of simple answers to complex subjects, Occam’s razor is often overused. Stop providing capital to oil and gas companies and the weather will improve. If kids stay six feet away from other humans (including teachers, preachers and classmates) they will escape incalculable harm. Buy only AAA-rated bonds, and you never lose money. These positions all seem extreme in hindsight – but they didn’t back in the day. Why? Because the experts in charge didn’t respect the complexity of their situations sufficiently.

Financial experts assured us that high grade capital could be backed by loans that were all but       certain to default. Esteemed virologists insisted upon shutting down commercial activity until the global population – young and old – was vaccinated. Climate scientists insisted trillions of dollars be invested in unreliable renewable energy sources in lieu of other, already proven clean alternatives like nuclear and natural gas. 

In each of these three cases, appointed experts erred. Trillions of dollars were misspent or lost because of their misjudgments. Human suffering was magnified rather than muted - and the errant experts were never held to account.

What else did we find when we put the Global Financial Crisis, COVID and climate fears under examination? Something we call “noble lies.” 

Most people are moral and want to do good. This said, many roads to hell find fine intention in their pavement. Everyone wants to promote homeownership among the poor, prevent unnecessary death and illness, and keep our land, air and waters pristine. Most of those who wittingly and unwittingly led us into the Global Financial Crisis, COVID’s over-reaction and the purchase of two terawatts of solar panels from China are well-intending human beings. This said, issuing trillions worth of sub-prime debt, keeping kids home from school for 18 months straight, and denying self-evident tradeoffs between global growth and carbon emissions (something even Pope Francis warned about) all deserved more critical examination than they received at the time. Adding insult to injury, those who suggested otherwise were cast aside as cranks, malcontents and demons.  

Our Hoover paper will spark a lot of dialogue about which ongoing noble lies and reigning consensuses need more critical examination. (FWIW- endless deficit spending, unfunded retirement liabilities, AI regulatory-laissez faire, and excessive dark money in college sports are all on my list.) Our WSJ Op-ed published yesterday has already logged more than 600 comments. Heated debate will follow – we hope!

But as the title of this article suggests, I worry about a second derivative of our published work. Many have already concluded Steven, Scott and I are against human flourishing. They say we oppose more optimal policy outcomes and refuse to follow the facts – their facts. 

Silence will not be my response. I remain as fervently committed to using scientific inquiry, rigorous data and analytics to promote more optimal investment decisions for people and planet as ever. To learn how and why, you’ll need to read Part two of this extended essay.