Thursday, December 31, 2009

The decade of short memory

Ingrid Bergman once said that “happiness is good health and a bad memory”. I beg to differ. At the risk of challenging the philosophical and emotional authority of a Hollywood celeb, I’d argue that forgetting, say, the name of a senior manager at your company’s Christmas party, or driving off with someone else’s sports car after the parking valet (and you!) confused it for your own rental, are not exactly “happy moments” once you account for the consequences.

But worse than a bad memory is a short memory. And in the spirit of the general pontification on the decade that is about to go by, let me say that this was the decade of short memory par excellence.

Take national security: Short memory in the context of a few years of “terror-free calm” on US soil is in part to blame for the spectacular blunder that allowed a guy with explosives wrapped around his body to board on a US-bound airplane. Short memory (or shall we say ignorance of history?) was also behind the failure of US intelligence to grasp the threat to national security from Afghanistan’s internal instability and socio-ethnic fragmentation back in 2001.

Basically, short memory drove us away from the big picture, compromised our forward-looking vision, compartmentalized our focus and prevented us from connecting the dots at critical moments.

Compartmentalized focus… failure to connect the dots… Tell me you see the parallel with our blunders in the sphere of finance! As it happened, short memory led investors to flout growing signs of asset bubbles and flock into investments that, in retrospect, seemed absurd. Short memory drove traditional “financial fire brigades” like the IMF to near extinction, after a few crisis-free years bred a belief in countries’ economic impregnability. Short memory even afflicted such intellectual masters as Ben Bernanke, who coined the term “Great Moderation” in describing our new era or “stability” and “prosperity”.

Now, failing to prevent major blunders is one (bad) thing… Allowing our short memory to define our (knee-jerk) response is still another. Yet, in this very spirit we were quick to adopt a preemptive-strike doctrine, invade Iraq, seal our windows with duct tape and, lately, prohibit airline passengers from covering themselves with a blanket *one hour* before a plane’s landing!

Economic policymakers are barely faring better: Short memory against the backdrop of the stunning “failure of capitalism” has brought (some of) us back to Keynes’ arms, has triggered calls to reinstate the Glass-Steagall Act and has even led to doubts about the Fed’s independence. Short memory even discouraged some traumatized investors from getting back into the stock market earlier this year, costing them the opportunity of a +68% turnaround.

What’s to be done?? Needless to say, after my sports-car gaffe I searched avidly for solutions. I settled on a two-pronged approach, so let me throw it out there as food for thought:

The first part consists in developing a solid understanding of the past (beyond the superficial wiki-memorizing)… “Getting to know your rental car before you valet-park it” can arguably take you far in avoiding the next parking blunder... So will “getting to learn the history of international relations” or “getting to study past financial crises from their onset to their resolution” in the arenas of national security and economic policy.

But in-depth knowledge of the past is not enough. Maintaining a forward-looking vision is critical, and here our short memory can be a major obstacle. So here is my latest trick: Behave as if my memory is totally and utterly unreliable!

The idea is to free the thought process from any recent exuberance or trauma, by being very skeptical about the reliability of that experience as a guide for the future. This can help prevent the often-misguided extrapolations of the future from the recent past, allowing a more sober decision-making process based on fundamental principles and the bigger picture.

Problem is, a complete self-imposed disbelief in your own memory is very hard to achieve, both at an individual level, let alone by an entire Congress. Coming to think of it, maybe Ingrid Bergman’s plea was right after all… happiness may indeed rest on a truly bad memory… provided that we’re aware of it!

Best wishes for a happier, even a memorable new decade!

1 comment:

Anonymous said...

Amazing, I too drove away with someone else's car once, only the car that was left behind was mine! Nightmare! Happy new year, great blog, keep it up!