Seeing the world as chaos, devoid of rules or logic when the capital and commodity markets go into a tailspin and the economic outlook is grim is a potent temptation. But it’s a mistake to think that order has run off the rails.
The problem has been hubris—an excess of hubris. The comeuppance is now upon us, and the process of a return to modesty, humility and a healthy respect for risk in money management is in full swing. This comes as a great shock to many investors. But to say this is something new is to ignore history.
Financial calamity is always lurking. As Kindleberger put it, financial crisis is a “hardy perennial.” Sometimes it’s kept at bay for years, even decades, but eventually the beast returns. Painful as this recurring truth is for those who must live through it and watch hard-earned savings wither, there can be no other path.
Don’t misunderstand. The pursuit of progress in economics and portfolio management must continue, and will continue. We’re not doomed to sit on our hands and let the financial gods do what they will with us. We can and will advance the cause of intelligence on these fronts. Indeed, we’ve learned much over the past 100 years. Yet greed and fear are immune to knowledge and wisdom, much as the common cold is resistant to the miracle that is medical science.