Stephens at Chicago; effective organizations

Brett Stephens gave a great commencement speech (NYT link, HT Luis Garicano) at the University of Chicago. One part stood out to me, and worthy of comment. Bret starts with the problem of Groupthink:

Why did nobody at Facebook — sorry, Meta — stop Mark Zuckerberg from going all in on the Metaverse, possibly the worst business idea since New Coke? Why were the economists and governors at the Federal Reserve so confident that interest rates could remain at rock bottom for years without running a serious risk of inflation? Why did the C.I.A. believe that the government of Afghanistan could hold out against the Taliban for months but that the government of Ukraine would fold to the Russian Army in days? Why were so few people on Wall Street betting against the housing market in 2007? Why were so many officials and highly qualified analysts so adamant that Saddam Hussein had weapons of mass destruction? Why were so many people convinced that overpopulation was going to lead to catastrophic food shortages, and that the only sensible answers were a one-child policy and forced sterilizations?

Oh, and why did so many major polling firms fail to predict Donald Trump’s victory in 2016?

Conspicuous institutional failures are the question of our age We could add the SBV regulatory fiasco, the 2007 financial regulatory failure, the CDC FDA and numerous governments under Covid,  and many more.  Systemic incompetence doesn't just include disasters, but ongoing wounds from the Jones act to California's billions wasted on obviously ineffective homeless spending. 

The list is a bit unfair, of course. Selection bias: These are the grand failures, but large organizations occasionally produce some successes. For every Metaverse there is an iPhone, which I certainly thought a dumb idea at the time. And it's always easy to see idiocy with hindsight, but it's a lot harder in real time. De-growthing our economies and spending trillions in the name of carbon reduction will be seen, 20 years from now, either as a farsighted visionary move that saved civilization, or a grand collective delusion. Which is it? Who is the naked emperor and who is the little girl on the sidelines of the parade? Remember too that the gadflies are usually wrong. 

But the question on my mind is this: How do you structure large organizations to avoid such catastrophic mistakes? As an economist, and a macroeconomist at that, it's something I don't know anywhere near enough about. 

Bret: 

... Why is it that, when you bring together a lot of smart people in a room, their collective intelligence tends to go down, not up? Why do they always seem to press the mute button on their critical faculties when confronted with propositions that, as an old colleague of mine liked to say, ought to vanish in the presence of thought? 

It's not obvious people's critical faculties are impaired, but their incentives to speak out about them are. 

First, the problem isn’t that people aren’t smart. It’s that they are scared.

To yell stop when everyone else says go — or go when everyone else says stop — takes guts, and guts aren’t part of any kind of normal college curriculum. In my generation, the hardest people to say “no” to were the people who had professional power over us. In your generation, I think, it’s the people who are in your own ideological tribe. Whatever it is, how many of us, if we’re honest with ourselves, really have that kind of courage?

Second, there is the problem of rationalization — of smart people convincing themselves, and others, of some truly dumb things.

Robert McNamara, one of the original “Whiz Kids” and probably one of the brighter bulbs in 20th-century American public life, was one of the fathers of the Vietnam War when he was at the Pentagon, and of the Third World debt crisis when he was at the World Bank. Somehow, he always managed to convince the other smart people in the room that he was right. Will you be able to notice the underlying flaw in an idea when the arguments for it sound so persuasive?

 Or, he convinced them to silence their doubts and go along. 

Third, there is the psychological dimension.

Some people are inveterate truth seekers. They are almost congenitally willing to risk rejection, ostracism, even hatred for the sake of being right. But most people just want to belong, and the most essential elements of belonging are agreeing and conforming. ...the usual emotional companion to intellectual independence isn’t pride or self-confidence. It’s loneliness and sometimes crippling self-doubt.

This is insightful, but it's not getting us to the question on my mind: Why do some institutions seem more prone to groupthink disasters than others? Bret's final insight gets to that: 

here’s a fourth factor, maybe the most crucial. It’s culture. Does the culture of a society, or of an institution, encourage us to stand out or to fit in; to speak up or to bury our doubts? Does it serve as a conduit to groupthink, or as an obstacle to it?

I mentioned a moment ago that all of us like to think of ourselves as independent thinkers, even if comparatively few of us really are. There’s an institutional corollary. Nearly every American institution outside of certain religious orders claims to encourage open debate and — that awful cliché — thinking “outside the box.” Apple’s famous slogan, “Think Different,” was one of the most successful ad campaigns of my lifetime...

But, at least in my experience, very few institutions truly welcome it, at least when it exposes them to any sort of pressure or criticism, much less loss of social capital or potential revenue...

But this doesn’t always have to be the case. Institutions can, in fact, practice what they preach. They can declare principles, set a tone, announce norms and expectations — and then live up to their principles through regular practice. They can explain to every incoming class of students or new employees that they champion independent thinking and free expression in both word and deed. They can prove that they won’t cave to outrage mobs and other forms of public pressure, either by canceling invited speakers or by never inviting controversial speakers in the first place.

There’s a way this is done. It’s called leadership. You have one magnificent example of it right on this stage, in the person of John Boyer. And you have had a historic example of it in the person of Bob Zimmer. I want to say a few words about him.

That's as far as Bret goes, appropriately for a graduation speech at Chicago. So we have one answer to my question: Some institutions have cultures that welcome emperor is naked commentary, and most do not. Leaders can set cultures. 

I think this just scratches the surface. A college's free speech culture is nowhere near as consequential as a government making a decision to go to war, or any of Bret's other examples. Institutions eventually have to have mechanisms for coming to a decision, closing ranks and pursuing it. If you're going to go to war or not, you have to make a decision and not keep arguing about it forever. If you've ever participated in any group decision you know there are gadflies bringing up stupid points over and over, and if you have too much discussion you're never going to get anywhere. I think institutions in today's government are in CYA mode for good political reasons. The Fed doesn't have a groupthink culture because it wants to, but because in today's Washington admitting mistakes would lead to a completely ineffective institution under constant attack. Again, the gadflys are also mostly wrong too! 

I do think there are additional institutional structures that could help to promote good decision making. An official devil's advocate to big decisions, and making sure that isn't a career dead end is one useful concept I've heard of. But the larger question of just what those are remains something I'd like to know more about.