Risky Business

In the eighth chapter of John Kenneth Galbraith's The Affluent Society he begins to discuss the issue of economic security and risk management. In the wake of the past couple weeks I found it interesting that the discussion in the book is markedly different from the trends in business nowadays, perhaps having to do with a significant change in the conventional wisdom from 1958 until now?

Risk minimization as well as companies not being tied to the success or failure of any individual was more prominant when he initially wrote this. In the middle of page 84 he claims, "no individual is powerful enough to do much damage...the organization is independent of any individual." This I would tend to disagree with. Part of the rationalization of giving these executives these massive salaries and the power to make all the major decisions in the companies is the belief that they can make a difference. Their presence is proof that the company and the market value their talents and that differing talents produce different results. If it didn't depend on their talent then there would be no reason to pay them exorbitant amounts in order to keep them from leaving the company and gaining a more lucrative position in another big company.

After his outdated discussion on individuals he begins to talk more about the risk aversion that companies have been moving towards. He talks about how the companies don't need to seem as though they are minimizing risk because they want to portray the image of security as inherent. This behavior is ironic because of the recent failures in the banking industry of potentially harmful decisions that the big wigs have made to be less risk averse. These decisions have lead to the problem of whether or not it is appropriate for the government to offer them a helping hand since they wanted to seem secure without overt government aid like the companies Galbraith is discussing. The myth of the large business corporations "living dangerously" has come true. When Galbraith's was writing "almost no large industrial corporation in the United States, which is also large in its industry, has failed or been seriously in danger of insolvency in many years. Where there has been danger, the government has come to the rescue (85)." Now we see that this is a collapse where the government has to make a decision whether or not to be that aid that he speaks of. His claim is that since everyone has become more risk averse that the companies have followed suit and did so because it was setting a good example.

My question is would he still support a bailout of this magnitude? In talking about the changing of the conventional wisdom he claims that the changes only occur when there is a significant course of events that forces us to reconsider the conventional wisdom because it is becoming more and more divorced from the reality of events in our society (11). Is this "march of actions", meaning the failing banks and faltering financial industry, a significant enough divorce from the conventional wisdom that we should alter our beliefs and possibly look to other sources instead of the government for our solution or have we reverted back to this belief now that our conventional wisdom is more mature? Sometimes you just gotta say, What the Heck, make your move. It's your move, Congress.