The Failure of Common Knowledge
It takes a shockingly long time for the masses of people to pick up on new realities. This is especially true if the new realities reverse very old trends that have burrowed certain false assumptions in our minds.
As examples, most people even today assume that you should:
- get as much formal education as possible
- buy a house as a solid investment
- look to the stock market as an economic barometer
- trust the Fed as the nation’s money manager.
Another thing that everyone knows: Prisons keep us safe from predators.
But what if all of these things are wrong, and not just a bit wrong, but wholly incorrect? What if in fact the reverse is true? What if, for example, hanging around in school for as long as possible is the worst life step you can possibly take? What if the real criminals are still in the streets, and most people behind bars are not really threats to anyone?
It would be helpful to have a one-volume book that takes on all these misnomers and presents the bracing reality in light of our changed times.
This is precisely what The Failure of Common Knowledge by Doug French does. It applies economics and contemporary facts to upend many common assumptions people make about critical life decisions. He shows that the common views do not take account of the real costs and risks — or the actual facts on the ground in our crazy, mixed-up world.
For many decades, for example, young couples have believed that buying a house was a great way to invest money and start accumulating capital. Problem: The housing crisis is not yet resolved. There is a good chance that the house will go down in value.
Not only that: In a market setting, a house should naturally depreciate over time. What we saw for decades was caused by government intervention. Plus, a house is a gigantic restriction on the range of choice people have about where to live. It can also be a money pit for endless accumulation and spending. It can actually ruin your life.
As a banker in the boom times, Doug saw firsthand how people’s wrong assumptions about how life should work left massive carnage and ruined lives. Today, millions struggle with underwater homes, underwater student loans, and underwater investment portfolios. They believed the propaganda being dished out by government and special interests, rather than thinking for themselves.
Consider how long the error lasted. Since probably the 1920s, housing ownership has enjoyed unjust praise. Every president made it a policy priority. I recall in the 1980s how Jack Kemp made house ownership a pillar of his political ideology. He often implied that it was the key to freedom itself. The suggestion was that somehow renters couldn’t really be good citizens.
The whole thing was nuts. And it created a gigantic bubble that grew and grew…until one day it exploded. The explosion threatened to take down the entire financial system. Even a year after the explosion, real estate developers were still in denial. They somehow it was just temporary. After all, how could so many have been so wrong for so long?
Well, young people have gotten the message. When they set out on their professional careers, they are avoiding mortgage debt. They are keeping the possessions low. They are renting not only residential space but also furniture. This way they stay free, independent, and flexible. It represents a dramatic change — and one far more in keeping with the market realities.
The other place for our money is supposed to be Wall Street. We’re told the stock market is efficient, reflecting the strength of the American Way and is a way for the average guy to participate in the bounty of capitalism’s production. In the long run, nothing can go wrong. The Federal Reserve can make any bust temporary with just the right interest rate and finely tuned amount of money creation. Keep stuffing money in that 401k and you can wake up at retirement age a millionaire.
The cruel reality: the opposite is true. Fed policy has turned the stock market into a crap shoot, leaving only the lucky to retire in comfort, while the rest toil at any sort of job they can find in old age until they drop.
The education bubble is not yet exploded but the time could be coming. The expense is enormous and disproportionate to the advantage. The opportunity costs of education are huge in a professional sense. For a century, the goal has been to keep kids at their desks, but this has not been a good thing. The best entrepreneurs of our time are drop outs who couldn’t stand the conformism of the academy.
Look for education to be the next pillar of conventional wisdom to come crashing down.
Then there’s the prison problem. Most of the people in the can never hurt anyone. And yet the U.S. has the world’s largest prison population — a reflection of the growing police state. More and more of us know someone who landed there for no good reason. Is this making us safer? No. And French shows why.
This book is a training guide for how to navigate a very confusing economic environment. Its lesson: Do not trust the common knowledge to run your life. The common knowledge has proven to be spectacularly wrong. Why let it manage your life?
You have to think for yourself to avoid the traps that special interests have set up at every turn. You have to subject “what everyone knows” to critical standards of rationality and economic logic.
Doug’s book is a primer for starting this process now. It is helpful for anyone of any age who seeks to avoid disastrous life decisions and get on the road to independent thinking, financial soundness, and a better life. You can get it right here or join the Club to get it for free.
Original article posted on Laissez-Faire Today