Pinacle Mountain
Conventional wisdom
“Conventional wisdom” refers to widely accepted, often unexamined, beliefs within a society or field. While appearing as early as 1838 to mean common knowledge, the phrase was popularized and defined in its modern context by economist John Kenneth Galbraith in his 1958 book The Affluent Society to describe ideas favored for their acceptability rather than their accuracy.
History and Evolution
- Early Usage (1838): The phrase appeared as a synonym for “commonplace knowledge” or “accepted beliefs,” used in various contexts before the 20th century.
- Galbraith’s Coining (1958): Economist John Kenneth Galbraith is widely credited with coining the modern usage in The Affluent Society. He specifically used it to describe how ideas become “esteemed at any time for their acceptability”.
- Refinement of Meaning: Galbraith emphasized that “The” conventional wisdom refers to ideas that are comfortable and predictable, often resisting new facts that might challenge them.
- Modern Usage: Today, the term is used in political, economic, and social contexts to represent the dominant, often unchallenged, consensus.
Key Characteristics
- Resistance to Change: The conventional wisdom is often defended with intense loyalty and is used to explain complex topics through simple, widely accepted narratives.
- Institutional Adoption: It can represent long-accepted expert opinions within institutions, sometimes restricting creative, new solutions.
- Drawbacks: Because it is accepted without question, it can make it difficult to think creatively, leading to reliance on outdated information.
Analysts Are Slow to Recognize a Crisis – WSJ
There’s an old joke about two economists walking down a busy street. One points to a $20 bill lying on the sidewalk. The other one keeps walking since, if it was really there, someone would have picked it up already.
Market efficiency is one of the most important ideas in finance, but investors can take it too literally. It’s possible the stock market’s mild reaction to the war in Iran—the S&P 500 is down by just 3.9%—reflects everything smart people know about the conflict’s economic effects.
Just as the market is prone to overreact, though, it can be surprisingly slow to grasp the gravity of a really major crisis. A big reason is psychological: It takes lots of evidence to convince people something unthinkable might be about to happen like major banks collapsing, a pandemic or actual fuel shortages.
Another culprit is our misplaced faith in Wall Street’s small army of well-paid seers. Five weeks seems like long enough for estimates of the damage from an energy shock to seep into analysts’ forecasts, but that isn’t how it works.
The Catskills from Cheese Hill Road
