HomeInvestmentThe Cost of Wishful Thinking on Inflation Is Going Up Too

The Cost of Wishful Thinking on Inflation Is Going Up Too

You would think by now that, informed by so many examples from history, we would be familiar with the stages of a policy disaster in the making. Calamitous wars and foreign-policy misadventures; economic, fiscal and regulatory blunders, costly social policy initiatives—almost all seem to follow the same pattern.

First denial, the refusal to accept the mounting evidence that we are on the wrong track. Next, complacency: Even when the inconvenient facts are reluctantly acknowledged, a misplaced confidence that a small adjustment is all that is needed to snatch victory from the jaws of defeat. When that fails, the policy maker turns to wishful thinking, a doughty insistence on expecting the best in the face of the worst—everything will be all right; we have a plan premised on all the best possible assumptions. This is the terminal stage: At some point the full extent of the catastrophe is evident.

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