… here is the answer, courtesy of John Mauldin & MarketOracle (this “herding” applies equally to all Yes Men & empty suits – whether they be politicians, civil servants, corporate managers etc.) – Pavlov’s Bulls (Jeremy Grantham):
…those who danced off the cliff had enough company that, if they didn’t commit other large errors, they were safe; missing the pending crisis was far from a sufficient reason for getting fired, apparently. Keynes had it right: “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him.” So, what you have to do is look around and see what the other guy is doing and, if you want to be successful, just beat him to the draw. Be quicker and slicker. And if everyone is looking at everybody else to see what’s going on to minimize their career risk, then we are going to have herding. We are all going to surge in one direction, and then we are all going to surge in the other direction. We are going to generate substantial momentum, which is measurable in every financial asset class, and has been so forever. Sometimes the periodicity of the momentum shifts, but it’s always there. It’s the single largest inefficiency in the market. There are plenty of inefficiencies, probably hundreds. But the overwhelmingly biggest one is momentum (created through a perfectly rational reason, Paul Woolley would say): acting to keep your job is rational. But it doesn’t create an efficient market. In fact, in many ways this herding can be inefficient, even dysfunctional.
Keynes also had something to say on extrapolation, which is very central to the process of momentum. He said that extrapolation is a “convention” we adopt to deal with an uncertain world, even though we know from personal experience that such an exercise is far from stable. In other words, by definition, if you make a prediction of any kind, you are taking career risk. To deal with this risk, economists, for example, take pains to be conservative in their estimates until they see the other guy’s estimates. One can see how economists cluster together in their estimates and, even when the economy goes off the cliff, they will merely lower their estimates by 30 basis points each month, instead of whacking them down by 300 in month one. That way, they can see what the other guy is doing. So they go down 30, look around, go down another 30, and so on. And the market is gloriously inefficient because of this type of career-protecting gamesmanship.
Only 18 TD’s voted against this monstrosity; it doesn’t do one’s re-election (or post-resignation) prospects well to have to admit you screwed up, in supporting something so importantly wrong, previously. Just stick to the safety of the herd, and you’ll still stay on your career track for EU/corporate and Quango sinecures, and all your future pensions, perks and golden handshakes that come from being good Yes Men.