One night when I was in junior high, my recently retired stepfather was innovating in the kitchen. He was a burgeoning cook, with lots of time on his hands. Dinner that night was some sort of egg-based concoction, broiled on cookie sheets, with canned sardines mixed in, just for fun. After a few bites, my mom and I went out for pizza. My stepfather asked us to bring him back a calzone.
The broiled egg/sardine fiasco is an example of innovation gone wrong. There were no real consequences, though, aside from some food that went uneaten. But in different contexts, innovation gone wrong can really hurt - and ruin peoples' lives.
In my opinion, "innovation" is an overused buzzword. There's danger in this, because at its core, innovation is experimentation. And many experiments shouldn't be entered into lightly - like those that involve finance, especially at the consumer level.
The current recession reflects the consequences of experiments in finance that go badly. I am glad that as a nation we are shining a light on the way exotic financial instruments, arguably the fuel for the meltdown, were mismanaged. But I think we'd lose the sliver of silver lining presented here if we didn't step back and seriously consider a new policy framework for innovation (experimentation) in financial markets.
There is a raging debate in Washington over how financial institutions and products should be regulated so we can better avoid future meltdowns. This debate is critical for the nation's fiscal health. But before we start writing new regulations, I believe we need to pause and establish some core policy principles, rooted in the notion of first doing no harm. The abundance of harm in this economy makes this obvious, at least to me. The pain of Americans going through this recession is a visceral reminder of what happens when experimenting in financial markets happens without any thought of the ramifications, or consequences for "innovators" who plow ahead knowing the damage they might cause.
Some of my banker pals are probably unfriending me on Facebook right now, muttering something about the solution being in the marketplace, not government. But really, how can leaders in finance tell Americans, with a straight face, that they have all the answers after everything that's happened? That's like inviting you over for dinner and serving broiled eggs and sardines from a cookie sheet.