The Iron Lady was sunk by her refusal to listen to critics. Photographer: Johnny Egitt/AFP/Getty Images
The Iron Lady was sunk by her refusal to listen to critics. Photographer: Johnny Egitt/AFP/Getty Images

After a string of successful privatizations, often conducted over the vocal objections of all the best people, U.K. Prime Minister Margaret Thatcher’s Conservative Party decided it needed to reform the taxation system that supported local governments. Back then, in the late 1980s, local councils were supported by property taxes, which fell hardest on affluent people in small households -- aka the activist base of the Tories. This would not only please the folks who ran local party operations, but also strike a blow against overbearing left-wing councils, which in some northern cities were run by actual Communists.

The reform they came up with was known as the Community Charge, a per-capita tax that we would call a head tax, and in Britain was popularly known as the Poll Tax. The riots that this new scheme sparked were therefore known as the Poll Tax Riots. The government was forced to do an embarrassing about-face and announce that the Community Charge would be replaced with another property tax.

Obviously, someone was wearing their Bad Idea Jeans. And you can argue that this was entirely predictable from the fact that very few governments use per-capita taxation. So how did it get made into actual policy?

There are a lot of reasons, some of them very specific to Britain in the late 1980s. But there are also some general principles that are worth drawing out.

The first is that a string of successes had bred overconfidence. In 1979, Britain’s economy was a moribund morass of state-owned firms and powerful labor unions that used such techniques as flying strikes to win gains for their workers at the expense of a productive economy. At one point, Britain was poorer than Italy, and when you read the history of British industry during the time, you can see why.

When Thatcher proposed breaking the unions and privatizing the lot, she was pooh-poohed by a lot of intellectuals, including some of the moderates in her own party. They were wrong about what effect her reforms would have, and that made her party ill-disposed to listen to them when they were right about the Poll Tax.

This bred a syndrome you often see in a group that is right about some big policy question: They assume that they are right about all big policy questions.

This is folly. All of us use ideological heuristics and analogies to assess the outcome of any potential policy. Those heuristics are necessarily crude compared to the exquisite complexity of the universe, and human society, and our analogies are necessarily imperfect. Not least because we each work from a limited set of analogies that we happen to be familiar with, not the full panoply of human history. So even if our heuristics are very good and our set of analogies is very rich, there is no way that they could even approach 100 percent accuracy.

Now, please don’t inundate me with e-mails about how your party is so much better than the other party. Let us concede, arguendo, that your party is much better at predicting policy outcomes than the other party. That doesn’t mean that it, or you, is perfect. The belief that you are an astoundingly accurate forecaster is not proof of your brilliance; it is proof that you have an especially strong case of hindsight bias. Which is why every time I mention that I predicted the housing bubble early or foresaw the problems with the Affordable Care Act exchanges, I remind you (and myself) that I also supported the Iraq War and thought Google Inc. was overvalued at its initial public offering. The only way to never make a bad prediction is to refuse to make predictions.

But back to the British government. This tendency to assume that you are loads brighter than your critics was emphasized because years under Thatcher had resulted in people who thought Thatcher was swell getting elevated over those who would rather take the party in a different direction. So while the government blinded itself to external criticism, its internal critical apparatus was muted as well.

Moreover, the policy was developed in comparative secrecy, the better to protect against the stupid critics.

The takeaway, as tired as it sounds, is that negative feedback is often more powerful than positive feedback. Organizations have a tendency to ignore Dr. No or, worse, fire him. But silencing your critics is a good way to set yourself up for total disaster. That doesn’t mean letting critics shut you down. But it does mean taking everything they say as seriously as the rah-rah sentiments of the policy cheerleaders.

To contact the writer of this article:
Megan McArdle at mmcardle3@bloomberg.net.

To contact the editor responsible for this article:
Brooke Sample at bsample1@bloomberg.net.