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Key Softpanorama Topics
|About||Contents||Top Updates||Top Visited|
|Bulletin||Selected Papers||Softpanorama Bookshelf||History|
|News||Science, Pseudoscience and Society||Recommended Links||Conformism||Conformism pressures in large organizations||What's the matter with Kansas|
|Cargo Cult Science||Introduction to Lysenkoism||Scientific Fraud Caused by Social Pressures||Pollyanna creep||Belief coercion within religious groups||Disciplined Minds|
|Confirmation bias||Workplace mobbing||Cognitive Regulatory Capture||Propaganda||Pseudoscience and Scientific Press||The Real War on Reality|
|Bureaucracy as a Political Coalition||Bureaucratic avoidance of responsibility||Bureaucratic Collectivism||Bureaucracies||Bureaucratic ritualism||Does the Government Bureaucracy Stifle Innovation?|
|Gaslighting||Financial Groupthink and 401K investors||Corporate sociopaths||Bully Managers in IT Workplace:||Humor||Etc|
"Those who can make you believe absurdities can make you commit atrocities."--Voltaire
"It is dangerous to be right in matters on which the established authorities are wrong."
"Once spirit was God, then it became man, and now it is even becoming mob."
Friedrich Wilhelm Nietzsche
Etymology: 1group + -think (as in doublethink): a pattern of thought characterized by self-deception, forced manufacture of consent, and conformity to group values and ethics
Groupthink is a term coined by social psychologist Irving Janis (1972), occurs when a group or individual makes faulty decision(s) because social pressure in the group to which individual belongs lead to a deterioration of “mental efficiency, reality testing, and moral judgment” (p. 9).
So this is social pressure that went into such overdrive that crashes sanity of normal person ("for example war histreria), or normal level of social pressure, but applied to individual when he is in condition that weakens his ability to resist such a pressure.
There several similar terms with the most popular alternative term being "political correctness", conformism (which is more of a trait of the person as in inability to withstand group pressure), “herd mentality” and, satirically, “Freedom Fries” mentality.
The term groupthink is more related to the issues of social pressure within social groups, while a similar term conformism is more related to the propensity of some individuals too easily succumb to group pressure. While in minimal dozes necessary for group functioning groupthink is a double-edge sword and excessive amount of groupthink typically endanger both the group and affected individual.
Groupthink is essentially a natural mechanism (humans are social animals) related to a spontaneous consensus-seeking tendency in groups, attempt to find the balance between interests of the individual and the group. An intersection between interests of the individual and the group can be called the collective self-interest of the group, and it plays the role of the glue that binds members together and strengthens the group. And so this self-interest is a powerful binding force that is woven into the dialog and the slang used by the group to amplify its separate identity.
There are three basic premises of groupthink:
Individual actors on social scheme adjust their actions based on both pressures and contributions of others as well as the way they view the social scene. The latter is connected with the important concept of reference group.
Groupthink is a defining feature of the current social order -- Corporatism in its various forms. It is cultivated by state using powerful propaganda mechanism. It emphasizes the rule by elites and adherence to the state. The modern USA is actually a nation of conformists to the extent that would make even Soviet citizen shrug. As John Ralston Saul noted in his (The Unconscious Civilization):
"new all-powerful clockmaker god - the marketplace - and his archangel, technology. Trade is the marketplace's miraculous cure for all that ails us. . . I would suggest that Marxism, fascism and the marketplace strongly resemble each other. They are all corporatist, managerial and hooked on technology as their own particular golden calf." Pp19-20
Corporatism, asserts Saul, creates conformists who behave like cogs in organizational hierarchies, not as responsible citizens. Moreover, today's managerial-technocratic elite, while glorifying free markets, technology, computers and globalization, is, in Saul's opinion, narrowly self-serving and unable to cope with the economic stagnation (aka permanent recession).
People differ in the level of acceptance of interests of the group as their own. Again, extreme cases in which individuals tend to demonstrate more or less blind, uncritical acceptance are called Conformists. Each person has some "built-in" level of conformism and this susceptible to groupthink, but when this tendency overshoot and not balanced by personal interests, intellect and understanding of different existing group factions (which often happens in case of presence of strong, charismatic leader) the results for the particular group member (and sometimes the group as a whole) of such a blind devotion can be quite devastating: group members lose any control over the direction and activities of the group make it ruled by a leader, effectively turning group into a sect.
Janis gave the following definition of Groupthink:
A mode of thinking that people engage in when they are deeply involved in a cohesive group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action.
Groupthink as a side effect of cohesiveness in groups was first discussed by Lewin in the 1930s. It is an important factor to consider in decision processes, such as election complains, boards of directors, committees, workshops, meetings, conferences, etc.
In academia groupthink tends to create lasting intellectual empires were consensus is not result of seeking truth but is the result of intergroup pressures typical for groupthink. Which can even outlast the initial charismatic leader.
Certain conditions are conducive to Groupthink. Among them:
The Internet has emerged as the crucial location for political activities such as volunteer recruitment, fund-raising, and, above all, "conversation" if one can accept that as a euphemism for the churning mess of interconnected blogs, most of them partisan, that every day are looking for opportunities to score points against their enemies. In their 2006 book "The Way to Win", veteran Washington journalists Mark Halpern and John Harris give a colorful and evocative name to this style of groupthink in politics: the Freak Show. The chief appeal for the viewer in a freak show is not information but rather a peculiar brand of entertainment.
|The chief appeal for the viewer in a freak show is not information but rather a peculiar brand of entertainment.|
For example, the monitoring of the political contest before the elections if often done not on key issues, but in "who hit whom" manner, that is similar to manner as one keeps scores in a boxing match. A daily assemblage of tiny ad hominimum stories about politicians (nanostories) became another typical feature of Freak Show.
The word "Freak" in the term "Freak Show" suggests the tendency in modern political discourse, where elite interest are protected by swayed away electorate from key issues with second rate issues, presented as primary. This was it is easier to force people to vote against their economic interests (the situation, which is reflected in a catch phase "What's the matter with Kansas") . Due to high effectiveness of this strategy, it is no exaggeration to say that in modern politics Freak Show became the whole show. See also Two Party System as Polyarchy
The following negative outcomes of Groupthink are typical:
A few methods to prevent Groupthink are:
What are typical symptoms of Groupthink?
Janis listed eight symptoms that show that concurrence seeking has led the group astray. The first two stem from overconfidence in the group’s powers. The next pair reflect the tunnel vision members use to view the problem. The final four are signs of strong conformity pressure within the group.
- Self-Censorship: people only offer equivocal or tempered opinions. Not seeking expert or outside opinions. Feeling pressure to conform within group; members withhold open criticisms.
- Illusion of Invulnerability, group Exceptionalism: Janis summarizes this attitude as ‘‘everything is going to work out all right because we are a special group." In reality group is engaged in quasi-religious, detached from reality thinking and ignore (often to its peril) important facts or alternatives.
- Belief in Inherent Morality of the Group: under the sway of groupthink, members automatically assume the rightness of their cause. If some facts counter this perception they are brushed away or written down as accidental "bad apples".
- Collective Rationalization: A delusion of behaving and observing rationally while being highly selective in gathering information.
- Out-group Stereotypes. Perception of external world as a aliens that cannot understand and appreciate the "cause" the cements the group.
- Illusion of Unanimity. Individual group members look to each other to confirm theories.
- Direct Pressure on Dissenters. Pressure to protect group from negative views or information.
- Self-Appointed Mindguards: these ‘‘mindguards" protect a leader from assault by troublesome ideas.
As we mentioned before on individual psychology level this phenomenon is often studies as conformism. (See famous Asch conformity experiments, were people frequently followed the majority judgment, even when the majority was wrong.).
Groupthink often occurs when group members become so focused on achieving concurrence that the search for consensus overrides any realistic assessment of deviant or unpopular views. It represents a deterioration in an individual's mental efficiency and ability to perceive the reality as a result of social pressure.
Groups affected by groupthink tend to ignore alternatives and take irrational actions. This is typical for religious groups such as cults. As an individual is especially vulnerable to groupthink when he/she is insulated from outside opinions, enforcing such an isolation is typical strategy of so called "high-demand" cults. See
Groupthink dominate many scientific and engineering disciplines such as economics which for an outsiders are the beacon of academic freedom. The key job requirement for an economist is "ideological conformity", or the ability to exercise creativity within firm political limits.
The book Disciplined Minds develops this argument in quite an illuminating way. The first part that includes discussions of jurors (professionals for a week), imposters, and disbarred attorneys. But the main topic is the “assigned curiosity” of physicists, who tailor their work to receive government funding and then hide the military applications of their research behind technical language. Professionalism in our society becomes more and more centrally controlled, the way that reminds control exercised in the USSR. The process of selecting and schooling professionals became by its nature more a mean to weed out potential troublemakers then select the most qualified candidates.
Explanation of Theory: The result when group cohesion leads all members of the group to abandon realistic evaluation of the situation and follow the corporate group ideal.
Janis, I. L, (1972). Victims of Groupthink: A psychological study of foreign-policy decisions and fiascoes (2nd edition). Boston: Houghton Mifflin.
Groupthink is a theory that was developed in hindsight. All of the examples given in the original theory were offered post hoc which is problematic. Since its inception it has been revisited and studies have raised viable questions about the validity of the assumptions made in groupthink.
Being a Scientific theory the following metatheoretical assumption should be advanced.
Scientific research suggest that human nature is deterministic. Humans do not have control what they do.
Scientific research suggests that there is one truth, or big "T" truth.
Research should not be value laden. Research offers objective results.
Being a Scientific theory it should be critiqued using Chaffee & Berger's criteria.
- Explanatory Power -- Groupthink offers a concrete definition of what will happen when groups become cohesive.
- Predictive Power -- Groupthink offers a explanation that if a group becomes cohesive the group will make bad decisions.
- Parsimony -- Groupthink is a very simple theory that states a cohesiveness within a group will lead to poor decision making in the group.
- Falsifiablity -- Groupthink is a little short in this category. There were no original criteria for groupthink so it is hard to test. However, some researchers have attempted to develop a scale to test groupthink.
- Internal Consistency -- Groupthink is argued by many researchers. Some agree but new research suggests that groupthink should be re-developed because it is not matching the current research on effective decision-making and cohesiveness.
- Heuristic Provocativeness -- There are several new hypothesis that can be offered about what happens in cohesive groups. Researchers are working on new ideas as we speak.
- Organizing Power - A major drawback on groupthink is there was never a specific set of criteria of what groupthink is so that it could be tested. There were only symptoms to be interrupted by the researcher looking a group's decision.
Ideas and Implications:
It is very important to understand groupthink because of the implications of groups in today's society. We need to know why and how groups make bad decisions and groupthink offers one explanation. However the theory of groupthink should be carefully examined before it is offered as the sole truth of what happens in groups.
The Abbaline Paradox
Hart, P.T. (1998). Preventing Groupthink Revisited: Evaluating and Reforming Groups in Government. Organizational Behavior and Human Decision Processes, 73, 306-326.
Rothwell, J. D. (1998). In mixed company: Small group communication. Fort Worth, TX: Harcourt Brace.
Schafer, M. & Crichlow, S. (1996). Antecedents of groupthink: a quantitative
study. Journal of Conflict Resolution, 40, 415-435
Whyte, G. (1998). Recasting Janis's Groupthink Model: The Key Role of Collective Efficacy in Decision Fiascoes. Organizational Behavior and Human Decision Processes, 73, 185-209
Location in Eight (8) Primary Communication Theory Textbooks:
Anderson, R., & Ross, V. (1998). Questions of communication: A practical introduction to theory (2nd ed.). New York: St. Martin's Press. N/A
Cragan, J. F., & Shields, D.C. (1998). Understanding communication theory: The communicative forces for human action. Boston, MA: Allyn & Bacon. N/A
Griffin, E. (2000). A first look at communication theory (4th ed.). Boston, MA: McGraw-Hill. N/A
Griffin, E. (1997). A first look at communication theory (3rd ed.). New York: McGraw-Hill. 231-
Infante, D. A., Rancer, A. S., & Womack, D. F. (1997). Building communication theory (3rd ed.). Prospect Heights, IL: Waveland Press. N/A
Littlejohn, S. W. (1999). Theories of human communication (6th ed). Belmont, CA: Wadsworth. N/A
West, R., & Turner, L. H. (2000). Introducing communication theory: Analysis and application. Mountain View, CA: Mayfield. N/A
Wood, J. T. (1997). Communication theories in action: An introduction. Belmont, CA: Wadsworth. N/A
The Challenger space shuttle explosion. The Bay of Pigs invasion. The Korean War debacle (Janis 1-28). These are examples of situations where group communication failed. Group communication involves a shared identity among three or more people, a considerable amount of interaction among these people, and a high level of interdependence between everyone involved (Trenholm 196-97). It is essential to understand group dynamics for a variety of reasons. Everyone participates in groups throughout the course of a lifetime, and these groups are often very goal-oriented. The business community, non-profit organizations, and town governments all use groups to make decisions. Sometimes a condition known as Groupthink can occur in groups that are extremely task-oriented and goal-driven. Groupthink is as "a mode of thinking people engage in when cohesiveness is high" (Blumberg and Golembiewski 134). Groupthink leads to poor decision making and results in a lack of creativity. Although Groupthink has been studied extensively, many people are unaware of its dynamics and the consequences that they might induce. This paper was designed to raise awareness about Groupthink and to provide some suggestions that can help task-oriented groups avoid this condition. To understand Groupthink it is essential to have a basic familiarity with group communication dynamics. Once this is accomplished some symptoms of Groupthink will be explored and some solutions will be offered.
Lots of work has been done on the subject of Groupthink, but the most authoritative documentation on the subject can be discovered in the works of the founder of the concept, Irving Janis. Janis, in his book Groupthink, defines the terms involved and presents examples. Beyond Groupthink is a text written by Eric Stern et al. that deals with Groupthink in small groups. The authors believe that a certain amount of Groupthink can be beneficial in small groups. Articles involving Groupthink have also appeared in the Wall Street Journal and various other publications.
Goal-oriented groups consist of people with complementary skills who are committed to a common purpose, have specific performance goals, share a common working approach, and hold mutual accountability (Wertheim 2). These types of groups are used when there are complex problems to be solved, important situations to work through, or uncertain conditions. Groups function best when there are no immediate time pressures (Wertheim 2). Groups are successful because the group members bring diverse ideas, the collective knowledge of everyone is significant, and groups tend to be focused (Wertheim 2). There are certain situations which call for the use of groups. Groups can be beneficial when communication between departments is necessary in a business setting or when the consent of many people is required (Wertheim 3). Individuals can also benefit from group participation. Many people who work in groups are able to learn new skills, take risks, get feedback, and discover personal strengths and weaknesses (Wertheim 3).
Groups must accomplish tasks that individuals cannot. This is the primary function of groups. Effective groups consist of committed members who are willing to take accountability for the actions of the group (Wertheim 3-4). At Northeastern University an academic program has been developed to facilitate group communication. The University believes that effective groups are characterized by a sense of urgency and direction, a following of a set of rules, understanding of what the problem or issue is that needs to be solved, a shared sense of leadership, an ability to brainstorm, and a cohesive climate (Wertheim 4). Effective groups need to have clear goals, mutual trust among all participants, accountability shared by everyone, external support, and training (Wertheim 4-5).
Irving Janis did lots of work in the area of group communication. He wondered why intelligent groups of people sometimes made decisions that led to disastrous results. Janis focused on the political arena. He studied The Bay of Pigs conflict, The Korean War, Pearl Harbor, The conflict in Vietnam, The Cuban Missile Crisis, makings of The Marshall Plan, and Watergate (Janis 9-13). Janis was puzzled by the inability of very intelligent people to make sound decisions. His answer was a condition he termed Groupthink.
Janis defines Groupthink as a "a quick and easy way to refer to a mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action" (Janis 9). Janis further states that "Groupthink refers to a deterioration of mental efficiency, reality testing, and moral judgment that results from in-group pressures" (Janis 9). Groupthink can lead to bad judgments and decisions being made. It serves as a simple way to deal with difficult issues.
The symptoms of Groupthink are clear. The "illusion of invulnerability" happens when a group thinks that they cannot go wrong. Confidence among the members of the group is remarkably high and is reflected in the decisions that they make (Keil 1). A "belief in inherent morality of the group" occurs when the group thinks tremendously of their morality. The group believes that it is doing the right thing in all circumstances. "Collective rationalization" is another symptom of Groupthink. Groups who experience this believe that nothing can be wrong with their plan even if there is significant evidence to prove otherwise (Keil 2). A lack of creativity and a disregard for others' options is a characteristic of groups with "out-group stereotypes." Groups often pay little attention to what outsiders have to say, and this can be detrimental (Keil 2). "Self-censorship" occurs when group members don't share their ideas with the rest of the group because of fear of being rejected (Keil 2). The "illusion of unanimity" explains that silence can often be interpreted as acceptance. All of these are symptoms of Groupthink. If one or more of these are commonplace in a particular group, change must occur.
Janis offers many suggestion to help prevent Groupthink. An easy answer is to put one person in charge of making all decisions and dealing with problems. This is not desirable in most cases, however (Janis 260-61). Groups are often able to accomplish tasks more rapidly and precisely than individuals can (Cartwright and Zander 56-57). The distribution of power in a group usually assures that no single person is able to take control. The plan of one person is more likely to be flawed than the plan of a group. More people inputting their opinion will help the group formulate a creative and complete plan.
One way of preventing Groupthink is to make each member of the group a "critical evaluator" (Janis 262). Group members will attempt to find problems in group solutions by evaluating them individually. The leader must accept criticism if this is to work (Janis 262). But making each member of the group analyze solutions individually is problematic. Group members can spend too much time debating when there is an important deadline. Feelings can be hurt when the ideas of individual group members are criticized. Some group members may not have the skills to think critically about the presented solutions (Janis 262-63).
Leaders who assign tasks to a group must be impartial and must not lead the group to believe that a certain outcome is expected (Janis 263). Group members will not attempt to conform with beliefs of the leadership if they are unsure of what the leader wants. Problems arise because the leader often feels that there is no centralized control within the group.
Many different groups can work on the same problem under separate leaders (Janis 264). Every group would come up with different ideas, and the pressure to conform is not as great. In some instances security can be a problem. Information is more likely to leak out if more people are aware of the information. Problems also arise when a group assumes that another group will examine the pieces to the solution that have been missed. It is much easier to allow someone else to complete the task (Janis 264-65). When only one group is working on a particular problem this doesn't happen.
Groups should divide into two or more subgroups occasionally (Janis 265). Each group should be led by a different chairperson. Both groups can eventually come together and discuss ideas. Groups that do this are less likely to be locked into one solution.
Outside experts can be brought in to observe the group functioning (Janis 266). The experts should have the ability to question the decisions of the group. The experts need to be very qualified and skilled in their ability to sort through and analyze solutions of the group. The experts must also be able to criticize the group in a fashion that will not turn the group away from the expert. Good communication skills are essential. It is important that experts become a part of the group before a general consensus is reached among all group members (Janis 266).
Every group should include a specific member who has the job of playing "devil's advocate." This person should seriously question much of what the group members say. The "devil's advocate" must be willing to vocally share his ideas with the rest of the group (Janis 267). This strategy will force the group to take a second look at every decision that is made. The "devil's advocate" of the group must be taken seriously and be allowed to speak at will if this strategy is to be effective.
Having been a part of many groups myself, I believe that the best way to avoid Groupthink is to have an understanding and awareness of it. Groups that constantly question decisions are likely to never encounter Groupthink. Groups are useful and necessary in many situations. They often solve problems that individuals cannot. Groupthink can limit the value of groups. Groupthink problems can be recognized by identifying a set of characteristics including an illusion of invulnerability, self censorship, and others. Janis recommends many strategies for avoiding Groupthink. Groups can assign the role of critical evaluator to each member, divide into subgroups, invite experts to sit in on meetings, and so on. Groupthink is a problem that can have destructive consequences. If group members are aware of Groupthink and are constantly checking for it the damaging effects of this condition can be avoided.
Back to essays
Confirmation bias is a strong tendency of people to search for or interpret information in a way that confirms one's preconceptions, independently of whether they are true or false. People can reinforce their existing attitudes by selectively collecting new evidence, by interpreting evidence in a biased way or by selectively recalling information from memory. People tend to test hypotheses in a one-sided way, focusing on one possibility and neglecting alternatives.
People display this bias when they gather or remember information selectively, or when they interpret it in a biased way. The effect is stronger for emotionally charged issues and for deeply entrenched beliefs. They also tend to interpret ambiguous evidence as supporting their existing position. Biased search, interpretation and memory have been invoked to explain attitude polarization (when a disagreement becomes more extreme even though the different parties are exposed to the same evidence), belief perseverance (when beliefs persist after the evidence for them is shown to be false), the irrational primacy effect (a greater reliance on information encountered early in a series) and illusory correlation (when people falsely perceive an association between two events or situations).
A series of experiments in the 1960s suggested that people are biased toward confirming their existing beliefs. Later work re-interpreted these results as a tendency to test ideas in a one-sided way, focusing on one possibility and ignoring alternatives. In certain situations, this tendency can bias people's conclusions. Explanations for the observed biases include wishful thinking and the limited human capacity to process information. Another explanation is that people show confirmation bias because they are weighing up the costs of being wrong, rather than investigating in a neutral, scientific way.
Confirmation biases contribute to overconfidence in personal beliefs and can maintain or strengthen beliefs in the face of contrary evidence. Poor decisions due to these biases have been found in political and organizational contexts.
Confirmation bias intersects and interacts with groupthink is several ways, for example in phenomenon known as "Persistence of discredited beliefs" This is pretty common phenomenon is cults especially in high demand cults; see also Failed end of the world predictions from 30 to 1920 CE
There are a lot of interesting studies of confirmation basis and its influence on investment decisions. In a way persistent bulls or bears (perma bears) are people with strong confirmation bias tendencies.
dead hoboJune 11th, 2010 at 8:48 am
The bias in media and in media analysis is to promote optimism and optimistic people. Optimism sells and business needs optimism to make money. People without optimism for any reason (realism based or not) are shunned by those who want to make money because people will buy from optimists. It is consistent to ridicule or expose those who are not optimistic because they would be bad for business for those who require optimism to succeed. Disaster is good for business if it currently exists because crisis is good for profits. Possible or potential disaster is bad for business because it keeps the looky-loos home. Disasters are best ignored until they can’t be ignored any longer. Then they become annuities. Nobody in media ridicules the perma-bulls who are right until they’re not. Bloomberg supports the bulls and castigates he bears because it is good business to do it. Without hopium, there is no reason to read Bloomberg. Optimism is good for business. Especially if it is promoted by ‘recognized experts’ who can bring in the customers.
... ... ...
Besides, if both optimism and realism were promoted equally, the end result might be an educated consumer of investment services.
An educated consumer would be able to see through the bullshit much easier than the current and historical consumer. Such an event would be terrible for many on Wall Street. Better to keep the rubes optimistic and trusting than teach them anything of value that might be used against Wall Street.
... ... ...
Besides, most business reporters really suck. CNN makes me want to wretch with regularity. God those people are dumb.
As wikipedia noted:
Confirmation bias can lead investors to be overconfident, ignoring evidence that their strategies will lose money. In studies of political stock markets, investors made more profit when they resisted bias. For example, participants who interpreted a candidate's debate performance in a neutral rather than partisan way were more likely to profit. To combat the effect of confirmation bias, investors can try to adopt a contrary viewpoint "for the sake of argument". In one technique, they imagine that their investments have collapsed and ask themselves why this might happen.
As Tamotsu Shibutani stated:
Martyrs of one sort or other are apparently found in all societies, and they usually become objects of curiosity, if not of vituperation. Less unusual men also attract attention - the dedicated scientist who carelessly uses his pay check as a bookmark, the mountaineer who risks his life scaling dangerous peaks, or the boy in the tenement who practices his violin doggedly amid the taunts of his neighbors. Such conduct has been explained in several different ways, but an especially plausible hypothesis is suggested by Thoreau's famous lines: "If a man does not keep pace with his companions, perhaps it is because he hears a different drummer." Most [such] individualists tend to be somewhat estranged from those immediately around them, but rarely do they live in complete isolation.
Such extreme cases of non-conformity provide a point of departure for the study of more frequently found forms of diversity. Deliberately, intuitively, or unconsciously each person performs for some kind of audience; in the drama of life, as in the theater, conduct is oriented toward certain people whose judgment is deemed important. In a complex society like ours, in which there are so many audiences, it often becomes necessary to identify the one for which an individual is performing in order to make his behavior comprehensible. The current popularity of the concept of "reference group" rests in part upon its utility in explaining behavior that is oriented toward audiences that are not obviously represented on the scene. Sociologists have long been concerned with audiences, for they usually explain conduct in terms of social control.
"Social control" refers not so much to deliberate influence or to coercion but to the fact that each person generally takes into account the expectations that he imputes to other people. The kinds of observations that have been accounted for in terms of what has been called the "normative function" of reference groups, one of the two "functions" they are alleged to have (21, 28), can he explained through the application of a long-familiar theory of social control to the conditions prevailing in modern mass societies. What is implied in the writings of Cooley, Dewey, Mead, Park, and Sapir must be stated more explicitly, however, since most of these men did not address themselves specifically to the study of mass societies. This task can be facilitated by making a distinction between (a) the perspective that is imputed to an audience and '(b) the people who make up an audience.
Dr. Nikolai Bezroukov
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Writing in the same iconoclastic spirit he brought to Voltaire's Bastards: The Dictatorship of Reason in the West, Canadian writer Saul offers a damning indictment of what he terms corporatism, today's dominant ideology. While the corporatist state maintains a veneer of democracy, it squelches opposition to dominant corporate interests by controlling elected officials through lobbying and by using propaganda and rhetoric to obscure facts and deter communication among citizens.
Corporatism, asserts Saul, creates conformists who behave like cogs in organizational hierarchies, not responsible citizens. Moreover, today's managerial-technocratic elite, while glorifying free markets, technology, computers and globalization, is, in Saul's opinion, narrowly self-serving and unable to cope with economic stagnation.
His prescriptions include eliminating private-sector financing from electoral politics, renewing citizen participation in public affairs, massive creation of public-service jobs and a humanist education to replace narrow specialization. His erudite, often profound analysis challenges conservatives and liberals alike with its sweeping critique of Western culture, society and economic organization.
LeeBoy (Pine Bluff, Arkansas)
A coup d'etat in slow motion?, August 12, 2005
A key premise of the book is that a life worth living, the so-called examined life, the fully aware life cannot take place without individuals in the society being fully conscious - or without seeking the kind of self-knowledge that readily can be translated into action.
Saul maintains that we have a "new religion," the blind pursuit of self-interest. It is led by an ideology of "corporatism," which has deformed the American ideal of a life worth living into one devoid of a concept of the common public good. Through it, one of America's most noble ideas, that of "rugged individualism" has been sullied, distorted and transformed into an ideology of selfishness; an ideology that has so manipulated our reality that our the language and knowledge, usually placed in the service of actions and designed to improve our way of life, has become useless.
The corporate compartmentalization of, and distortion of public knowledge, and the accompanying enforced conformity has so confused us and has so muted our voices that knowledge no longer has any effect on our consciousness nor on our actions. Individual selfishness as "modeled" by corporate self-interest has hi-jacked Western civilization as we have come to know it.
The book describes how corporatism has accomplished this feat: It has used its own ideology of self-interest (and the promise of certainty that all ideologies promote) to render us passive and conformist in areas that matter and non-conformist in those that do not. This new pseudo or false individualism has the effect of immobilizing and disarming our civilization intellectually and thus renders it unconscious.
The most important way it does this is by denying and undermining the legitimacy of the individual as the primary unit and defender of, as well as the center of gravity of the public good. The public good becomes deformed by, and subordinate to, and equated with the narrow pursuit of corporate self-interests, as most often defined by the pursuit of profits and associated corporate perks. The hedonistic model of the corporate life is projected on to society writ large as the only life worth living.
The impetus for placing corporate interests (and the corporate model of our humanity) at center stage in the drama of Western Civilization, seems to have come about through the misconception that rugged individualism, democracy and our current understanding of the public good were once defined by, depend on, and proceed directly from, the pursuit of economic interests. This is a misconception because in actual fact exactly the reverse is true: It was notions of the public good as defined by democracy and individualism that gave rise to economic interests, and not the other way around.
Moreover, economic models have been so spectacularly wrong and unsuccessful, that they could not have survived without an ideology that renders the public unconscious. Saul suggests that even the best economic models amount to little more than passive tinkering. The fact that we have come to rely on them -- even though we know they are seriously flawed and have little or no basis in reality -- is compelling evidence of our lack of memory and thus, of our lack of collective consciousness.
According to the author, it is the proper use of knowledge and memory that renders us conscious (and thus by extension, also renders us human). The misuse of knowledge and memory through corporate and technological, manipulation, specialization and compartmentalization is just a deeper form of collective denial.
Said differently, (corporate generated) specialization creates its own illusions. When knowledge actually becomes confused and is sufficiently narrowed, compartmentalization promotes the illusion that knowledge is multiplied when in fact it has shrunken. It leaves the impression that more rather than less knowledge is being created. It promotes the illusion that truth is only what the specialist can measure; that "managing is doing," (and more importantly that a managerial class is important and necessary). Finally, it creates the illusion that the ideology, which promotes corporatism, produces certainty (the main job of any ideology).
These illusions all have facilitated the corporate takeover of what would otherwise be seen as, the public interest. By doing so, the legitimacy of the individual as the center of gravity of the public good is crowded out, undermined and denied.
Thus the management elite, (with their suitcases full of money to buy off our elected representatives) like a cancer, is let loose on society. It lives within its own insulated cocoon creating an artificially interiorized sense of its own importance, wellbeing and its own distorted vision of civilization as a whole. Insulated from within, the management elite is free to grow without bounds, without accountability, and in complete disregard for the reality "out there," and always only to satisfy and service its own selfish needs. Truth is not in the world "out there" but is in what the professionals can measure and whatever is reported to these insulated elites. The deeper the insulated managerial class retreats into its own interiorized illusions of reality, the more confused language becomes and the less likely knowledge can be translated into actions that will effect the wider reality, and thus the public good.
In its pursuit to deny the legitimacy of the public good and to replace it with corporate econometric models of reality, Saul has traced the history of this process and gives many examples of how it works: through media propaganda, films, ads, music, sports and style-and always through insinuations of what is considered proper thought and ways of behaving.
One of the better examples he gives is how unemployment keeps getting redefined downward with no relation to the reality of the labor market but mostly to suit the needs of the neo-cons (the courtiers of the corporate elites). Or how, even as companies are losing money and are laying-off large numbers of ordinary workers, the salaries and incentive packages of the managerial elites continue to rise - often even until the very day the companies actually go bust.
Another example given is how through the process of globalization, that by the year 2020 the U.S. will be fully reduced to a Third World country. We are told that our future standard of living will depend entirely on globalization. Here globalization (like its companion concept, productivity) is a synonym for pegging workers' wage rates to the lowest wages available worldwide. It is never mentioned in such discussions that the salaries and incentive packages of the managerial elites will actually rise significantly as this "mother of all least common denominators economic formulas" is being applied to the lower end of the economic class scale. Taken to its logical conclusion, the salary of U.S. workers will equal those of Chinese peasants by 2020; and the corporate elites all will be filthy rich like Sam Walton. This "Wal-Martization" of America is already well in train.
Why are we so susceptible to being manipulated by corporate generated ideology and power? Saul gives an answer: We have an addictive weakness for large illusions that are tied to power and that can simplify our worldview by promising emotional certainty. The examples he gives are none other than the great religions themselves, and their spin-offs of Marxism, fascism and most of the autocratic governments of the past, including Hitler's Third Reich.
The roads to serfdom, or to fascism or communism (or pick your own ism) all intersect at the same ideology reference points: they begin as enforced social and political orthodoxy and conformity: first fashion and style; then the social enforcement of ways of thinking; and then patriotism is made into a religious-like requirement; after which rights and free speech are suppressed in the name of national security or loyalty to the state. One-by-one laws are suspended and then arbitrary arrests and disappearances begin; and finally the country is rendered completely passive and unconscious - compressed into a pseudo-patriotic religious trance.
In the modern era, this progression is by now all too familiar: It leads directly to the de-legitimatization of the citizen as the primary defender of the public good. This just as inevitably leads to handing over power to those whose self-interests are larger than their dedication to the preservation of the public good or even to the preservation and defense of the state itself.
The citizen then ceases to be able to determine what is, and is not real. He becomes immobilized like a child, unable to judge what is in his own best interests -- let alone what is in the best interest of the public good or the state. He is then forced to sing for his dinner and to dance to the corporate tune for any sense of wellbeing or self-worth. The "public good" becomes completely subordinate to the "corporate good."
What Saul admonishes us about is already imminently clear: that the kind of society we have is determined by where the true source of legitimacy lies. Today legitimacy in America -- that is its power, organization, and influence -- lies not in the vote and in stylized but impotent public citizen participation, but in the hands of the lobbyists, the technocrats, and the anti-democratic and anti-patriotic corporate vampires.
Saul did not need to tell us that all the serious decisions are now made in the back rooms without consulting the people. The best "the people" can hope for (and indeed what they yearn for) is that the decisions made over their heads will at least retain a semblance of emotional ideological purity.
While the corporate robber barons sneak out the back door to their off-shore tax havens (with the nations valuables in tow), the public good has been distorted and transformed into little more than "What I have" or into bumper sticker sized emotionalisms: the advancement of creative design and the right to post the Ten Commandments on the court house steps, abortion and gun rights, anti-Affirmative Action, states rights, etc. Because of its lack of consciousness, Americans have lost the ability to conceptualize a common good larger than their own immediate individual narrowly defined self-interests.
How do we get out of this coup d'etat in slow motion? Saul's answer is that we must change the dynamics of the process but he gives few specifics on how this can be done. This a great and very sobering read. Five stars.
Joyce (Bonham, Texas)
Makes the complex understandable, November 29, 2012
Saul has unusual skill in making complex entanglements understandable, colorful, and often humorous. His satire is biting. His irony is satisfying. His writing is dense with fresh insights about difficult subjects, so reading him is challenging at times but worth the effort. In this book, Saul explores how the dictatorship of reason unbalanced by other human qualities (common sense, ethics, intuition, creativity, memory) leads to the rational but antidemocratic structures of corporatism. He lays out the historical roots of corporatist doctrines (going back to Plato) and how they are so woven into our social fabric that they threaten the practice of democracy. He notes how our civilization is blinded to its true character by sentiment and ideology and argues that while Fascism was defeated in World War II, its corporatist doctrines are powerfully influencing our society today.
For Saul, one central aspect of the corporatist doctrine is its hijacking of the term "individualism," defining it as self-absorption or selfishness. Both Left and Right positions are based upon that definition. The Left agrees with the Right that individualism is selfishness, only it wants individual rights to be equally distributed and more fair. Whereas Saul talks about individualism thus:
"Rights are a protection from society. But only by fulfilling their obligations to society can the individual give meaning to that protection. . . Real individualism then is the obligation to act as a citizen."
"The very essence of corporatism is minding your own business. And the very essence of individualism is the refusal to mind your own business. This is not a particularly pleasant or easy style of life. It is not profitable, efficient, competitive or rewarded. It often consists of being persistently annoying to others as well as being stubborn and repetitive."
And further still:
"Criticism is perhaps the citizen's primary weapon in the exercise of her legitimacy. That is why, in this corporatist society, conformism, loyalty, and silence are so admired and rewarded."
Saul discusses the role that four economic pillars play in either accentuating or reducing our unconscious state as citizens: (1) the marketplace, (2) technology, (3) globalization, and (4) money markets.
Here is my summary of his lessons on these four.
- The danger of using the marketplace as our guide is that we are limiting ourselves to the narrow and short-term interests of exclusion. If we wish to lead society we must calculate inclusive costs.
- Business schools (following the "scientific management" Frederick Taylor brought to Harvard) treat men and women as mechanisms to be managed along with machines. And we are lining up students behind machines, educating them in isolation when what is really needed is to show them how they can function together in society.
- Trade cannot in and of itself solve societal problems. The main effect of globalization has been to shift the tax burden from large corporations onto the middle class. Adam Smith's repeated admonition has been ignored. It is: high wages are essential to growth and prosperity.
- Money is not a value in itself. Money in money markets is not available for taxation, and it doesn't really exist. It is pure speculation. We must see what is truly of value to society and reward those things.
This is only a bit of the clarity Saul's book gives us as citizens about what we are dealing with, empowering us with weaponry to overcome the Fascistic creation of corporatism.
Christopher (Seattle, Washington, USA)
A roundhouse shot at corporatist, group-think American life, March 19, 2002
"Are we truly living in a corporatist society that uses democracy as little more than a pressure release valve?"
Not satisfied with hurtling the literary hand-grenade of the 1990's, "Voltaire's Bastards", into the midst of our oblivious Western society, John Ralston Saul has now equipped his metaphorical sniper rifle, and in his crosshairs is the 'deviant class' which has destabilized our American dream. In "The Unconscious Civilization", Saul targets `corporatist' groups, the special interests (both economic and social) which have lulled citizens into replacing their own thoughts with those of factions who magically (and absurdly) claim to represent their beliefs and dreams.
"One of the difficulties faced by citizens today is making sense of what is presented as material for public debate, but is actually no more than the formalized propaganda of interest groups. It is very rare now in public debate to hear from someone who is not the official voice of an organization."
Characteristic of Saul's previous work, "The Unconscious Civilization" is a firm, wind-knocking shot to the gut. But luckily for you, your opponent is also teaching you how to fight. Hear him shout: `Stand up, slothful citizen. Your constitution is failing.'
"The statistics of our crisis are clear and unforgiving. Yet they pass us by--in newspapers, on television, in conversations--as if they were not reality. Or rather, as if we were unable to convert knowledge into action."
Do you feel protected by the Internet, by the millions of voices which you feel will conglomerate to represent you? So how's it working for you so far? Sure we have information, but what the hell good is it doing for the spirit of our nation?
"Knowledge is more effectively used today to justify wrong being done than to prevent it. This raises an important question about the role of freedom of speech. We have a great deal of it. But if it has little practical effect on reality, then it is not really freedom of speech. Without utility, speech is just decorative."
In this work, Saul scopes out the corporatist mindset, the coalescence of many minds into one body with only one voice (corpus from Latin, meaning body), which has invaded business, politics, and civil society alike. The result is chilling, for when we rise to speak, we find our individual words have different meanings to each of these bodies. As a consequence, we are learning to speak less.
"In a corporatist society there is no serious need for traditional censorship or burning, although there are regular cases. It is as if our language itself is responsible for our inability to identify and act upon reality."
We may be blind to the corporatist processes, but we should be able to fairly see their results. In politics: 38% voter turnout rates, lowest political convention viewership, the quashing of third-party voices; in business: the plastering of disclaimers, sloganeering, and that opaque wall of business-speak between every salesman and their customer; in civil society: the inability to progress in conversation without soundbites, and the number of people who flat-out don't want to talk to you.
This partition of words has not obstructed John Ralston Saul, though. An advocate of "aggressive common sense", Saul portrays himself correctly as a classic liberal, defender and klaxon for the citizen, neither champion nor foe of the marketplace.
"The market does not lead, balance, or encourage democracy. However, properly regulated it is the most effective way to conduct business."
"Every important characteristic of both individualism and democracy has preceded the key economic events of our millennium. What's more, it was these characteristics that made most of the economic events possible, not vice-versa."
John Ralston Saul's work consists of five chapters loosely based off a series of 1995 lectures at the University of Toronto. Like "Voltaire's Bastards", Saul here is discursive and entertaining; each chapter is a new dive into an invigorating Arctic lake of realization. Chapter One, "The Great Leap Backwards" launches the assault. The remaining chapters focus on reconstruction... their titles: "From Propaganda to Language", "From Corporatism to Democracy", "From Managers and Speculators to Growth", "From Ideology Towards Equilibrium".
Moderately mistitled (resulting in a one-point demerit in the overall review score), a more appropriate title for this book would have been "The Corporatist Civilization". A true attack on the `unconscious' among us would have been welcome, though Saul does meander briefly into this realm, with a few sections that fit cozily into the overall thesis:
"Perhaps the difficulty with the psychoanalytic movement is that from the beginning it has sent out a contradictory message: Learn to know yourself--your unconscious, the greater unconscious. This will help you to deal with reality. On the other hand, you are in the grip of great primeval forces--unknown and unseen--and even if you do know and see them, it is they who must dominate."
One-quarter the size of "Voltaire's Bastards", Saul this time out initiates a concise attack: on utopias, ideology, technocracy, demagoguery, and group mentality... all of which direct the individual to replace their view of the world with that of an `official spokesman', eerily reversing the vector of our society towards a fascist state. An insightful read; terse, but somewhat condensed and abstract at places. The trade-offs are more than acceptable, though. Steel yourself for a barrage of Truth.
Lacks The Big Picture, July 3, 2000
John Ralston Saul is considered one of the great humanist essayists of this time. That is true but he is also very much a man of our times, with both the advantages and disadvantages of the current Weltanschauung. I bought this book after having read some rather rave reviews and had high expectations. I can't say that I have got anything from this book that I didn't already have or suspect. He's reinforced some of my opinions without adding to my empherical knowledge to back them. The concept of the individual, individualism if you will, is dominant today, representing a narrow and superficial deformation of the Western idea. Market Capitalism does not guarantee democracy; you can have poor democracies and prosperous dictatorships. Today we are in an unconscious process of masochistic suicide destroying the very substance of our public institutions, institutions which were the products of decades of thought and democratic debate, all in the pursuit of making things more `effective', more `business-like'. . . So according to Saul, and on target IMHO, but what does this all mean? What can we draw from these intermediate conclusions?
He then goes on to describe the crisis that grips the West, which he dates from 1973. Bureaucratic thinking and rationalization continue to manipulate our perceptions, dominate and drive our existence, controlled by what he describes as `Corporatism'. He states,
"the corporatist movement was born in the nineteenth century as an alternative to democracy. It proposed the legitimacy of groups over that of the individual citizen." Pp16-17
Napoleon, Hegel and Bismarck helped the process along by emphasizing rule by elites and adherence to the state. This was all only a lead up to the great
"new all-powerful clockmaker god - the marketplace - and his archangel, technology. Trade is the marketplace's miraculous cure for all that ails us. . . I would suggest that Marxism, fascism and the marketplace strongly resemble each other. They are all corporatist, managerial and hooked on technology as their own particular golden calf." Pp19-20
...Weber warned of the dangers of bureaucracy, of how capitalism mated with ever increasing rationalization and technological innovation would become a very difficult beast to control. He also warned against the subversion of democratic institutions by powerful non-democratic groups with oligarchic tendencies. Saul's view on the triumph of rationalism is also, by the way, influenced by Weber. So instead of damning Weber he should be thanking him. Here we see the tendency so common among US (and Canadian) intellectuals today of putting the blame for their perceived crisis on foreign thinkers (usually German or French) who have some how lead the well-intentioned, but all too trusting North Americans astray. Alan Bloom, on the right, was guilty of the same thing in his The Closing of the American Mind. In all, this tendency represents a mixing up of cause and effect. If you want to look for a foreign culpret, how about the English Utilitarians who put morally accepted self-interest and quest for profit in the service of individual gain above anything else? An attitude that has since then been enthusisatically and uncritically accepted by the mass of American intellectuals.
What is Saul's solution? Persistent public commitment by the citizenry can turn the tables on corporatism. But how, given the power that Saul says the elites have to manipulate and control all the spheres of our existence? What of their ability to define "freedom" in wholly consumerist terms, making it a mere matter of material choice? As long as the US Constitution allows for majority rule, the public will have the last say, but how to mobilize the public, how to educate them as to defending their best interests when the reigns of mass communication are in the hands of the corporatists? How do we make the interests of society take priority over the interests of profit? The moral dilemma in all this is ignored by Saul who distrusts anyone who even mentions it. Unable to follow Nietzsche's lead he stumbles. Nietzsche, alas a foreigner, was also primarily a moralist. Morals are important since they shape the way that we adjust to the struggle for our very existence in an ever more competitive world. While a sense of the spiritual is necessary, the vast bulk of our actions, the reality we must deal with in our every day lives, is economic due to the pervasive market system which is the very air we breathe. It is therefore very much man-made, synthetic, something that has been grafted onto society, not a component of it. Morals are as necessary now as when we lived in small farming communities, since it is by working together, by accepting each others' strengths and weaknesses, by learning to control our own impulses and irrational drives and by accepting the inate worth of each person that we insure not only our own but the survival of our species in the coming hard winter. A, "myth-building" exercise you say, but is it any more a myth than that of "the Market corrects itself and all we need do is trust in it"?
Since the end of the 18th Century we in the West have lost almost every remnant of our pre-Capitalist past. We have forgotten our entire community or social or human-to-human history, we are unable to recall when an action did not infer some sort of self-benefit. We fail to see that the so-called Third World is as we were two hundred years ago. It is not a question of scientific or technological or commercial progress, in the most human sense, but of the maturing and decay of an ideological-based social system.
Saul's main drawback is that he lacks the in-depth knowledge of the numerous disciplines necessary for this very complex subject. That and `distance' since he approaches the problem with far too many preconceptions. A much better book in a related subject is Karl Polanyi's The Great Transformation. His history of the market economy provides much of the background necessary to illuminate our current situation. Few if any thinkers today have the breadth of knowledge to provide the big picture of our current post-modern situation. Men like Max Weber, who had a encyclopedic knowledge of several wide fields of study no longer walk the earth. Still a much more refined, yet wide view which would include a fuller understanding of social economics, history, political science, sociology, theology and philosophy is necessary in order to get a grip on the tendencies which are slowly eating away our society and threaten to turn us all into what Max Weber described as "a culture of specialists without spirit, sensualists without heart".
Herbert L Calhoun
Wake up and Smell the Oil Wal-Mart Shoppers, August 10, 2005
If the doubling, in less than a year, of the price of oil for no discernable reason (with no end in sight), and with absolutely no reaction from us or our government is not evidence that something is terribly wrong with our collective mind. Then surely an order of magnitude increase in the cost of medical care and prescription drugs, and the quintupling of our health insurance (for those of us who have any), should be.
Or, one might have imagined that the juxtaposition of soaring corporate profits (in these very same areas) with an effective reduction in "actual wages" everywhere else, would also have shaken us from our deep collective slumber?
Or maybe the fact that we have been led into yet another war for no defensible reasons and without either an exit strategy or a fighting plan -- a war whose justifications and rationale keeps changing with each increased attack from the terrorists as our national debt continues to soar -- would have shaken us out of our passivity.
While our government's response to the needs of the "rank-and-file" is increasingly non-existent, or completely ineffectual, and the "managerial class" continues to rob us blind as they laugh all the way to the bank; we are obsessed with the risk of breast implants, abortion rights, hanging the Ten Commandments in the public square, reality shows (that are anything but real), Janet Jackson's wardrobe malfunction, and how to continue to win at the game of "Democrats and Republicans (or liberals and conservatives, or Blacks versus Whites, or males versus females, or pick your own senseless emotional dichotomy)."
But the very best evidence yet of our lack of consciousness and proof that our society is being thrown under the bus while we watch in horror with our eyes wide open, is when the most devastating critique of our own slothfulness is also the sanest, most compassionate and most eloquent.
Saul in this trenchant sanity check of the society that leads the Western World realizes that the time for vitriol and shouting has long since passed. That is why with eloquence, understated passion and with measured but devastating logic and reason (that quality he so distrusts), he has issued a broadside at the foundation stone of what ails our society most: Rampant and immoral Corporatism.
And even though in the end, his prescription for how we are to extricate ourselves from this dilemma is unconvincing, he has laid the necessary groundwork for serious thinking to begin. If "the people" in Western Democracies are ever to regain control of their minds, and then eventually their societies; Saul's ideas in this small volume must inevitably be contended with.
Saul is a modern secular prophet!, March 28, 1999
You can add the name John Ralston Saul to those of Noam Chomsky, Ivan Illich, Franz Fanon (and who else?) on your list of the key late 20th century 'global conspiracy theorists' - people who are visionary seers/prophets who have unorthodox views and make outrageous pronouncements on this and that, but with whom you have to broadly agree. Because they operate outside the conventions of fixed ideologies, they're able to see the broader picture, and see more deeply into the nature of things.
The Unconscious Civilization - the 1995 Massey Lectures - was written in an oral style by Canadian freelance intellectual, essayist and novelist John Ralston Saul.
His thesis is disarmingly simple: in the long line of history's totalitarianisms, we can now add undemocratic 'corporatism'.
Our society, he argues, is only superficially based on the individual and democracy.
In this Feb. 28, 2013 photo, Sarah Chavez, center, sits with her son Bidal, right, and daughter Sarahi, front, at her home in Lexington, N.C. Desperate to raise money for their …more 6-year-old daughter's cancer treatments last summer, friends told Jose and Sarah Chavez of a way to quickly turn their meager savings into a small fortune. But what the Chavez family and many others didn't know was that state and federal regulators for months had received complaints that ZeekRewards was a scam.
LEXINGTON, N.C. (AP) — In the hardware store on South Main Street, the owner pulled Caron Myers aside to tell her about the best thing to happen in years to this once-thriving furniture and textile town.
Did she hear about the online company ZeekRewards? For a small investment, she could make a fortune. He had invested. So had his grandsons. And so were more and more people in Lexington, including doctors, lawyers and accountants.
Skeptical at first, Myers drove a few blocks to the company's one-story, red-brick office and spotted a line of people circling the building. She was sold, and plunked down several thousand dollars. But months later, Myers, like hundreds of thousands of others, discovered the truth: ZeekRewards was a scam.
"I was duped," Meyer said. "We trusted this man. The community is still in shock."
Authorities say owner Paul Burks was the mastermind of a $600 million Ponzi scheme — one of the biggest in U.S. history — that attracted 1 million investors, including nearly 50,000 in North Carolina. Many were recruited by friends and family in Lexington, a quintessential small town where neighbors look out for each other.
But what investors didn't know was that regulators had received nearly a dozen complaints about ZeekRewards and the related site Zeekler.com, but failed to take action for months, leaving the company free to recruit tens of thousands of new victims.
The Securities and Exchange Commission, which closed the operation Aug. 17, said Burks was selling securities without a license. The Ponzi scheme was using money from new investors to pay the earlier ones.
Burks has agreed to pay a $4 million penalty and cooperate with a federal court-appointed receiver trying to recover hundreds of millions of dollars.
Investigators say Burks, a former nursing home magician, siphoned millions for his personal use. But he has not been charged.
In his first public comments, Burks told The Associated Press he couldn't discuss details because of lawsuits by victims trying to recoup money.
"Everything will come out in time," said Burks, 66, standing in the doorway of his home.
Asked if he had anything to say to victims, he shook his head.
"I never told anyone to invest more money than they could afford," Burks snapped. "I didn't tell them to do that. Never."
He said if they lost money, "it's their fault. Not mine. Don't blame me."
But Cal Cunningham, a former prosecutor representing investors in a lawsuit, slammed Burks — and regulators for taking so long to act.
"It's why we need a full hearing on what happened in a court of law — whether that be our civil case or a criminal proceeding. A lot of people were hurt," he said.
Burks started Zeekler in early 2010 as an online penny auction site. His business experience included nearly four decades in multilevel marketing programs — such as Amway — including failed attempts to launch similar businesses of his own.
In penny auctions, consumers compete to pay pennies on the dollar for name brand products such as iPads. Each bid costs as much as $1, so participating can become expensive and the sites can earn nice profits when multiple users bid against each other.
In January 2011, he incorporated aspects of multilevel marketing into the business when he launched ZeekRewards. The program offered a share of the penny auction's profits to people who invested money, promoted the company on other websites and recruited other participants. Under a complicated formula, investors were issued "profit points" that grew every day.
Investments were capped at $10,000, but people could invest on behalf of their spouses, children or other relatives. Some mortgaged homes to raise their investment.
At first, ZeekRewards complied when investors sought to cash out. And that became the best ad of all: happy investors with their checks in Facebook photos.
People who didn't trust the mail traveled long distances to drop off checks at the cramped office building where security guards allowed only seven inside at a time. Employees collected money and wrote out receipts at the office cluttered with dozens of plastic mail bins stuffed with check-filled envelopes. To withdraw money, investors filed an online request — or called — and then had to wait for a check.
By the end of 2011, it seemed like everybody in Lexington was talking about ZeekRewards. Many saw it as a way to make extra cash to pay bills or help family.
"No one was in it to get rich," said Mary Bell, a 75-year-old seamstress from Lexington who scraped together money to invest.
Sarah Chavez wanted extra money for her daughter's frequent hospital visits for leukemia. Her husband worked in a factory, and they invested $7,000.
"It's hard to believe in something like that. But everyone told us it was a sure thing," she said.
Burks mostly kept to himself, and few locals knew anything about the quiet, balding man with thick glasses.
In the 1980s and early 1990s, the Shreveport, La., native toured nursing homes in the South as a magician with country singer David Houston. Burks moved to Lexington in the early 1990s because his wife was from the area. In 2000, Burks ran for the state House as a Libertarian, but he collected only 330 votes. Then he became a local celebrity. Most afternoons, he ate lunch at the same downtown restaurant with an entourage of managers. Conference calls with investors were posted on YouTube. He produced glossy brochures touting the company.
"In addition to the mind-blowing savings, you can create more wealth than you have ever thought possible with ZeekRewards' geometrically progressive matric compensation plan," the brochure said.
Burks also hired some of the industry's top attorneys and analysts to promote his company.
The publicity paid off. When the Association of Network Marketing Professionals held its annual convention in March 2012, it called ZeekRewards the model of legal compliance.
But behind the scenes, there were troubling signs, according to documents, company emails and consumer complaints reviewed by the AP.
In early June, the state of Montana gave ZeekRewards the boot. Montana requires multilevel marketing companies to register. But ZeekRewards didn't submit any paperwork — even after warnings, said Luke Hamilton, a spokesman for the attorney general's office.
"We started getting a lot of complaints," he said.
In August, a North Carolina employees' credit union warned customers not to invest in ZeekRewards because it was a "fraudulent company."
But regulators received complaints long before then.
In a Nov. 23, 2011, complaint filed with the North Carolina Attorney General's office, Wayne Tidderington of Florida called ZeekRewards an "illegal" Ponzi scheme. He said a relative had invested $8,000 and the company guaranteed a return of 125 percent every 90 days.
The attorney general's office can ask a judge to shut down a business because of deceptive trade practices. But it forwarded Tidderington's complaint to the secretary of state's office because it looked like it might involve securities. The secretary of state's office, however, declined to take action because it didn't believe it had the jurisdiction, spokeswoman Liz Proctor said.
The complaint died.
"I put it all together," Tidderington told the AP. "I gave them the roadmap. I said, 'Here's a snake. Here's the gun. Here's the bullets. Shoot the snake.' But they ignored me."
Over the next seven months, the attorney general's office received nearly a dozen more complaints.
But it wasn't until July 6 that it issued an order giving Burks until the end of the month to turn over all Zeek-related documents. He missed that deadline.
Kevin Anderson, senior deputy attorney general for consumer protection, insisted his agency correctly handled the case, saying his office receives thousands of complaints a year.
"We have to have more concrete evidence than a couple of consumer complaints before we go to court," he said.
The SEC received similar complaints during the same period, but the agency didn't begin its investigation until the summer.
SEC spokeswoman Christine D'Amico declined to comment on the investigation, except to say the agency took action "as soon as we believed we had sufficient evidence to obtain an emergency court order to halt the fraud."
Months later, people in Lexington are wondering what's next.
Kenneth Bell, the court-appointed receiver, said ZeekRewards may have taken in $800 million. So far, he's recovered $312 million. Hundreds of millions were paid out to investors. Just how much is missing? He doesn't know.
Myers said the community is still recovering — but the wounds are deep. People are wondering why investigators didn't act more quickly and why no one, including Burks, has been charged.
"There are thousands and thousands of victims who might not have lost a penny had the government intervened more quickly," she said.
Personally I think this is the corrosive influence of the credibility trap, the amorality of careerism, and of course, an ambivalence towards white collar corruption as the inherent entitlement of privilege. There seems to have been a shift in perspective amongst the new ruling class from noblesse oblige to droit du seigneur. This is what Robert Johnson calls 'the audacious oligarchy.'
Jesse's Café Américain
"If you follow issues like Too-Big-To-Fail or Wall Street corruption long enough, you realize that the reason things don't get done about them by our government has very little to do with ideology or even politics, in the way most of us understand politics.
Instead, it's a bizarre, almost tribal mentality that rules our capital city – a kind of groupthink that makes extreme myopia and a willingness to ignore the tribe's ostensible connection to the people who elected them a condition for social advancement within."
Matt Taibbi, Neil Barofsky's Adventure in Groupthink
While it is recovering much of this sudden, five minute loss even now, with spot back to 1680 already, the hit on the gold market in the New York trade this morning was fairly blatant.
Perhaps it was just some innocent who had the desire to drop a boatload of contracts into a quiet market, and knock the price down while maximizing their selling loss. Or another 'fat finger' mishap, which seem to happen quite a bit around option expiration for example.
Or perhaps it was some wiseguy trader who looked at the market, having some advantageous insight into the order books, and decided to 'run the stops.'
Thank God the US has the CFTC, whose job it is to look at this sort of thing and to tell us whether it was legitimate, or not.
And we should hear back about this, perhaps as early as January, 2017. And maybe even sooner on this one: 24 Tonnes of Paper Gold Dumped at Market
But it is nice to see that the CFTC is doing something. They are asking the court to overturn the $30 million fine on the Amaranth trader who was caught manipulating the natural gas market, because another regulator did their job for them.
What conditions or combination of antecedent variables cause a four-star general, war hero, former chairman of the Joint Chiefs of Staff and secretary of state with a popularity rating that could win him the presidency to promote and defend publicly a course of action about which he has “serious misgivings?” (Powell, 2006). High stress? Low self-esteem? The individual in question is, of course, none other than former Secretary of State Colin Powell. The course of action is the invasion of Iraq on March 23, 2003, otherwise known as Operation Iraqi Freedom. The conditions or combination of antecedent variables being considered are proposed in the theory by Irving Janis known as groupthink. Specifically, this paper asks: Was the Bush administration’s decision to invade Iraq in 2003 the result of groupthink? It focuses on the five principal foreign policy actors George W. Bush, Richard Cheney, Donald Rumsfeld, Colin Powell and Condoleezza Rice during the sixteen-month period between September 11, 2001 and March 23, 2003. In particular, it considers to what extent each of the individual actors led in the decision-making process, and to what extent each followed.
According to Janis, groupthink is a mode of decision making by a cohesive group lacking a tradition of impartial leadership and norms requiring methodical procedures. Driven by a false sense of unanimity, invulnerability, and self-righteousness, the group ignores policy options and makes faulty decisions without sufficiently considering potential outcomes (Janis, 1972). To put it more simply, specific factors within groups lead to poor decision-making, which in turn lead to policy failure. Janis suggests that decisions grounded in groupthink can be disastrous. In four case studies of U.S. foreign policy decisions, Janis found that when groupthink was apparent the policies failed, and when it was not apparent the policies were successful. Janis offers as a caveat, however, that good quality decision-making does not always lead to successful policy outcomes (Janis, 1972).
Janis suggests that groupthink is most likely to occur when certain antecedent conditions exist. These conditions include group cohesiveness, insulation of the decision-making group, lack of tradition of impartial leadership, lack of norms requiring methodical procedures, homogeneity of members’ social background and ideology, high stress from external threats with low hope of a better solution than the leader’s, and low self-esteem temporarily induced by either recent failure, excessive difficulties on current decision-making tasks, or moral dilemmas. While Janis does not attribute groupthink to any of these antecedent conditions per se, he suggests that the conditions do tend to allow for certain symptoms to develop. The symptoms include an overestimation of the group (the illusion of invulnerability and a belief in the inherent morality of the group), closed mindedness (collective rationalization and stereotyping of out-groups), and pressure towards uniformity (self-censorship, illusion of unanimity, direct pressure on dissenters and self-appointed mindguards).
J. David Singer (1961, 78-80) suggests that there are three functions of an analytical model: description, explanation, and prediction. When describing a phenomenon, the goal is to “present as complete and undistorted a picture as is possible.” When explaining a phenomenon, which is the primary purpose of theory according to Singer, the goal is to offer a valid and parsimonious explanation of the causal mechanism. It is important that valid explanation be given priority over accurate description if the two are in conflict. Finally, an analytical model should provide for some level of reliable prediction. Singer insists that the most important decision any researcher makes is in matching the research with the proper level of analysis, whether systemic or sub-systemic. The contribution this case study makes is that it analyzes the internal dynamics of the top decision-makers in arguably one of the most dynamic periods in American foreign policy. This study concludes that the groupthink model is valuable in its ability to help us describe the decision-making process, explain the actions of the Bush administration, and predict whether groupthink will be a potential problem in future administrations.
The paper begins by briefly discussing the relevant literature. Then it addresses those antecedent conditions present in the George W. Bush administration between September 11, 2001 and March 23, 2003. Finally, it examines the symptoms of groupthink and identifies which appear to be present and which do not.
Group Insulation Group insulation is the first structural condition in Janis’s groupthink model. Group insulation refers to “insulation of the decision-making group from the judgments of qualified associates, who, as outsiders, are not permitted to know about the new policies under discussion until after a final decision has been made” (Janis, 1972, 197). This particular antecedent condition was undeniably present in the Bush administration between September 11, 2001 and March 23, 2003. As former Nixon aide John W. Dean wrote, “George W. Bush and Richard B. Cheney have created the most secretive presidency of my lifetime. Their secrecy is far worse than during Watergate” (quoted in Wittkopf and Jones, 2008, 329). The administration secretly planned and prepared for war without disclosing it to the general public. Planning began in November of 2001 and included upgrading airfields in various Gulf countries, moving supplies to the region and the construction of necessary facilities. By April 2002, the planning and preparation for war was also being hidden from Congress. Bush had instructed General Tommy Franks not to make financial requests through Washington. “Anything you need, you’ll have.” The money would no longer be appropriated through congress. By the end of July 2002, Bush had approved more than thirty projects totaling over $700 million. Congress had no knowledge or involvement (Woodward, 2004, 122). In December of 2002, Bush and Rumsfeld agreed to start secretly deploying troops into the theatre so as not to attract the attention of the press or the rest of the world. The first deployment order went out on December 6, 2002 and deployments continued every two weeks or so thereafter. Troops were given less than a week’s notice at times. In January 2003, the Bush administration arranged for much of its humanitarian relief to be disguised as general contributions to conceal its war planning from the NGO recipients. Yet, when asked about Iraq, Bush’s favorite response was “I have no war plans on my desk.” At one point or another after the planning began, nearly every member of the administration publicly denied any plans to go to war with Iraq (Woodward, 2004, 129).
Lack of Tradition of Impartial Leadership This is the second structural variable. According to Janis, this condition prevails in groups whose leader disregards “organizational tradition” and instead pursues his or her own “preferred policies” (Janis, 1983, 249). Again, one would be hard-pressed to find a better example of this particular antecedent variable since President Richard Nixon. Even though each of the four major foreign policy players enjoyed direct access to the president, they worked “for a man who doesn’t tolerate being upstaged” (Woodward, 2004). Bush relied heavily on Rice to inform him of various policy options, and then he made the final decisions. Former Treasury Secretary Paul O’Neill puts it eloquently. Speaking of Rice he states: “She doesn’t drive to consensus. Rather she drives toward clarity. Then he [Bush] decides what the consensus is” (Burke, 2005, 236). On the morning of September 11, 2001, when President Bush was informed of the attacks, he decided on his own, right then and there that the nation was going to war: “I made up my mind at that moment that we were going to war” (Renshon, 2008, 393). The Bush II administration began with a foreign policy based on realism and selective engagement. Bush advocated selective engagement early on, while Cheney, Rice and Rumsfeld were all realists in the early days of the administration (Purdum, 2003). Rice summarized the administration’s position in a concise article that clearly prioritized “national interest” over “humanitarian interests.” Rice asserted that “the Clinton administration has often been so anxious to find multilateral solutions to problems that it has signed agreements that are not in America’s interest.” Rice specifically noted treaties such as the Kyoto Protocol and the Comprehensive Test ban Treaty as “instructive.” The Bush II administration would focus on “power politics, great powers and power balances.” It would have no need of the recent foreign policy tradition of multilateralism (Rice, 2000, 47-8). The Bush administration also broke with its own realist policies to pursue a neoconservative agenda of Wilsonian-style nation-building. In his 2000 presidential campaign, Bush “scorned ‘nation-building’ as a woolly-headed ambition that risked diluting America’s priorities and diverting its military into insoluble conflicts around the world” (Purdum, 2003, 11). Yet by August 2002, “the tone of the Bush administration’s rhetoric changed sharply.” Republican realists were deeply concerned with the administration’s break with the realist tradition. Individuals such as Scowcroft and Baker spoke out in disagreement with the administration. They saw Powell as their only remaining ally inside the inner circle. Scowcroft warned that a war with Iraq “could turn the whole region into a cauldron.” Retired General Anthony Zinni was present when Cheney gave a speech in Nashville on August 26, 2002. As he listened to the vice president state that “there is no doubt that Saddam Hussein now has weapons of mass destruction,” Zinni “nearly fell off his chair.” Zinni “had seen nothing to support Cheney’s certitude” (Ricks, 2006, 46-7, 49-50). Still, in spite of nearly universal opposition, President Bush ordered the invasion of Iraq. He argued that the United States had to intervene in Iraq in order to prevent terrorists from training in Iraq, to prevent terrorists from obtaining and using weapons of mass destruction against America, and to bring democracy and freedom to the Iraqi people (The White House, 2003). The most important break with organizational tradition came with the Bush administration’s push toward the “imperial presidency.” This transition was marked by a myriad of developments including the passage of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) otherwise known as the Patriot Act (The White House, 2006). The passage of the Patriot Act both reflected and contributed to a significant shift in the balance of power away from Congress and in favor of the executive office. The USA PATRIOT Act was passed by Congress within weeks and signed by President Bush on October 26, 2001, just fifteen days after the attacks. While the reach of this act is unprecedented, overriding some 48 state laws regarding civil liberties, the USA PATRIOT Act was just one of many developments that significantly increased the power of the executive office. The Bush administration’s shift to the “imperial presidency” has been marked by a number of developments from an intensification of secrecy to the rejection of international treaties requiring Senate ratification to the doctrine of preventive war giving the president the power to unilaterally decide to go to war. While a complete enumeration of these developments is beyond the scope of this paper, the administration’s strong push to empower the presidency demonstrates a major break with organizational tradition. But which actor emerges as the clear leader in this administration, if any? Regarding decisions concerning military intervention, a major pillar of the Bush administration’s foreign policy, “the President generally defers to the Vice-President on all these issues” (Hersh, 2008, 378). Cheney “harbored a deep sense of unfinished business about Iraq.” The vice president was in favor of what George Schultz coined “hot preemption” (Woodward, 2004, 9, 129). As mentioned earlier in this paper, it was Cheney that worked so arduously to empower the executive branch. Yet Cheney was clearly chosen by Bush to serve his preferences, and not the other way around. Wolfowitz had been the preeminent neoconservative in the group. He earned his PhD in political science from the University of Chicago, “a cradle of what came to be called neo-conservative thinking on foreign policy and a hotbed of the anti-détente school during the Cold War.” Wolfowitz was a strong advocate for toppling Saddam, seeing Iraq as a threat as early as 1979. After September 11, 2001 he argued that there was a “10 to 50 percent chance that the Iraqi leader had been involved in the 9/11 attacks” (Purdum, 2003, 10, 13). Given the core of the Bush administration was carefully and methodically assembled by Bush himself, he emerges as the primary leader in the administration; a leader who proved well-equipped to manage the talents and Washington contacts possessed by his inner circle. In the post-9/11 world, with the return of the “imperial presidency” as represented by the passage of the USA PATRIOT Act and a host of other developments, a lack of traditional leadership is almost a given. When one then considers the Bush administration’s clear break with recent foreign policy tradition, a lack of tradition of impartial leadership remains the only viable option. This antecedent condition was definitely present.
Lack of Norms Requiring Methodical Procedures “According to the groupthink hypothesis, members of any small cohesive group tend to maintain esprit de corps by unconsciously developing a number of shared illusions and related norms that interfere with critical thinking and reality testing” (Janis 1972, 36). In other words, policy determines intelligence, not the other way around. This antecedent condition was also present without a doubt. A widely known account regarding the decision to invade Iraq is CIA Director George Tenet’s alleged conversation with Pentagon advisor Richard Perle at the White House on (or around) September 12, 2001. In a now famous interview with CBS 60 Minutes in 2007, George Tenet told his side of the story. According to Tenet, Perle told him: “Iraq has got to pay a price for what happened yesterday, they bear responsibility.” But Tenet explicitly denied the existence of any intelligence connecting Saddam Hussein to al Qaeda: “We could never verify that there was any Iraqi... complicity with al Qaeda for 9/11 or any operational act against America. Period.” Yet the Bush administration publicly linked Saddam Hussein to al Qaeda in an effort to blame 9/11 on Iraq. Tenet also denied the existence of any explicit evidence that supported Iraq’s supposed possession of weapons of mass destruction. Tenet insists that he consistently reported that in the intelligence community’s judgment “Iraq will not have a nuclear weapon until the year 2007, 2009.” As for chemical and biological weapons, the intelligence community believed Saddam had the capacity to produce them, but they had no knowledge that Saddam possessed them. Still the Bush administration heavily justified the war in Iraq based on the alleged existence of such intelligence. In fact, Colin Powell reported to the United Nations, “Our conservative estimate is that Iraq today has a stockpile of between 100 and 500 tons of chemical weapons agent.” What is even more incriminating for Tenet than for Powell, is that Tenet was present at the briefing. Furthermore, despite the fact that the CIA denied the existence of any intelligence supporting Saddam Hussein’s attempts to obtain uranium from Africa, even demanding the allegation be removed from two previous presidential speeches, President Bush made the allegation anyway in his 2003 State of the Union Address (60 Minutes, 2007). According to Pillar (2008, 238-9), the Bush administration reversed the methodical procedures, instead of using intelligence to drive policy, it used “policy to drive intelligence.” Still worse, Pillar states that the “Bush administration deviated from the professional standard... in aggressively using intelligence to win public support for its decision to go to war.” Pillar points out that the administration’s “cherry-picking” of intelligence to support its agenda completely disregarded the intelligence community’s recommendations and judgments. Why would the Bush administration proceed in this direction? As previously discussed, the administration is alleged to have been planning and preparing for war with Iraq since as early as November 2001. Hoffman (2006, 1-2) argues that Cheney and Rumsfeld were “enraged” by the Clinton administration’s failure to act unilaterally and proclaim U.S. hegemony. He writes, “When George W. Bush came to power, September 11 provided what seemed an unchallengeable opportunity for a drastic change in strategy and in diplomacy.” This development, of course, begs the question: “Just how far back did their desire to invade Iraq extend?” On September 12, 2001, Rumsfeld suggested to the war cabinet that the attacks presented “an ‘opportunity’ to launch against Iraq.” Cheney favored the idea, but suggested the administration wait for fear the United States would lose its “rightful place as good guy” (Woodward, 2004, 25). Lobe (2002) offers a little history lesson regarding the emergence of the policy of unilateralism as it predates George W. Bush, but clearly pinpointing the implementation of it during the Bush administration’s first term. Lobe described the appearance of a certain document that had been leaked to the New York Times in the spring of 1992. That document, written by Paul Wolfowitz and Irve Lewis Libby (who at the time worked at the Pentagon under Dick Cheney), was the draft Defense Policy Guidance (DPG). The draft DPG called for American unilateralism, military hegemony and a policy of preemption. Lobe wrote that the draft DPG was described by one U.S. senator as “literally a Pax Americana.” Lobe himself states that the draft DPG was “essentially a vision of a world dominated by the unilateral use of US military power.” Its intended goal was to “prevent the rise of any possible challenger for the foreseeable future.” This sounds strikingly familiar.  Obviously, quite a bit had changed between the spring of 1992 (when the draft DPG was first leaked) and September 11, 2001. The controversy caused by the leaked draft DPG led then-National Security Adviser Brent Scowcroft and Secretary of State James Baker to insist that “the final DPG was toned down to the point of unrecognizability.” By September 11, 2001, Cheney had risen to vice president, Wolfowitz to deputy defense secretary, and Libby to Cheney’s chief of staff. In its first year in office, the Bush administration “engineered what former UN ambassador Richard Holbrooke recently described as a ‘radical break with 55 years of bipartisan tradition’ in US foreign policy making” (Lobe, 2002).
That’s exactly what F. S. Michaels explores in Monoculture: How One Story Is Changing Everything — a provocative investigation of the dominant story of our time and how it’s shaping six key areas of our lives: our work, our relationships with others and the natural world, our education, our physical and mental health, our communities, and our creativity.
The governing pattern a culture obeys is a master story– one narrative in society that takes over the others, shrinking diversity and forming a monoculture. When you’re inside a master story at a particular time in history, you tend to accept its definition of reality. You unconsciously believe and act on certain things, and disbelieve and fail to act on other things. That’s the power of the monoculture; it’s able to direct us without us knowing too much about it.” ~ F. S. Michaels
During the Middle Ages, the dominant monoculture was one of religion and superstition. When Galileo challenged the Catholic Church’s geocentricity with his heliocentric model of the universe, he was accused of heresy and punished accordingly, but he did spark the drawn of the next monoculture, which reached a tipping point in the seventeenth century as humanity came to believe the world was fully knowable and discoverable through science, machines and mathematics — the scientific monoculture was born.
Ours, Micheals demonstrates, is a monoculture shaped by economic values and assumptions, and it shapes everything from the obvious things (our consumer habits, the music we listen to, the clothes we wear) to the less obvious and more uncomfortable to relinquish the belief of autonomy over (our relationships, our religion, our appreciation of art).
A monoculture doesn’t mean that everyone believes exactly the same thing or acts in exactly the same way, but that we end up sharing key beliefs and assumptions that direct our lives. Because a monoculture is mostly left unarticulated until it has been displaced years later, we learn its boundaries by trial and error. We somehow come to know how the mater story goes, though no one tells us exactly what the story is or what its rules are. We develop a strong sense of what’s expected of us at work, in our families and communities — even if we sometimes choose not to meet those expectations. We usually don’t ask ourselves where those expectations came from in the first place. They just exist — or they do until we find ourselves wishing things were different somehow, though we can’t say exactly what we would change, or how.” ~ F. S. Michaels Neither a dreary observation of all the ways in which our economic monoculture has thwarted our ability to live life fully and authentically nor a blindly optimistic sticking-it-to-the-man kumbaya, Michaels offers a smart and realistic guide to first recognizing the monoculture and the challenges of transcending its limitations, then considering ways in which we, as sentient and autonomous individuals, can move past its confines to live a more authentic life within a broader spectrum of human values.
August 15, 2011 | FT.com
As the IMF knows only too well, groupthink played a key role in policymakers’ inability to spot the risk of a major financial crisis. Could it be that globalisation contributed to this rise of groupthink? Central Bank of Ireland governor Patrick Honohan thinks so.
Since the era of David Ricardo, most – though not all – economists have extolled the virtues of global trade.
Mr Honohan’s comments are far from a damning critique. But the central bank governor points out that globalisation can “turbo charge” booms and busts in small open economies such as Ireland’s. Why?
The governor makes the oft-heard point that globalisation leads countries to rely too heavily on producing only a handful of goods. He then claims – rather more unusually – that this hollowing out occurs not only in productive capacity, but also in economic policy.
I will also touch on another, not unrelated, globalization-related theme, namely the tendency for globalized economies to be structurally incomplete or “hollowed-out” both in productive capacity (concentration on a limited range of economic sectors), and in the repertoire of macro-fiscal and prudential policy tools (as reliance is increasingly placed on (i) external markets for components or factors of production and on (ii) external institutions and analyses for the design and in some cases delivery of policy.) This tendency can feed the turbocharger and restrict the capacity for policy response to emerging problems.
Ireland’s accession to the eurozone was, he says, very much a case in point.
As Ireland joined the monetary union in 1999, its status among the most globalized economies in the world was confirmed. In the following years, its finances would be submerged in those of the euro area – with international flows often not even being separately measured and assessed as attention focused on the euro area as a whole. The idea that much of macro policy had been largely outsourced to the European Central Bank took hold in policy circles. A sizable fragmentation of policy thereby occurred: domestic policymakers no longer took full ownership of macro issues. Finance Minister McCreevy’s stated views about fiscal policy (“when I have it I spend it”) disavowed any stabilization role for fiscal policy.
Ouch. Low interest rates, imported from Europe, fed the boom – as did profligate credit from abroad and a lack of exchange-rate risk – and Ireland ended up with “a world-beating construction and property price bubble”.
At the same time as McCreevy’s finance ministry had abdicated responsibility for macro-fiscal policy, the financial regulator was embracing the global trend towards light-touch regulation.
International convergence of economic and regulatory policies towards liberalization and light-touch, unfortunately embraced also by Ireland, and ridiculously easy availability of credit from abroad (eventually helped by the removal of exchange rate risk across the euro area) were key factors in the international environment that masked the vulnerabilities associated with the emergence of evident imbalances in the trend towards a construction monoculture: extreme house price inflation, a skewed revenue base for the Government accounts and a seemingly inexorable erosion of wage competitiveness.
Mr Honohan’s argument that globalisation led to a hollowing out of domestic policymaking, with groupthink replacing it, is compelling.
In contrast, early indications are that what counts as macro-prudential policy will differ from country to country. Some emerging markets have labelled capital controls – which stem the tide of financial globalisation – as macroprudential. Are we seeing a backlash against the phenomenon that Ireland’s governor describes?
July 14, 2011 | naked capitalism
“Remarkably virtually everyone in developed countries desperately tries to believe that they are immune to indoctrination. They think they think for themselves and readily know the difference between truth and falsity, fantasy and reality, superstition and science, fact and fiction.
Technologically sophisticated cultures are conditioned to accept belief systems, behaviors, and values that would have been rejected out of hand by their stone-age predecessors. Primitives would instantly sense the obvious threats to survival and adjustment, or simple nonsense, inherent in many of the treasured beliefs of modern society.” – Wilson Bryan Key
Institute for Jewish Ideas and Ideals
The Authoritarian Worldview
According to scholars who have studied the phenomenon, an authoritarian worldview is characterized by the following ideas (each is illustrated with a position popular in at least some quarters of the Orthodox community.)
The world is made up of "Us" and "Them."
The fractionalization of Orthodox groups creates smaller and more particularistic in-groups that place all other Jews in the out-group category. Freud referred to this type of phenomenon as "the narcissism of small differences."
Although the existence of multiple groups may superficially appear to represent diversity, in fact each group is authoritarian, requiring more and more conformity in order to fit in and carry its particular label. For example, Frumster, a dating website, asks its members to self-describe by choosing one of seven categories for Orthodox, four for the Orthodox-Conservative continuum, and one for everyone else.
"We" are good, and "They" are bad.
Many Orthodox people argue that we are a holy people-but non-Jews and their culture are at the root of most of the evil in the world; the rest is attributed to the rebellion of Conservative and Reform Jews.
We need to get them before they get us!
This is a defensive posture that perceives threats everywhere and leads to intolerance, hatred, and even violence. Furthermore, this stance leads to the interpretation of any action that we don't like as anti-Semitism.
The ends justify the means.
Since "our" values are right and true, we are justified in doing whatever we need to maintain our power and position. Financial fraud is accepted among some Ultra-Orthodox Rabbis, if they believe it is to the advantage of a worthy cause of theirs.
It is fine to have punitive attitudes toward the weak.
Authoritarians disdain those who are weak or of lesser status. Choosing conversion as an arena in which to exert power reflects this attitude-prospective converts are very low status; they are weak and vulnerable. Sexual exploitation of prospective converts and of children are crimes that demonstrate this attitude-they are two of the most vulnerable and powerless groups. Additionally, failure to resolve the institutional oppression of agunot reflects institutional indifference to these most powerless women.
Subservience toward authority is vital.
Authoritarians disdain those they view as below themselves and are very submissive toward those they see as being strong and above themselves. Rabbis in the Hareidi or Hassidic hierarchy defer to those with more (perceived) power-even if it means backtracking from a position that they had taken-even a public one-and they often claim that they had been "deceived" into taking the original position.
The Rabbinical Council of America's capitulation to the Israeli Rabbanut regarding conversion procedure and personnel credentialing is another sorry example. Despite widespread acknowledgment of the Rabbanut's deficiencies of integrity, competence, and reliability, the perceived power of the Rabbanut was sufficient reason for the RCA to overturn centuries of the Diaspora tradition of local rabbinical autonomy and leadership.
Authoritarianism and the abuse of power by rabbinic leaders are not the only sources of behavior and thought control in the Orthodox community. Groupthink exerts an additional set of pressures to conform to an increasingly narrow, exclusionist view of what it means to be a Torah committed Jew, and is perhaps even more nefarious since it arises from within the community membership. For those who are unfamiliar with the term, groupthink is a type of thinking that occurs in cohesive groups, where the desire to remain a member of the group and to maintain consensus, overrides critical thinking and leads to faulty group decisions. Irving Janis, who researched historical fiascos created by groupthink, defined it as "A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action." While group cohesion provides the foundation needed for groupthink to develop, Janis has suggested that insular, homogeneous groups that have directive leaders and that experience stress from external threats are particularly vulnerable to groupthink. We suggest that these are attributes of current Orthodox Judaism, and that our community displays all of the symptoms of groupthink described by Janis and his colleagues. The symptoms are listed below, followed by real-life examples from within the Orthodox community.
Symptoms of groupthink
- Illusions of invulnerability create excessive optimism and encourage risk-taking.
There is a widespread belief that social problems such as substance abuse, spousal or child abuse, and addictive gambling are less prevalent in the Orthodox community than elsewhere, even when there are no reliable statistics, or that the statistics indicate otherwise. When a scientific study by Rachel Yehuda, Ph.D., Michelle Friedman, M.D., Talli Y. Rosenbaum, P.T., Ellen Labinsky, Ph.D., and James Schmeidler, Ph.D., published in the American Journal of Psychiatry, found that the Orthodox women in their sample were sexually abused at about the same rates as other women, Avi Shafran, representative of Agudath Israel, sprang into action, claiming not only that the survey was biased, but also that "the Torah-observant population is greatly underrepresented in the realms of societal ills like rape, AIDS, prostitution and marital infidelity that affect their less repressed neighbors," while simultaneously admitting that he has no statistics to back up his claim. He just knows.
Other leaders within the Orthodox community dismissed the results of the survey by saying that "approximately 40 percent of the respondents were ba'alei teshuva, and therefore, their experiences are irrelevant to those raised in Orthodox homes."
- The group rationalizes warnings that might challenge the group's assumptions.
Consider the following explanation of the outrage over Rav Eliezer Melamed's endorsement of soldiers' refusal to obey orders to attack Jews: "Secular zionists, who by and large built Israel are accused of trying to dismantle Israel, because their motives for creating the State was not based in Torah. Only Torah Jews imbued with a nationalist impulse stand in their way. Those who built it-right and left-have been trying to dismantle it for well over a decade and a half-and only Torah Jews imbued with a nationalist impulse stand in their way."
Another example: Yitzhak Kakun, editor-in-chief of the Shas weekly Yom Le'Yom claimed that the arrests of members of the Syrian Jewish community of New Jersey and Brooklyn, on suspicion of money laundering was an anti-Semitic plot cooked up by the FBI.
- There is unquestioned belief in the morality of the group, causing members to ignore the consequences of their actions.
In offering an explanation of why leading Hareidi religious figures (and others) allowed Leib Tropper and EJF to control conversions, Rabbi Steven Pruzansky wrote that "Gedolei Torah-and most rabbis-are incapable of recognizing true evil and hypocrisy. Call it the ‘Yitzchak Avinu and Esav Syndrome.' I have been in the presence of Gedolim, and they live on a plane of purity and saintliness where such incidents-while theoretically possible; after all, the Tanakh is filled with stories of the foibles of great people-are not considered practical possibilities. Most never encounter salaciousness, degradation, and the dark side of man." (Pruzansky blog, Dec 23, 2009)
Another example of this willfully amoral mindlessness is the increasingly frequent reference to "Daas Torah is hefekh daas Baalei Batim," (Lay understanding is the opposite of Torah wisdom), a phrase that insulates rabbis ("Gedolim") from criticism and replaces serious, respectful dialogue with contempt for anyone else's perspective. (For a sensitive treatment of this issue, see Rabbi Yossi Ginzberg's December 29, 2009 post on the blog, "Emes Ve-Emunah.")
- The group promotes stereotyping of those who are opposed to the group as weak, evil, biased, spiteful, disfigured, impotent, or stupid.
Consider the following quotations:
"The Conservatives begin the process with a desired result in mind (abolishing the mehitza, permitting cohanim to marry divorcees, counting women in the minyan, etc.) They are quite adept at manipulating the halakha to achieve that result, twisting and turning the words of our sages until they are "saying" what the Conservatives want them to say." (Pruzansky blog, Dec 4, 2009)
"The feminist movement ravaged the American family." (Pruzansky blog, Nov 29, 2009)
As another example, When Nofrat Frankel and the "women of the wall" attempted to read from a Sefer Torah in the women's section at the Western Wall, they were accused of doing it solely for political purposes, and of "inverting every relevant fact in order to make [their] argument" (Yaakov Menken, "The right to disrupt your prayers" Cross currents, November 30, 2009). Commented one of the readers of this column: "Getting arrested for wearing a tallit makes this woman a martyr for egalitarian rights and for civil rights. This gives the small group of non-Orthodox Jews in Israel a way to be noticed. Otherwise, they are totally ignored."
A common theme is to accuse others of nefarious motives, even when they have stated benign or benevolent ones. How exactly is it that the in-group members know the motives of others so much better than the others know their own motives? Or are they accusing them of deception and trickery?
- Direct pressure (aka peer pressure) is used to conform placed on any member who questions the group, couched in terms of "disloyalty."
Rabbi Norman Eisenstein announced that no judge on a conversion court would be accepted if he believed the universe was more than 5,770 years old.
- The group self-censors ideas that deviate from the apparent group consensus.
For a clear and compelling example of this, think of the number of people who you know who have altered their publicly expressed opinions or behavior (or asked family members to change theirs) in order to not threaten the matchmaking options of their children. In cases we know personally, a young man was denied permission to go to college because of the danger it posed to his sisters' marriage opportunities, while middle-aged couples have stopped going to the movies (although they will watch the same films at home, in private) for the sake of their children's potential "shiddukhim."
- Illusions of unanimity among group members is promoted; silence is viewed as agreement.
Everyone might disagree, but everyone thinks that everyone else agrees:
You conform to a certain dress code in order to fit into the group-"I don't think there is anything wrong with wearing pants...but..."
8. The group has self-appointed mind guards, who shield the group from dissenting information. These can be group leaders who guide the flock and weed out dissenters, and who cultivate a negative attitude about talking to outsiders. These are often Hareidi journalists and columnists.
Forbidding Hareidim to use the internet, Rav Yisrael Hager, the son of the Vishnitzer Rebbe, called on the community to refrain from buying tefilin and mezuzoth from anyone connected to Hareidi websites. The Rav's comments came at the start of the Shovavim period (the period that begins with the reading of Parashat Shemot and ends with Parashat Mishpatim), a time that the Kabbalists teach is auspicious for repentance. The Rav added that children from families with internet connections should not be accepted to schools, and that rabbis and teachers who do not conform to this policy should not be employed as teachers.
Overall, groupthink encourages overestimation of the group's power and morality, closed-mindedness, and pressures toward uniformity, and leads to defective decision-making. Although some of these examples are from the Hareidi rather than the Centrist/Modern Orthodox community, not all are. The symptoms of groupthink are increasingly observable in C/MO groups as well. If we don't want critical decisions facing the Jewish community to be defective, we need to be more vigilant about preventing, or disrupting groupthink.
The best way to prevent or disrupt groupthink is to eliminate or avoid the conditions under which it occurs. Although it is not likely that we can remove the external threats to the continued existence of the Jewish people, we can address the three others:
1. Directive leadership is a "command-and-tell," military-style leadership, which is helpful in critical situations of imminent threat, but has been identified as a chief cause of defective group process and poor outcome for decision-making in groups. A good leader is capable of a variety of leadership styles, adjusting the style to suit the situation.
- Directive leadership
- Isolation of the group from outside sources of information and analysis
- Homogeneity of members ideology and social background
2. & 3. That openness to outside sources of information and analysis helps counteract the groupthink tendency is self-evident, but the advantages of diverse groups may need some explanation. The advantages of diversity are not just our ideological bent-there is a good deal of research on the advantages (and disadvantages, to be honest) of diverse groups in terms of organizational functioning:
Diverse groups tend to be more creative and are better at problem-solving than are homogenous groups. When groups include people with different types of education and experience, they have a richer deliberation about the best course of action. Diversity helps an organization become more adaptable and flexible in responding to a rapidly changing world, while attracting and retaining its best members. Diversity, though, does increase turnover within the group, making it less socially integrated than groups of people who are all alike. Nevertheless, suspicion and hostility toward diverse opinion and demographics cause long-term harm to the group.
Conclusion and Recommendations
Recently, a number of young, educated, sincerely religious Israeli couples decided to reject the Rabbanut system entirely and make independent wedding plans. They arranged their own halakhically correct marriages and were willing to be officially considered common-law husband and wife rather than participate with that disreputable institution. Will this become a trend? Let us hope there is still time for it to serve as an illustrative warning. This is what happens when leadership fails: the best and most capable will not stand for it.
Religious authority in Judaism is meant to be a force for affirmative growth, to help us on our way toward becoming a "nation of priests" and a "light unto the nations." Authoritarianism won't get us there.
Just as we accept that we are subject to invisible physical influences, such as gravity or bacteria, we need to understand at a deep level-both individual and communal, lay and clergy-the workings of psychological forces on our reasoning and judgment, opinions and behavior. We need to foster the humility to recognize our vulnerability to the easy temptations of authoritarianism and the pitfalls of groupthink. Since these forces operate outside our awareness, we recommend the following changes in organizational structure and process to help keep them at bay:
For Further Reading:
- Intentional organizational self-reflection. Self-reflection, or heshbon hanefesh, is a religious obligation for individuals and is a recommendation whenever national calamity strikes. The Orthodox, religious Zionist community undertook such self-reflection following the assassination of Yitzchak Rabin and, at least for a while, the community made changes. Today, the parade of scandals in the religious community is a calamity that calls for self-reflection, particularly for religious and lay leadership. As a first step, independent professional consultation should be engaged on a regular basis to meet with leadership for the express purpose of examining their thinking process and power relationships.
- Transparency and lay oversight. Since any individual or group with power, left unchecked, will tend to tip, however unintentionally, toward policies of self-interest, it is essential to be able to examine rabbinical decisions against standards of logic, fairness, and consequences for community concerns. This in no way threatens their halakhic expertise and authority. Rather, it refines and extends it.
- Make a conscious, declared decision to incorporate diversity as a hedge against the inroads of fundamentalism. For too long now, the Modern Orthodox/Centrist rabbinical leadership has been busy looking over its right shoulder, defensive about its authenticity in the face of attacks from the religious right. Nevertheless, we continue to affirm the value of secular study, while acknowledging that at times it may present a religious challenge; we accept the risk, based on our beliefs. Similarly, while it is true that diversity in organizations entails some risk, it is a better choice than paranoia, black-and-white thinking, and hypocrisy, which are characteristic of authoritarian organizations.
Altemeyer, Bob. The Authoritarian Specter. Cambridge, MA: Harvard University Press, 1996.
Holzer, Rabbi David. The Rav: Thinking Aloud. New York: Holzer Publishing, 2009.
Janis, Irving Lester. Groupthink. Psychological Studies of Policy Decisions and Fiascoes. Boston: Houghton Mifflin, 1982.
Lammers, Joris, Stapel, Diederik A. and Galinsky, Adam. "Power Increases Hypocrisy: Moralizing in Reasoning, Immunity and Behavior." Psychological Science (in press).
June 24, 2011 | Truthout
One of the most original and provocative books of the past decade is "Disciplined Minds" by Jeff Schmidt (Rowman & Littlefield). "A critical look at salaried professionals," says the cover, "and the soul-battering system that shapes their lives." Its theme is postmodern America, but also applies to Britain, where the corporate state has bred a new class of Americanized manager to run the private and public sectors: the banks, the main parties, corporations, important committees, the BBC.
Professionals are said to be meritorious and non-ideological. Yet, in spite of their education, writes Schmidt, they think less independently than non-professionals. They use corporate jargon - "model," "performance," "targets," "strategic oversight." In "Disciplined Minds," Schmidt argues that what makes the modern professional is not technical knowledge, but "ideological discipline." Those in higher education and the media do "political work," but in a way, that is not seen as political. Listen to a senior BBC person sincerely describe the nirvana of neutrality to which he or she has risen. "Taking sides" is anathema; and yet the modern professional knows never to challenge the "built-in ideology of the status quo." What matters is the "right attitude."
A key to training professionals is what Schmidt calls "assignable curiosity." Children are naturally curious, but along the way to becoming a professional they learn that curiosity is a series of tasks assigned by others. On entering training, students are optimistic and idealistic. On leaving, they are "pressured and troubled" because they realize that "the primary goal for many is getting compensated sufficiently for sidelining their original goals." I have met many young people, especially budding journalists, who would recognize themselves in this description. For no matter how indirect its effect, the primary influence of professional managers is the extreme political cult of money worship and inequality known as neoliberalism.
... ... ...
This was the final act of corporate coup d'état, now disguised by a specious debate about "cuts" and a "national deficit." The most humane premises of British life are to be eliminated. The "value" of the cuts is said to be £83 billion, almost exactly the amount of tax legally avoided by the banks and corporations. That the British public continues to give the banks an additional annual subsidy of £100 billion in free insurance and guarantees - a figure that would fund the entire National Health Service - is suppressed.
So, too, is the absurdity of the very notion of "cuts." When Britain was officially bankrupt following the Second World War, there was full employment and some of its greatest public institutions, such as the Health Service, were built. Yet, "cuts" are managed by those who say they oppose them and manufacture consent for their wider acceptance. This is the role of the Labour Party's professional managers.
Feb 12, 2011 | Of Two Minds
In "1984," George Orwell describes a totalitarian state that employs "newspeak" to enforce its aims. Rather than merely suppressing statements that endanger the ruling party, newspeak constricts the language itself, making dangerous ideas impossible to formulate. This proves to work far better than post-hoc crackdowns on radical speech, inspiring one state functionary, Syme, to exude, "It's a beautiful thing, the destruction of words."
With that in mind, I'd like to explore a problem I see in the current economic debate. The path before the nation in general, and the federal government in particular, is usually framed as a choice between "quantitative easing" and "austerity," and even those who oppose the action represented by the former phrase, and support the course represented by the latter, tend to use these terms as if they truly described the two paths that might be taken.
But of course they don't.
"Quantitative easing" is, linguistically speaking, quite new. The original Japanese expression for "quantitative easing" ryoteki kinyu kanwa was minted in the mid-1990s, and became official Japanese monetary policy after Toshihiko Fukui was appointed governor in February 2003. It did not pass into American parlance until roughly 2005, but in a mere six years, it's a linguistic bestseller - a Google search for "quantitative easing" garners over a million hits.
It's easy to see why the term was pushed vigorously by the forces that support the action it represents. Evolutionary psychology asserts that humans have two basic drives - accumulating resources and minimizing effort. Throughout human history, anyone who could gather real resources without expending much time or energy had a huge survival advantage. "Quantitative easing," has, then, a hugely positive emotional valence, as it embraces the two things humans prize most - quantity and ease.
Of course, in reality, "quantitative easing" offers no such thing. It creates no real resources whatsoever, and whatever "ease" it might provide will be more than counterbalanced by painful side- and aftereffects.
An alternative phrase that policy critics sometimes advance - "money printing" - is, ironically, almost as attractive. The reason is that "money" has multiple meanings, and in the popular mind is conflated with possessions that can be purchased with currency. In other words, at a fundamental level, "money printing" sounds like a pretty good idea - the creation of a real resource with little effort. Sign me up!
So let's be clear. The most accurate description for the action described by "quantitative easing" is actually "fiat creation." Here, the type of money being created is specified - a fiat currency, untethered to any real resource, with no more intrinsic worth than the paper (or electrons) that constitute it. And "creation" reveals the voluntary bringing-into-being of this intrinsically valueless commodity. Using these words makes it clear that there is no imaginary constraint at which the fiat strains in search of "easing," instead, human beings make choices and perform actions to create it.
The fact that the average American has no idea what fiat is, is no excuse for those who do understand it failing to employ the phrase often in writing and speaking. If it is used enough, even Americans can learn a new word.
So use it, please.
Next is the term, "austerity," which is used, in government-budget discussions, to describe spending cutbacks necessary to balance tax inflows to spending outflows. The first-listed synonyms for this term are "harshness," "strictness" and "ascetisim," all of which have a strong negative emotional valence. Absent from these synonyms are any positive results that might come from actions described as austere; the entirety of the word's meaning is unrelieved by any awareness that austerity might have a benefit.
So again, let's be clear. The most accurate description for the set of measures described as "austerity" is expressed by the phrase "living within our means." This expression aligns with the average person's understanding that he or she must personally balance revenue inflows and outflows - even people who don't do this are usually painfully aware that they should. "Living within our means" then, has a positive valence that is hard to over-state - immediately, intuitively, it just makes sense.
Reframing the choices before us from a battle between "quantitative easing" and "austerity" to one between "fiat creation" and "living within our means" is a necessary first step to making the right choices as a culture. If we can't even properly state the problem, we'll never arrive at a solution.
Our attempts to limit language can be summed up as "political correctness". There is nothng more advantageous to the beasts in power than political correctness. The words most used to enforce political correctness are "racist", "bigot", "chauvinist", "discrimination", etc. These titles are often hoisted on people that are bringing up very sound and rational criticisms of the behavior of TPTB. Criticize Mr. Obama and watch how long it takes somebody to call you a racist. Criticize Frau Clinton and watch how long it takes somebody to call you a chauvinist. Criticize illegal immigration and watch how long it takes somebody to call you a bigot or a racist.
PC is definitely one of the favorite, and most powerful, tools of the Thought Police in America. Once they have deemed something "offensive" you can guarantee that something is being said that contains common sense and challenges their stupidity and destruction.
Fighting anybody that attempts to enforce Political Correctness is a blow for freedom and a blow being struck against the Thought Police. Call a spade a spade and I will call it Doubleplusgood.
The basic problem is the use or abuse of language to hide the true nature of the stimulus and easing and the appalling ignorance of the electorate which makes it all possible. As the later will never change as I see it the problem is with the current policies specifically that they are designed to operate from the top down. Big mistake. No recognition whatsoever that the elites have had a failure. So in the current form all current policies are is a gift from the government elites to the failed private elites. The results can be clearly seen seen in the eite economy while everyone anywhere else is left to twist.
The problem is, as it has always been, the mumbers. 10 million elties and dedicated minions and 300 million elses. Sooner or later though it won't matter what you call it or how you define or redefine the words, the stark realities will be too strong to be ingnored and some hyperbolic politician will create new language to frame the problem his way. We've got Hoover now so the only remaining question is do we get Hoover again, Hitler, Hanity (but I repeat myself), Roosevelt or Robespierre.
Could be any one with another Hoover the odds on favorite. Dozens of committed elitists to choose from in both parties. Obama is but one. However, sooner or later as the elites keep failing and the bills keep mounting things will have to change. Maybe for the better, maybe not.
February 11, 2011
We study a model where investment decisions are based on investors’ information about the unknown and endogenous return of the investment. The information of investors consists of endogenously determined messages sold by financial analysts who have access to both public and private information on the return of the investment. We assume that the return of the investment is correlated with the aggregate investment. This results into a beauty contest among analysts (or a “conformism” effect). In equilibrium, analysts sell all the information they have to all the investors. A striking result is that there are sometimes multiple equilibria. There are equilibria where the beauty contest is exacerbated. Because of the correlation across analysts’ information sources, not all the information available in the economy is transmitted to investors.
And the authors of the paper further conclude: “Analysts exert “collective manipulation.”
You got that? Good. Now please explain it to me.Source:
Conformism and Public News
Gabriel Desgranges and Céline Rochon
IMF Working Paper, February 2011
If you want more details:
We develop a model where investors make investment decisions based on information bought from financial analysts about the return of the investment. The model consists of two building blocks: (i) Analysts determining messages (to be sold to investors) based on their public and private information; (ii) a game between informed investors making investment decisions. An investor’s information consists of the messages bought from analysts.
A crucial assumption in this model is that the unknown and endogenous return of the investment is correlated with the aggregate investment. This assumption drives the key mechanism at work in our model: this correlation generates a beauty contest among analysts. Indeed, analysts sell to investors information on the return of the investment. The aggregate investment, which is endogenous, depends on investors’ information, namely the messages sent by analysts. Consequently, to predict the return on the investment, an analyst needs to guess current investors’ information that correspond to the messages of the other analysts.
Financial analysts hold information in the form of two signals, one privately observed, and one commonly observed by all the analysts. These signals are unknown to the investors, to illustrate the fact that information takes time to be processed and only the analysts possess the expertise to process it. The private signal of an analyst corresponds to its privileged information and his estimation of the impact, on the return, of the information that are commonly observed but whose interpretations differ across analysts. The public signal represents the information that is commonly observed by all analysts and identically interpreted by all analysts.”
You may now return to your previously scheduled Friday . .
I got it. They are full of sh!t but they are covering it up in nice sounding words. They hope that you are so insecure that you think the reason you don’t understand it is that you are not as smart as they are. Now they want you to hand over your money since they are obviously smarter than you and better able to handle investments. Those sons of Madoff.
Academics with inferior minds cloak their ignorance with mutli-syllabic words so that 1) others will think them highly intelligent; and 2) so that they can never be proven wrong, because the words have imprecise meanings and you can’t definitively pin down what they’re saying.
This is how professors in economics departments win tenure and get to keep their jobs for life, no? My best guess is that what they’re saying here is that the analyst consensus fed to the public is a load of crap, yet the investing public continues to eat it up. Now why didn’t I think of such an original thought! If I did, I might label it, let’s see, oh yeah — the sell side.
The Big Picture
Source: Red State
A friend writes: “What do you do when presented with a chart such as the one above?”
My answer was simply that it depended upon who is showing you the chart:
• If it comes from a hard core partisan, you laugh at the flaws in their wetware and say nothing. Recognize they are not capable of comprehending logic or objective reality, and can only respond to emotional narratives.
• If they are a student, or anyone genuinely interested in markets, economics, or probabilistic analysis, you ask, in your best Socratic method, the questions below.
• If they are an investor, you simply take their money.
Sports fans, Partisans — anyone emotionally invested in any specific outcome — lose the ability to objectively judge reality. Studies have shown that their brains appear to have a form of damage similar to aphasiacs. But there is no physical damage, it is merely inherent flaws built into the wetware.
To investors, this is a devastating problem, one that eventually will become terribly expensive if they do not learn how to compensate for it. The psychological term for this is selective perception. I love tracking down examples of this at work, as it reminds me how we are all wired in a way that is filled with cognitive flaws. Investing enlightenment only is possible once you objectively recognize and learn to work around the inherent flaws in your wetware.
This chart — which is hysterically funny to anyone who can objectively review economic data — reveals pretty much nothing about either politics or unemployment. But it reveals everything about the cognitive errors of the person who drafted it.
Let’s return to our student, or anyone genuinely interested in this data: See if your wetware can answer these questions. Once you have done that, go back and review the chart again:
1) Is this time period unique or typical? Do other eras share a similar relationship between the two variables?
2) Is there a causal relationship between the two variables? Asked another way, does the House Majority significantly impact employment, or is this merely a classic example of correlation without causation?
3) What other factors might impact employment more significantly than House Majority?
4) Is there a similar relationship between White House and Unemployment? How about the Senate and Unemployment?What do these relationships reveal about the original two variables?
5) Why such a small sample? We have been tracking unemployment for many decades, along with House majorities — What does using the complete data set reveal?
6) What about other employment related data? How do wages, long term unemployment, job mobility, and labor force participation rate compare to House Majority? What about GDP, balance of trade, inflation, deficits, etc?
7) What other ways are there to consider the data? Does a peak-to-peak or a trough-to-trough measure of unemployment change the outcome of the relationship between variables?
8) What about other time periods? Does the relationship in the chart hold true for periods of 5, 10, 20, 25 or 30 year periods?
In my business, I cannot allow my personal political preferences to interfere with my ability to form a coherent and objective view of reality. Whatever the business of the person who createdthis chart is, objectively reality does not matter much.
I only hope they are active participants in the stock market . . .
If you are interested in selective perception and the way the brain gets rewired by beliefs (upbringing, indoctrination, brainwashing, etc.), you should read Evil Genes by Barbara Oakley. She presents some interesting insights into cognitive bias, effectively explaining in greater depth what you refer to when talking about arguing with sports fans and partisans.
Since I stopped trading (where I was dreadful at avoiding getting married to positions and generally sat on them far too long), I have become much more objective. Now that I teach this crap to biz school students, I find myself telling them every day “question everything, especially yourself, and when you think you are no longer objective, get out…you can then be objective and get back in if you want.”
I think the most interesting graph is one showing how unemployment, deficits, illegal foreign wars, and general skulduggerey have faired under either party. I think we’ll find that both parties are equally corrupt, evil, greedy, and incompetent.
Mark E Hoffer:
November 6th, 2010 at 5:45 pm http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Evil+Genes+by+Barbara+Oakley+
Barbara Oakley, PhD, a ‘female Indiana Jones,’ is one of the few women to hold a doctorate in systems engineering. She chronicled her adventures on Soviet fishing boats in the Bering Sea in Hair of the Dog: Tales from Aboard a Russian Trawler. She also served as a radio operator in Antarctica and rose from private to captain in the U.S. Army. Now an associate professor of engineering at Oakland University in Michigan, Oakley is a recent vice president of the IEEE Engineering in Medicine and Biology Society.
Her work has appeared in publications ranging from The New York Times to the IEEE Transactions on Nanobioscience.
QOTD: “Disobedience, in the eyes of anyone who has read history, is man’s original virtue. It is through disobedience and rebellion that progress has been made.” -Oscar Wilde
Wall Street Warzone
Chances are you’ve read Napoleon Hill’s classics, Think & Grow Rich and Success Through Positive Mental Attitude, coauthored with insurance mogel Clement Stone. I did way back when I was at Morgan Stanley in the 1970s. Today, the cult of “Positive Thinking” is very much alive. Look in the business & finance shelves in Barnes and Noble. Still, in the wake of Wall Street’s 2008 meltdown, many began questioning the magic of ”PMA” as they saw their 401(k)s flatline.
It’ll take more than PMA, mantras, affirmations and a pep talk from the “God Wants You To Be Rich” crowd to rebuild your retirement nestegg. And it’ll take a lot longer than you hope because there’s a “new normal” for the American mind as well as the lower market expectations Pimco’s Bill Gross sees ahead. And it’s not about increasing your optimism level. The meltdown and bailouts left us with enormous anger, frustration, skepticism and mass distrust of virtually everything, including the Think & Grow Rich mantra: “Whatever the mind can conceive, it can achieve.”
Barbara Ehrenreich, the author of Nickel and Dimed, a 2000 bestseller, captures this new mindset in her diagnosis of America’s troubled psyche. Macho male readers may prefer reading the new books detailing Wall Street’s collapse in blow-by-blow real-time TV-style dramas, like Sorkin’s Too Big To Fail. But if you want the psychological “new normal,” step into Ehrenreich’s office where you’ll dig deep and discover what’s really going on in America’s collective brain. Read Ehrenreich’s Bright-Sided: How the Relentless Promotion of Positive Thinking Has Undermined America.
Yes, ”Positive Thinking” & “Happiness” Are Undermining America!
She pokes huge holes in the myth of positive thinking and its “new age” siblings — optimism, self-esteem, positive psychology and the new “science of happiness” — that are undermining America with false promises of an entitlement of prosperty. In BusinessWeek Michelle Conlin focused on Ehrenreich’s warning to future whistle-blowers in the chapter on “how positive thinking destroyed the economy.” Listen:
“In pre-subprime America, delivering the news that we were all burning down the house was a career-ender. Nowhere was this more true than on Wall Street. One such martyr to the cause of financial realism, Ehrenreich writes, was Mike Gelband, who ran the real estate division of Lehman Brothers. Gelband warned Lehman CEO Dick Fuld about the real estate bubble in 2006. ‘Fuld promptly fired the misfit, and two years later, Lehman went bankrupt’.” Hmmm, isn’t that about the time Paulson left as Goldman’s boss to become Treasury Secretary, later Bloomberg News revealed that Paulson did warn the White House staff of a possible meltdown, still they stayed in denial till it was too late.
Today we know Paulson and Fuld are just bit players in America’s broader ‘positive thinking’ drama, which far more pervasive than the guys at the top of Corporate Amercia and Wall Street. It also infected home builders, realtors, mortgage brokers and millions of homebuyers were all hypnotized, in denial about the risks of defaulting on mortgage payments in event of a down market.
Other critics are equally blunt. Writing in the New York Times Hanna Rosin says “I have waited my whole life for someone to write a book like Bright-Sided. When I was a young child, my family moved to the United States from Israel, where churlishness is a point of pride. As I walked around wearing what I considered a neutral expression, strangers would often shout, ‘What’s the matter, honey? Smile!’ as if visible cheerfulness were some kind of requirement for citizenship,” adding that “America’s can-do optimism has hardened into a suffocating culture of positivity that bears little relation to genuine hope or happiness.” She hesitated to go as far as Ehrenreich who saw a larger conspiracy using positive thinking as ”just another way for the conservative, corporate culture to wring the most out of its workers.” Others were not so reluctant:
“We’re always being told that looking on the bright side is good for us, but now we see that it’s a great way to brush off poverty, disease, and unemployment, to rationalize an order where all the rewards go to those on top,” warns Thomas Frank, Wall Street Journal columnist and author of The Wrecking Crew: How Conservatives Rule. “The people who are sick or jobless — why, they just aren’t thinking positively. They have no one to blame but themselves,” a mindset that echoes the ideologt of many conservatives, religious fundamentalists and hard-core capitalists today.
Read Bright-Sided, it is a perfect psychological counterpoint to typical dramas like When Giants Fall, Bad Money, Panic and Bailout Nation. You’ll get a shrink’s eye view deep into America’s collective brain. And by jarring you out of denial, it’ll protect you from the new bubble/bust cycle already blowing.
Groupthink is alive and thriving in Washington, D.C., argues Bacevich, who's convinced that America's mightily militaristic and endlessly idealistic approach to the rest of the world is costing the country dearly. Boiling down his argument to the simplest terms: the world would get along just fine without this overarmed global policeman, and more important, the United States would fare far better at home if it weren't squandering so many of its gifts abroad.
What's the Big Deal?The Pentagon, a nearly three-quarter-trillion-dollar agency, is the largest industrial organization on the planet. And it's armed to the gills. Washington's best and brightest minds—in Bacevich's estimate, the "elected and appointed officials, corporate executives and corporate lobbyists, admirals and generals, functionaries staffing the national security apparatus, media personalities, and policy intellectuals," who are all deriving "profit, power, and privilege" from the status quo—have not only failed you and me, they are steadily running the country into ruin. Though at times he makes his argument with the wrong tools, Bacevich's chief concern—that we're misusing our military—couldn't be more important.
Organizations, whether it be a club or a profession or a department, too often over time develop a sort of intellectual inertia, a bureaucratic mindset that tends to perpetuate and validate a certain view of the world amongst its members, particularly if they share other elements in background and world view.
This works to its advantage when they are right, and when the scope of the tasks which they must address are limited to largely operational concerns, without significant risk in the classic sense of the term.
But when the situation becomes different, the environment changes, this organizational mindset not only stifles innovation and adaptation, it can literally reach out and strangle it, well beyond its members, using the entrenched power of its tenure. We see this tendency clearly in organizations that have enjoyed long periods of organizational growth under the leadership of strong personalities, such as the FBI under Hoover, and the Federal Reserve under Greenspan.
We can see this same tendency on a micro level in our daily life on chatboards, in clubs, in our company departments, in civic organizations. It is a tribalistic instinct, that urges the adoption of a consensus view, often influenced and promoted by articulate and single minded individuals, which then musters and focuses the energy and vitality of the group in the execution of its mission.
When it is right, it brings success. But when it goes wrong, when it feeds on itself, becomes defensive and inwardly focused, when perpetuation of the group view overtakes all other considerations, when tribal loyalty and sameness is valued over results, it leads to a cult like behaviour, inbred thinking, that may be inimical to the best intentions of the group, and the sort of behavioural anomalies which we have seen in the tragedies of Watergate, the latter stage Hoover FBI, and even Jonestown.
Economics is in the grips of such a period in its development. One of the primary causes of this problem has been the rise of a few well funded think tanks, universities, and of course the Federal Reserve, that have become powerful influencers, and guardians, dogmatisers of the status quo. The petty sniping among the schools notwithstanding, the current debate of stimulus versus austerity serves to show how anemic, how self referential, how predictable the discussion has become.
The US politicians and economists are doing the same things over and over, expecting a different outcome. For the past twenty years the world has been lurching forward in a series of increasingly destructive asset bubbles, supported by the corruption of thought, and the transfer of wealth from the many to the few, as a direct result of fiscal and monetary policy fomented by relatively small number of powerful people, the monied interests. At some point this will change, and the grip of the status quo will be broken. How much energy will be released, and in what directions, only time can tell.Janet Yellen: "...has had thirty six opportunities to vote on monetary policy at the FOMC, and she has voted 'aye,' yes, thirty six times. Thirty six for thirty six. Has the Fed been right thirty six consecutive times? No. A well credentialed, consensus hugging economist straight out of the Fed HR department. She is ideal from the point of view of the Fed bureaucracy. She will make not one ripple."
Peter Diamond and Sarah Bloom Raskin: "Diamond is a formidable academic, and Raskin is a formidable regulator, but neither is a formidable thinker about the nature of money, or about the history of money, or about how the Fed might paradoxically make things worse by doing what it does, trying to make things better, which I think is the great question. These are people who I think are unlikely to propose novel solutions to our fundamental monetary dilemma which is that the US dollar is a faith based currency of no intrinsic value that is manipulated by the Fed, and the consequences of the manipulation are often quite distinct, different from what was intended. That's the problem."
Jul 03, 2010 | The Guardian
The classic paper on the last of those strategies is from Lord, Ross and Lepper in 1979: they took two groups of people, one in favour of the death penalty, the other against it, and then presented each with a piece of scientific evidence that supported their pre-existing view, and a piece that challenged it; murder rates went up or down, for example, after the abolition of capital punishment in a state.
The results were as you might imagine. Each group found extensive methodological holes in the evidence they disagreed with, but ignored the very same holes in the evidence that reinforced their views.
Some people go even further than this when presented with unwelcome data, and decide that science itself is broken. Politicians will cheerfully explain that the scientific method simply cannot be used to determine the outcomes of a drugs policy. Alternative therapists will explain that their pill is special, among all pills, and you simply cannot find out if it works by using a trial.
June 18, 2010 | immobilienblasen
Special Report Amid the Gulf crisis, Wall St touted BP stock Reuters
Others say the failure of even one analyst at a major firm to grasp the potential risks and advise clients to dump the stock reflects the profession's overall group-think tendencies. "For sell-side analysts, the incentive is to remain toward the center of the pack. If they are going to be wrong, they have got to be in good company," said Michael MacPhee, at investment manager Baillie Gifford.
As the shares headed toward almost half their pre-disaster level, most analysts issued more cautious notes, with Goldman, Natixis, S&P equity research and Charles Stanley, cutting their ratings to neutral or hold from buy.
By June 16, BP was rated a buy by 16 analysts, outperform by eight, a hold by another 8 with only one sell, according to data on Reuters Knowledge. That was the date, of course, when BP agreed to fund a $20 billion escrow account and suspend its dividends for the year.
With the price around half what it was before the spill, analysts might have a stronger argument that BP was a buy in mid-June, though that will be of little comfort to anybody who followed the advice to buy a month ago.
H/T Reformed BrokerBloombergThe split over BP between U.K. and U.S. investors extends to analysts. The U.K. stock has 26 “buy” recommendations, while 12 analysts recommend holding the stock and two say to sell. In contrast, almost as many U.S. analysts advise against purchasing the stock as buying it. The ADRs have seven “buy” recommendations, five “holds” and one “sell.”
And when a guy like Chanos is shorting Exxon widely viewed as the goldstandart in the industry you have to wonder even more....
Mickey Marzick in Akron, Ohio:June 29, 2010 at 9:14 am
Did you really expect more? Did anyone? Why?
Isn’t it a bit of a paradox that after 30 years of less government and less regulation that suddenly “WE” now look to the federal government to deliver US from our own folly? Then when the “feds” seem unable to deliver – Katrina, “wars” in Iraq and Afghanistan, financial reform, and now BP in the Gulf – it only confirms our suspicions that the federal government is both incompetent and corrupt, lacking the fundamental expertise to do anything. It simply isn’t there, a mere shadow relegated to the sidelines by conscious design.
Government is the problem, not the solution. Anyone old enough to remember that line? Anyone still believe it?
Isn’t this what less government and less regulation mean when taken to their logical conclusion? “Starving the beast” isn’t just about tax revenue but a systematic approach to dismantling the federal government and reducing it to the role of a “night watchman” – and one not even paid “minimum wage”. So is it really a surprise when he’s found sleeping on the job or partying with the burglars giving them the keys to the building? Perhaps even more naïve is the belief that many of the same “parties” responsible for this particular financial debacle are somehow going to “reform” the shadow banking system in a way that precludes it from cratering the system first time around. Is this the way a limited government with competing factions amidst a separation of powers and checks and balances functions, especially after 30 years of less government and less government that facilitated the emergence and growth of the shadow banking system?
A nation locked in “free market” groupthink wakes up to the consequences of the latter but has no memory of how it got here. Please wave your magic wand, Mr. Obama, and deliver us from our sins – INTERVENE and fix it! Because come this November I’m going to vote for less government and less regulation again…
Jun 18 | Yahoo! News
"Underwriting is a big factor," Rosenthal said. "There's always going to be pressure on sell-side analysts to be more optimistic."
That's not to say the reforms have had no impact at all. Analysts are more likely to issue "sell" recommendations on stocks they cover than before the regulatory changes which largely took effect in 2002. Ten years ago, fewer than 1 percent of all ratings were "sell," but since then "sell" ratings have climbed as high as 11 percent in 2003 and stand at 6 percent so far in 2010, according to Thomson Reuters data.
The botched BP calls point to a reluctance on the part of analysts to challenge companies. Among other things, they may worry about jeopardizing their access to top executives. "It's one of the classic drivers of the analyst business -- access to management," said Boston College professor Amy Hutton, who has studied conflicts in the industry.
Such entry can come in handy. On June 10, for example, Credit Suisse revealed to clients in a research note that BP estimated the cost of capping the well and cleaning up the damages at just $3 billion to $6 billion, a figure that had not been released to the public. The note was based on information directly provided to the bank at a breakfast meeting with BP's chief of staff, Steve Westwall.
Others say the failure of even one analyst at a major firm to grasp the potential risks and advise clients to dump the stock reflects the profession's overall group-think tendencies. "For sell-side analysts, the incentive is to remain toward the center of the pack. If they are going to be wrong, they have got to be in good company," said Michael MacPhee, at investment manager Baillie Gifford.
Of course, wrong-way Wall Street calls are more than just an academic problem. They cost real people real money. David Dugdale, European equities specialist with investment manager MFC Global, said his firm was among those who took analysts' advice and bought BP stock shortly after the initial share price drop, only to sell down the stake later after further falls. "I didn't see any note saying sell BP, so looking at it objectively, the sell side got it wrong," he said.
Analysts protest that such 20/20 hindsight can often be unflattering. The Deepwater Horizon situation, they say, was unprecedented and almost impossible to predict. "From the outset of this tragic accident and environmental catastrophe, regaining control of the leaking oil well has proved more difficult than initially thought and estimates relating to the amount of oil leaking have been increased several times," said Tony Shepard at Charles Stanley.
Eventually, the risks became more apparent even to Wall Street. Shepard's cutting his BP rating to "hold" from "buy" was the first of a rash of downgrades in June, after the stock had already fallen 34 percent. As the shares headed toward almost half their pre-disaster level, most analysts issued more cautious notes, with Goldman, Natixis, S&P equity research and Charles Stanley, cutting their ratings to neutral or hold from buy.
By June 16, BP was rated a buy by 16 analysts, outperform by eight, a hold by another 8 with only one sell, according to data on Reuters Knowledge. That was the date, of course, when BP agreed to fund a $20 billion escrow account and suspend its dividends for the year.
With the price around half what it was before the spill, analysts might have a stronger argument that BP was a buy in mid-June, though that will be of little comfort to anybody who followed the advice to buy a month ago.
June 09, 2010 | Econbrowser
In some ways the Gulf of Mexico oil spill seems like a replay of the subprime lending disaster. Clever technological innovations blew up in a mess that nobody knew how to control, wreaking devastation on those innocently standing by. The actors and the scenes have changed, but you can't shake the feeling you've been through this nightmare before.
Ken Rogoff sees the parallels this way:
The accelerating speed of innovation seems to be outstripping government regulators' capacity to deal with risks, much less anticipate them.
The parallels between the oil spill and the recent financial crisis are all too painful: the promise of innovation, unfathomable complexity, and lack of transparency (scientists estimate that we know only a very small fraction of what goes on at the oceans' depths.) Wealthy and politically powerful lobbies put enormous pressure on even the most robust governance structures....
The oil technology story, like the one for exotic financial instruments, was very compelling and seductive. Oil executives bragged that they could drill a couple of kilometers down, then a kilometer across, and hit their target within a few meters.
This rings true to me. New financial instruments and new technologies for extracting oil require changes in regulatory oversight. And this is the kind of adaptation that established bureaucracies often find impossible to implement.
Ed Dolan thinks the common element is gambling with other people's money:
Executive compensation plans that emphasize short-term bonuses, include golden parachutes, and lack clawback provisions are one example. Not only top executives face such incentives-- mid-level traders, engineers, and analysts may also take risks in the hope of bonuses or promotions, with the expectation that the worst that can happen in case of catastrophe is that they lose their jobs. Stockholders may condone such risk taking because they are protected by limited liability.
Both the Gulf oil spill and the financial crisis had their origins in negatively skewed risks. Investigators in the Gulf disaster are looking at whether BP and its contractors underplayed downside risks when they made technical choices, ignored warning signs, and neglected preparations for dealing with a worst-case spill. In the financial crisis, negatively skewed risks involved excessive leverage, manipulation of ratings, design of complex securities, and several other factors.
I agree with Ed that intra-organizational incentives contributed to the problem in both cases, and that government policy allowed the firms that created the problems to pass some of the costs on to others in many details of the financial debacle. But I am less persuaded that limited liability explains BP's decisions at the corporate level. The company's market value has declined by over $75 billion since April. Here was an entity with more than just skin in the game and looking more than just flayed at the moment. And yet, the company opted not to invest $500,000 in a secondary acoustic shut-off switch, which is essentially required in Norway and Brazil, and which Royal Dutch Shell and France's Total SA sometimes use even when not required. BP's backup plans B, C, and D all seemed to come out of the playbook for dealing with the 1979 Ixtoc disaster-- none of them worked that well there, either. So why did the company take such risks?
I think part of the answer, for both toxic assets and toxic oil, has to do with a kind of groupthink that can take over among the smart folks who are supposed to be evaluating these risks. It's so hard to be the one raising the possibility that real estate prices could decline nationally by 25% when it's never happened before and all the guys who say it won't are making money hand over fist. And this interacts with the forces mentioned above. When the probability of spectacular failure appears remote, and moreover it hasn't happened yet, it's hard to set up incentives, whether you're talking about a corporation or a regulatory body, in which the person who makes sure that the risks stay contained is the person who gets rewarded. When everyone around you starts thinking that nothing can go wrong, it's hard for you not to do the same. It can become awfully lonely in those environments to try to be the voice of prudence.
And yet, prudent judgment is the thing I most desperately wish decision-makers had more of in these times of dazzling new technological capabilities.
David Pearson:Michael Krause
If "smart folks" are prone to group think that blinds them to risk, then what does that say about the Fed? Clearly, they succumbed to some of the same group think that afflicted all financial engineers during both the stock and mortgage bubbles. They searched went shopping for analytical models that justified the bubbles ("productivity" in the case of stocks, "savings glut" and "great moderation" in the case of mortgages). And they largely shut out opposing views. Reading the transcripts for 2004, one gets the sense that FOMC members would put up mild resistance against the Chairman's pet views, only to finally give in using self-deprecating humor, as if it were a debate over where to go for lunch with a strong-willed colleague.
It seems to me that since the two bubbles, a fringe group -- now larger but still fringe -- believes that aggressive monetary policy in the hands of the Fed is a recipe for large "oil spills". Consensus economists, in contrast, seem reluctant to hold the Fed accountable for its actions. Witness that Tim Geithner gets little blowback for studying derivatives markets for years as head of the NY Fed before concluding that the risks they posed were acceptable. That was his job, and he failed, just as the BP engineer in charge of the shut-off valve system failed. "Whocouldhaveknown?" seems to be an unacceptable defense for BP, but an entirely acceptable one for the Fed.
Richard Thaler talks about this in his almost 20 yr old book "The Winner's Curse." Status quo bias. Where otherwise smart people feel they have more to lose to sticking their neck out than just following the status quo.
The solution is to create an isolated and well incentivized group of engineers to act as risk managers.
Maybe we should work aggressively to make these 'auditors' be a part of the regulatory side instead, and again, properly incentivize them to think outside the box the next time big oil or big bank starts doing something.
Maybe a decent way to do this is implement privatized, but publicly funded regulators who receive 'awards' (funded from public dollars) upon staying on top of technological innovation from private industry. Make regulation a competitive business, where the most aggressive policy/research gets rewarded the most.
I think these events tend to share certain common traits:
- misinterpretation of data
- failure to listen to subordinates' concerns
- a three standard deviation event
- equipment failure
Of these, only mindset and a three standard deviation event apply to the Fed or subprime mortgages. There was plenty of time for the Fed, and plenty of data. In addition, the Fed and the subprime markets were characterized by principal-agent problems. Investment bankers are interested in and paid to consummate a transaction. As a matter of incentives, they don't really care what happens afterwards. Similarly, the Fed didn't want to spoil the housing party, so they failed to act, but they had plenty of information to do so at senior levels.
For BP, the situation was different. The BP manager on the rig, according to press reports, was under pressure to make progress on an overdue well. I have read that he was primarily a land driller, but I don't know if that's true. Certainly, he appears to have failed to listen to the top TransOcean man on the rig. I'm sure he didn't take the risk seriously (TransOcean did), possibly because there hadn't been a serious rig incident in decades--a mindset problem. Moreover, he--and the rest of us in the industry--placed great faith in the blow out preventer, which failed.
Finally, this is one nasty, nasty well. To quote one worker who survived the blast: "I've seen a lot of gas coming up from different wells, and the highest I've seen in my 11 years is 1,500 units. This well was gave us 3,000. I've never been on a well with that high gas coming out of the mud. That was kind of letting me know this well was something to be reckoned with." (Peak Oil News, June 9) I have every expectation this will prove to be a three-standard deviation event (and I wouldn't be surprised, ironically, if it proves to be one of the most prolific wells in Gulf).
So those are the factors. I personally don't see a regulatory failure, as there was with, say, the oversight of AIG. Overseeing a drilling operation would be a bit like overseeing a brain surgeon during an operation. You sure you want to second guess him when the clock is ticking at $25k an hour and the patient is on the table?
A better comparison, to my mind, is the KLM/PanAm crash at Tenerife Airport in 1977 and still the worst air disaster ever. ( http://en.wikipedia.org/wiki/Tenerife_airport_disaster ) What many don't know is that the stage was set by a bombing at the main airport in Las Palmas, which diverted the incoming aircraft to Tenerife. The KLM and PanAm aircraft weren't even supposed to be there. The disaster was caused by KLM's top training pilot, who had to take off because his allowable flight window was about to expire. He misheard the tower, ignored the co-pilot, and took off on a foggy runway. The accident was ultimately caused by a confluence of factors, not least of which were safety regulations limiting flying time.
April 9, 2010 | The Baseline Scenario
In the great consensus of the past twenty years, government regulation was unnecessary because the free market provided better tools for constraining private companies. One force was the market, idealized by Alan Greenspan, who believed that counterparties could even police effectively against fraud. The other force was shareholders, who would punish managers for acting contrary to their interests. The market would prevent companies from abusing their customers, while corporate governance would prevent them from abusing their shareholders.
For those who still believe in the latter, McClatchy has a good (though infuriating) article on what went wrong on Moody’s, the bond rating agency that, we previously learned, responded to warnings about the toxic assets it was rating by . . . firing the people making the warnings. In the words of an executive on a Moody’s risk committee:
“My question the whole time has been, ‘Where the hell has the board been?’ I would have expected, sitting where I was, that I would have got a lot more calls from the board. I got none of that.”
Another Moody’s executive added, “There was no (corporate) governance at the firm whatsoever. I met the board, I presented to them, and it was just baffling that these guys were there. They were just so out of touch.”
The story that Kevin Hall tells about Moody’s has been told many times before. Board members often serve at the pleasure of the CEO, who controls who receives the perks of board membership. The result is often, but not always, boards that rubber-stamp the decisions of the CEO and his or her inner circle. Court precedents make it difficult to hold board members personally liable for anything, and companies buy liability insurance for their board members just in case. As Lynn Turner, former chief accountant of the SEC, said to McClatchy, “I personally think until law enforcement agencies start holding these boards accountable, . . . you’re probably not going to get a lot of change.”
This is why I am skeptical of proposals to, for example, increase the number of independent board members. There’s nothing wrong with it, but I think it betrays a certain amount of naivete over what independent board members actually do.
If you spent your life in the corporate world, the first observation about Boards’s of Directors is that directors are there only because they subscribe to the groupthink of the corporate culture. Even if that is not true from time to time, new boards over time inculcate their groupthink into the corporation. This is particularly the case when the Chairman is a powerful dominating leader. He wants ” yes people”. Congressional factions hire people in their bailiwick that are ” yes people”. The phenomenon is natural. What better comparatives than the Board of GM dominated by Alfred Sloane and forever afterwards in a decadent manner. The same is demonstrably true of the FBI under Hoover with decadence ever after. Another major example was the supply and logistics arm of the US Army before and during WWII. Look at AIG under Greenberg and the aftermath.
Look at the angst at the GM board when Ross Perot was a director. Had Perot been able to dictate the GM Board to his desires we would now be talking about the GM of Perot and decline ever afterwards. The great leader exhausts and groups without great leaders are exhausted.
At some point, the groupthink malaise must turn very active , as with political coups and such, to energize a group to be dominant enough to have other groups join the pecking order at lower level. There seems to be times when their are too many challengers lower down to disturb the dominant group. So the group either capitulates and joins or is defeated . The defeated then wither away.
Groupthink doesn’t handicap an otherwise effective system. Corporate governance is groupthink, if not worse, in the US. It’s possible to do CG differently – through regulation. German law dictates the composition of many AG oversight boards: in some cases capital and labor split the seats evenly, in others an impartial member is included.
Management is typically not present in threatening numbers. CEOs cultivate relationships with labor because they need the support of labor representatives on the oversight board. The Betriebsrat, or workers’ council, is another matter.
The Chair of the Betriebsrat is often one of the representatives of labor in the oversight board.
Obama has been repeatedly praised for his soaring rhetoric, and I simply do not get it. It’s pretty easy to sound grand if you aren’t dispensing ideas that challenge the status quo. We are supposed to take his way-too-little-too-late finger shaking at the banksters seriously. By contrast, consider this section of FDR’s first inaugural address:sherparick1:
….the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.
True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.
The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.
Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and to our fellow men.
Recognition of the falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing.
Ah the internet! It allows me to discover so many folks who have obtained the ability to read minds.
Yves and so many here claim that Obama has “betrayed” the platform he ran on. Again, go back and read that platform. He was the right on to Clinton and the other Democrats on health care and economic policy, as Paul Krugman points out. He comes from Hyde Park and is an adjunct law professor on the same faculty and Law and Economics gurus, Judges Richard Posner and Frank Easterbrook. Yes, he at time used some populist rhetoric, but nothing about Obama was populist, in fact anti-populist. He won because used his anti-Iraq war from the beginning stance as his creed with the long time anti-war wing of the Democratic party which was anti-Clinton; he captured the New Democratic/Neoliberal faction of upper middle and upper class Democrats who, while very pro-choice and socially liberal, had internalized neo-classical economics (market good/government bad aka as New Deal bad & archaic/tax cuts and deregulation good) a faction that had been pioneered as reliable core vote by Gary Hart, Paul Tsongas, and Phil Bradley in earlier Democratic primary contests, and added to that the alleigance of Black voters intoxicated at the idea of a Black nominee, or mirable dictu, a Black American President. And it is and was a miracle that I for one will always regard as one of the great achievements in American history, no matter his other failures.
Is Obama still captured by the Rubin clique? Yes, but of course so would almost any Democrat. Even Paul Krugman was speaking highly of the achievements of Bill Clinton’s economic team as late as December 2007. Also, Obama in a sense has took over at a earlier stage than FDR did. Again, I would recommend reading Schlesinger’s “The Crisis of the Old Order,” the first volume of his “The Age of Roosevelt” to see how FDR’s views changed from 1930 through 1933 as the Depression deepened. The FDR who came to power in March 1933 held very different views than the man had in March of 1931. Further, the great reforms, such as the SEC and Glass-Stegall, did not occur until 1934 and 1935.
Finally, you all seem to have an idea of Presidential omnipotence on domestic policy that does not exist. One needs 218 votes to pass a law in the House and with the way Senate is currently run, at least for liberal proposals, 60 votes in the Senate. 41 senators from states representing just 12% of the population can block legislation. Please tell me gentle souls how you would get your 218 House votes and 60 Senate votes for all your reform proposals.
Geithner, Summers, and Bernanke are not so much corrupt as they are prisoners of the groupthink of the last 30 years. As the young graduate student who signs himself “Thorstein Veblen” and runs the FireLarrySummersNow.com, Larry, probably because of family dynamics (uncles Ken Arrow and Paul Samuelson being the greatest liberal, Keynsian economists of the post WWII prosperity), essentially shares the same views as Greg Mankiw, as taught to them both by Martin Feldstein. Feldstein was Chairman of Reagan’s counsel of economic advisors and Mankiw held the same position for George Bush (and was followed by Ben Bernanke after he left – I think we have a theme here). I once had hopes that Summers had discovered the errors of his way back in 2008, but that hope is now crushed.
Why did Obama choose them? Well, because he himself is a Harvard man and a member of the elite, he shares a lot of the groupthink of the last 30 years. He has not (”yet”) disenthralled himself from the tired dogmas of the past, particularly the dogmas of “freshwater” economics. If his Presidency is still going to succeed, he will have to disenthrall himself. Ultimately, I think he is a smart enough politician that he will.
Manshu from OneMint has written this intriguing guest post about an aspect of social psychology called “groupthink”. Sounds like another term for “herd mentality”. While there are many applications of this concept, it appears to have some interesting implications for the world of investing.
What Your Investment Club Should Watch Out For
If you’re in an investment club or are involved in group investing of some sort, you may want to be aware of this phenomenon called “groupthink”.
Irving Janis coined the term – groupthink, which is a concept referring to how smart and intelligent people, when formed into groups, sometimes make horrendous decisions. Here’s how Irving Janis describes this concept:
“I use the term groupthink as a quick and easy way to refer to the mode of thinking that persons engage in when concurrence seeking becomes so dominant in a cohesive group that it tends to override the realistic appraisal of alternative courses of action. Groupthink is a term of the same order as the words in the newspeak vocabulary George Orwell used in his dismaying world of 1984. In that context groupthink takes on an invidious connotation. Exactly such a connotation is intended, since the term refers to the deterioration in mental efficiency, reality testing and moral judgments as a result of group pressures.”
While groupthink is a concept that was used to describe closed groups headed by a leader, I believe there’s some peer pressure involved here; I see it also applying to people who aren’t necessarily in a closed group, but who share the same income group, job profile, and so forth.
Don’t Let Groupthink Cramp Your Investment Style
Irving laid out 8 symptoms of groupthink. They seem to account for the behavior of people during wild market swings and business cycles, don’t you think?
Image by Design G Productions.
Illusions of invulnerability create excessive optimism and encourage risk taking. Group members may believe that nothing can go wrong and may therefore ignore dangers that stare them in the face. A friend who bought real estate funds at the peak, only to see their value go down by over 80%, told me that during the euphoria of the real estate boom, no one ever spoke or thought about things that could go wrong. Nobody seemed concerned about investment risk; there was much less concern about having to manage risk. So, in a situation where no one ever talks about anything negative, it is easy to get into a cocoon and feel that good times will continue to roll forever.
Collective rationalization and consensus seeking are hallmarks of groupthink. Again, during the boom, there were countless occasions when I heard about how things were different this time: that home values could never decline so dramatically, or that the dot com bubble is really an exception to how market cycles work. Well, we now know that things are no different this time.
Unquestioned belief in the morality of the group causes members to ignore the consequences of their actions. According to Irving, victims of groupthink ignore the moral or ethical consequences of their decisions. They often don’t talk about the consequences, or they may actually ignore the consequences, especially when everyone else around them does the same thing. I watched a show about the subprime mortgage crisis the other day. It depicted and interviewed lenders who knowingly participated in subprime lending practices, and who allowed their offices to conduct behaviors that were clearly detrimental to consumers who went to them for assistance. These lenders enabled unqualified homebuyers to purchase homes they could not afford. While some felt morally conflicted about these policies, they still felt that it was easier to ignore the problem and to go with their company’s position on the situation rather than to question what was going on (well, their jobs were at stake).
Stereotyping those who are opposed to the group as weak, evil, biased, spiteful, disfigured, impotent, or stupid. Victims of groupthink hold stereotyped views of the people of the opposing camp. Certain situations can foster an “Us vs Them” mentality. Think about those investors who turned more aggressive as the boom escalated. Day traders, highly leveraged investors or anyone who went on margin were at one point making tons of money during the market peak. Everyone else envied their position. Of course, these days we can only be thankful that we’ve missed those “opportunities” and have somehow avoided the dicey predicament many of these “gutsy” investors find themselves in today. But check out some of the stereotyping that goes on among stock market investors: Are market timers foolish or crazy? Are buy and holders patsies for staying put even while their retirement funds evaporated?
Direct pressure to conform is applied to any “disloyal” member who questions the group. Pressure is one of those contrarian indicators I use to get a feel for the market. When everyone — and I mean everyone, including your neighbors, family, friends, coworkers or random people you meet on the street — are encouraging you to engage in the same activity (e.g. buy certain investments), it’s an indication that something will probably go wrong very soon. During the peak I received a lot of advice on buying stocks and houses — advice that I felt I didn’t need at the time. I found it very difficult to explain to people why I wasn’t in a buying mood: I’d say “the market is peaking, I’m not buying”. And they’d counter: “it can still go higher”. Or they’d tell me “what, are you nuts?”
6. Self Censorship
There’s a self censorship of ideas that deviate from the apparent group consensus. A system may become vulnerable to losing its checks and balances once it begins working a little too well. Sometimes things are progressing so well that people begin ignoring the flaws in the set up or process; eventually, people block any misgivings, questions and concerns they have and decide to “join in” and become part of the process. They jump on the bandwagon and think to themselves “if you can’t beat them, join them”.
Illusions of unanimity exist among group members, when silence is viewed as agreement. As market bubbles grow, there were experts in the private and public sectors who kept silent about how things were unfolding. Hardly an objection was heard, and those who dared counter the majority were scoffed at. Does this mean that those “in the know” who said nothing about the elephant in the room could be construed as unanimous in supporting the shenanigans occurring in the real estate and credit industries?
Mindguards are self-appointed members who shield the group from dissenting information. Irving wrote about committees headed by a leader, but also referred to mindguards as people who prevented opposing points of view from reaching the leader. Can you think of real life mindguards who’ve played big roles in orchestrating certain events in our history?
These symptoms serve as good pointers the next time we find ourselves in extraordinary market cycles and situations. When everyone is in a hurry to buy or sell houses, stocks or gold, there could be ample reason to be skeptical.
Thanks again to Manshu for this insightful article. Please consider visiting One Mint and subscribing to One Mint’s RSS feed here.
The crowd mentality is maybe not rational.
Well, let's put that differently. It's not optimal. It's what it is. You have to cope with people. Now, if all the people had gone to the Wharton School and become very sophisticated that doesn't mean the society in which they lived and operated would be incapable of having a business cycle or bubbles. They're self generating.
TO UNDERSTAND HOW economies work and how we can manage them and prosper, we must pay attention to the thought patterns that animate people’s ideas and feelings, their animal spirits. We will never really understand important economic events unless we confront the fact that their causes are largely mental in nature.
It is unfortunate that most economists and business writers apparently do not seem to appreciate this and thus often fall back on the most tortured and artificial interpretations of economic events. They assume that variations in individual feelings, impressions, and passions do not matter in the aggregate and that economic events are driven by inscrutable technical factors or erratic government action. In fact, as we shall discover in this book, the origins of these events are quite familiar and are found in our own everyday thinking. We started work on this book in the spring of 2003. In the intervening years the world economy has moved in directions that can be understood only in terms of animal spirits. It has taken a rollercoaster ride. First there was the ascent. And then, about a year ago, the fall began. But oddly, unlike a trip at a normal amusement park, it was not until the economy began to fall that the passengers realized that they had embarked on a wild ride. And, abetted by this obliviousness, the management of this amusement park paid no heed to setting limits on how high the passengers should go. Nor did it provide for safety equipment to limit the speed, or the extent, of the subsequent fall.
What had people been thinking? Why did they not notice until real events—the collapse of banks, the loss of jobs, mortgage foreclosures— were already upon us? There is a simple answer. The public, the government, and most economists had been reassured by an economic theory that said that we were safe. It was all OK. Nothing dangerous could happen. But that theory was deficient. It had ignored the importance of ideas in the conduct of the economy. It had ignored the role of animal spirits. And it had also ignored the fact that people could be unaware of having boarded a rollercoaster.
What Have People Been Thinking?
Traditional economics teaches the benefits of free markets. This belief has taken hold not just in the bastions of capitalism, such as the United States and Great Britain, but throughout the world, even in countries with more established socialist traditions, such as China, India, and Russia. According to traditional economics, free market capitalism will be essentially perfect and stable. There is little, if any, need for government interference. On the contrary, the only risk of major depression today, or in the future, comes from government intervention.
This line of reasoning goes back to Adam Smith. The basis for the idea that the economy is essentially stable lies in a thought experiment which asks: What do free, perfect markets imply? The answer: If people rationally pursue their own economic interests in such markets, they will exhaust all mutually beneficial opportunities to produce goods and exchange with one another. Such exhaustion of opportunities for mutually beneficial trade results in full employment. Workers who are reasonable in their wage demands—those who will accept a wage that is less than what they add to production—will be employed. Why? If such a worker were unemployed, a mutually beneficial trade could be arranged. An employer could hire this worker at the wage she requires and still have some spare extra output for a larger profit. Of course some workers will be unemployed. But they will be unable to find work only because they are engaged in a temporary search for a job or because they insist on pay that is unreasonably high—greater than what they add to production. Such unemployment is voluntary.
There is a sense in which this theory about the economy’s stability is remarkably successful. For example, it explains why most people who seek work are employed most of the time—even in the troughs of severe depressions. It may not explain, for example, why 25% of the U.S. labor force was unemployed in 1933 at the height of the Great Depression, but it does explain why, even then, 75% of the workers who sought jobs were employed. They were engaging in the mutually beneficial production and trade predicted by Adam Smith.
So, even at its worst, this theory deserves high marks—at least by the criterion of a schoolboy we once overheard at a restaurant. He was complaining about the C he had received on a spelling test—despite the fact that 70% of his answers were correct. Furthermore the theory does so well even in its worst prediction in two hundred years. Most of the time—as now, when the U.S. unemployment rate is still 6.7% (although rising)—it predicts remarkably accurately.
Consider yet again the Great Depression. Few people ask why employment was as high as 75% in 1933. Instead the common question is why 25% of the labor force was unemployed. To our mind macroeconomics concerns departures from full employment. Failure to be at such full employment must then result from a departure from the classical model of Adam Smith.
We do believe, like most of our colleagues, that Adam Smith was basically right regarding why so many people are employed. We are also willing to believe, with some qualifications, that he was essentially correct about the economic advantages of capitalism. But we think that his theory fails to describe why there is so much variation in the economy. It does not explain why the economy takes rollercoaster rides. And the takeaway message from Adam Smith—that there is little, or no, need for government intervention—is also unwarranted.1
The thought experiment of Adam Smith correctly takes into account the fact that people rationally pursue their economic interests. Of course they do. But this thought experiment fails to take into account the extent to which people are also guided by noneconomic motivations. And it fails to take into account the extent to which they are irrational or misguided. It ignores the animal spirits.
In contrast, John Maynard Keynes sought to explain departures from full employment, and he emphasized the importance of animal spirits. He stressed their fundamental role in businessmen’s calculations. “Our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing,” he wrote. If people are so uncertain, how are decisions made? They “can only be taken as a result of animal spirits.” They are the result of “a spontaneous urge to action.” They are not, as rational economic theory would dictate, “the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”2
In the original use of the term, in its ancient and medieval Latin form spiritus animalis, the word animal means “of the mind” or “animating.” It refers to a basic mental energy and life force.3 But in modern economics animal spirits has acquired a somewhat different meaning; it is now an economic term, referring to a restless and inconsistent element in the economy. It refers to our peculiar relationship with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at other times it refreshes and energizes us, overcoming our fears and indecisions.
Just as families sometimes cohere and at other times argue, are sometimes happy and at other times depressed, are sometimes successful and at other times in disarray, so too do whole economies go through good and bad times. The social fabric changes. Our level of trust in one another varies. And our willingness to undertake effort and engage in self-sacrifice is by no means constant.
The idea that economic crises, like the current financial and housing crisis, are mainly caused by changing thought patterns goes against standard economic thinking. But the current crisis bears witness to the role of such changes in thinking. It was caused precisely by our changing confidence, temptations, envy, resentment, and illusions—and especially by changing stories about the nature of the economy. These intangibles were the reason why people paid small fortunes for houses in cornfields; why others financed those purchases; why the Dow Jones average peaked above 14,000 and a little more than a year later fell below 7,500; why the U.S. unemployment rate has risen by 2.5 percentage points in the past twenty-four months, with the end of this rise not yet in sight; why Bear Stearns, one of the world’s leading investment banks, was only (and barely) saved by a Federal Reserve bailout, and why later in the year Lehman Brothers collapsed outright; why a large fraction of the world’s banks are underfunded; and why, as we write, some of them are still tottering on the brink, even after a bailout, and may yet be the next to go. And we know not what is yet to come.
Macroeconomics with and without Animal Spirits
Of course there is a rich body of macroeconomics that explains why there are fluctuations in the economy. Indeed that is what the macroeconomics textbooks are all about. We will give just two examples. In the post–World War II period, economists felt that they could explain deviations from full employment by a single type of animal spirit: that workers dislike money wage cuts, and that employers are therefore reluctant to make them.4 This tradition then morphed into a slightly more sophisticated explanation for why wages are slow to change. It explains fluctuations in employment arising from shifts in demand as due to the fact that wages and prices are not all set simultaneously. This concept in macroeconomics is known as “staggered contracts.”5 The macro textbooks are full of many other departures from the simple thought experiment of Adam Smith, in which there is always a meeting of minds and contracts are negotiated between rational people motivated purely by economic interests.6
And that leads us to the philosophical difference between this book and standard economics texts. This book is derived from a different view of how economics should be described. The economics of the textbooks seeks to minimize as much as possible departures from pure economic motivation and from rationality. There is a good reason for doing so—and each of us has spent a good portion of his life writing in this tradition. The economics of Adam Smith is well understood. Explanations in terms of small deviations from Smith’s ideal system are thus clear, because they are posed within a framework that is already very well understood. But that does not mean that these small deviations from Smith’s system describe how the economy really works.
Our book marks a break with this tradition. In our view economic theory should be derived not from the minimal deviations from the system of Adam Smith but rather from the deviations that actually do occur and that can be observed. Insofar as animal spirits exist in the everyday economy, a description of how the economy really works must consider those animal spirits. That is the aim of this book.
In producing such a description, we think that we can explain how the economy works. This is a subject of permanent interest. But, writing as we are in the winter of 2008–9, this book also describes how we got into the current mess—and what we need to do to get out of it.
How the Economy Really Works and the Role of Animal Spirits
Part One of this book will describe five different aspects of animal spirits and how they affect economic decisions—confidence, fairness, corruption and antisocial behavior, money illusion, and stories:
- The cornerstone of our theory is confidence and the feedback mechanisms between it and the economy that amplify disturbances.
- The setting of wages and prices depends largely on concerns about fairness.
- We acknowledge the temptation toward corrupt and antisocial behavior and their role in the economy.
- Money illusion is another cornerstone of our theory. The public is confused by inflation or deflation and does not reason through its effects.
- Finally, our sense of reality, of who we are and what we are doing, is intertwined with the story of our lives and of the lives of others. The aggregate of such stories is a national or international story, which itself plays an important role in the economy.
Part Two of this book describes how these five animal spirits affect economic decisions, demonstrating how they play a crucial role in answering eight questions:
- Why do economies fall into depression?
- Why do central bankers have power over the economy, insofar as they do?
- Why are there people who can’t find a job?
- Why is there a tradeoff between inflation and unemployment in the long run?
- Why is saving for the future so arbitrary?
- Why are financial prices and corporate investments so volatile?
- Why do real estate markets go through cycles?
- Why does poverty persist for generations among disadvantaged minorities?
We see that animal spirits provide an easy answer to each of these questions. We also see that, correspondingly, none of these questions can be answered if people are viewed as having only economic motivations which they pursue rationally—that is, if the economy is seen as operating according to the invisible hand of Adam Smith.
Each of these eight questions is fundamental. They would occur to anyone with a natural curiosity regarding the economy. In providing natural, satisfactory answers to all of them, our theory of animal spirits describes how the economy works.
In answering these questions, in telling how the economy really works, we accomplish what existing economic theory has not. We provide a theory that explains fully and naturally how the U.S. economy, and indeed the world economy, has fallen into the current crisis. And— of perhaps even greater interest—such a theory then allows us to understand what needs to be done to extricate ourselves from the crisis. (We present our analysis and recommendations in the postscript to Chapter 7, the chapter dealing with the powers of the Federal Reserve.)
Smart decisions don't grow in a vacuum. The most successful presidents recognize the fact and encourage debate—and even rivalry—between their advisers. They do their best to consider the options fully. All the same, it's harder than many people might imagine for our national leaders to keep the field of opinions from turning into a monoculture.
It's the curse of the modern presidency. Our chief executives need to make an active, aggressive effort to reach beyond their immediate circle of advisers, to demand fresh thinking and avoid the sycophancy that comes with the Oval Office. Otherwise, they'll only hear what they want to hear—or what their aides tell them. To judge from "War of Necessity, War of Choice," Richard N. Haass's new book on presidential decision-making with regard to Iraq, George W. Bush lived in a bubble, partly of his own making, that walled off creative dissent or even, in some cases, common sense.
Mindful of his predecessor, Barack Obama seems to be trying harder to make sure he hears all sides. On the night of April 27, for instance, the president invited to the White House some of his administration's sharpest critics on the economy, including New York Times columnist Paul Krugman and Columbia University economist Joseph Stiglitz. Over a roast-beef dinner, Obama listened and questioned while Krugman and Stiglitz, both Nobel Prize winners, pushed for more aggressive government intervention in the banking system.That sort of outreach is admirable—but it would be a mistake to make too much of it. A couple of hours of conversation is no substitute for methodical inquiry and debate. At present, Obama's economic advice is closely controlled by his chief economic adviser, Larry Summers, who acts as a kind of gatekeeper, determining what Obama sees and hears—and what he does not. Paul Volcker, the wise old hand who ran the Federal Reserve in the 1980s and whipped inflation, chairs an advisory panel that does not appear to do much advising. "Our ruling intelligentsia in economics runs the spectrum from A to A-minus," says a member of the Congressional Oversight Panel on the banking bailout, who requested anonymity when speaking about the administration. "These guys all talk to each other, and they all say the same thing."
The most successful presidents encourage debate and even rivalry between their advisers. FDR played his aides against each other. This produced some chaotic results in dealing with the Depression but worked reasonably well during World War II. Some presidents only pretend to encourage dissent. During Vietnam, LBJ used State Department adviser George Ball as his in-house dove—more to placate critics than to listen to his advice.... all paper flows to him through an elaborate staffing process. He, like all presidents, is the captive of a system that has been designed for efficiency but is inevitably isolating. It will take more than a few dinner parties to avoid the fate of presidents who lost touch with reality.
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Webb's commitment to this unpopular project demonstrates how false that excuse-making is -- just as it was proven false by Russ Feingold's singular, lonely, October, 2001 vote against the Patriot Act and Feingold's subsequent, early opposition to the then-popular Bush's assault on civil liberties, despite his representing the purple state of Wisconsin. Political leaders have the ability to change public opinion by engaging in leadership and persuasive advocacy. Any cowardly politician can take only those positions that reside safely within the majoritiarian consensus. Actual leaders, by definition, confront majoritarian views when they are misguided and seek to change them, and politicians have far more ability to affect and change public opinion than they want the public to believe they have.
The political class wants people to see them as helpless captives to immutable political realities so that they have a permanent, all-purpose excuse for whatever they do, so that they are always able to justify their position by appealing to so-called "political realities." But that excuse is grounded in a fundamentally false view of what political leaders are actually capable of doing in terms of shifting public opinion, as NYU Journalism Professor Jay Rosen explained when I interviewed him about his theories of how political consensus is maintained and manipulated:
GG: One of the points you make is that it's not just journalists who define what these spheres [of consensus, legitimate debate and deviance] encompass. You argue that politicians, political actors can change what's included in these spheres based on the positions that they take. And in some sense, you could even say that that's kind of what leadership is -- not just articulating what already is within the realm of consensus, which anyone can do, but taking ideas that are marginalized or within the sphere of deviance and bringing them into the sphere of legitimacy. How does that process work? How do political actors change those spheres?
JR: Well, that's exactly what leadership is. And I think it's crippling sometimes to our own sense of efficacy in politics and media, if we assume that the media has all of the power to frame the debate and decide what consensus is, and consign things to deviant status. That's not really true. That's true under conditions of political immobilization, leadership default, a rage for normalcy, but in ordinary political life, leaders, by talking about things, make them legitimate. Parties, by pushing for things, make them part of the sphere of debate. Important and visible people can question consensus, and all of a sudden expand it. These spheres are malleable; if the conversation of democracy is alive and if you make your leaders talk about things, it becomes valid to talk about them.
And I really do think there's a self-victimization that sometimes goes on, but to go back to the beginning of your question, there's something else going on, which is the ability to infect us with notions of what's realistic is one of the most potent powers press and political elites have. Whenever we make that kind of decision -- "well it's pragmatic, let's be realistic" -- what we're really doing is we're speculating about other Americans, our fellow citizens, and what they're likely to accept or what works on them or what stimuli they respond to. And that way of seeing other Americans, fellow citizens, is in fact something the media has taught us; that is one of the deepest lessons we've learned from the media even if we are skeptics of the MSM.
And one of the things I see on the left that really bothers me is the ease with which people skeptical of the media will talk about what the masses believe and how the masses will be led and moved in this way that shows me that the mass media tutors them on how to see their fellow citizens. And here the Internet again has at least some potential, because we don't have to guess what those other Americans think. We can encounter them ourselves, and thereby reshape our sense of what they think. I think every time people make that judgment about what's realistic, what they're really doing is they're imagining what the rest of the country would accept, and how other people think, and they get those ideas from the media.
We've been trained how we talk about our political leaders primarily by a media that worships political cynicism and can only understand the world through political game-playing. Thus, so many Americans have been taught to believe not only that politicians shouldn't have the obligation of leadership imposed on them -- i.e., to persuade the public of what is right -- but that it's actually smart and wise of them to avoid positions they believe in when doing so is politically risky.
People love now to assume the role of super-sophisticated political consultant rather than a citizen demanding actions from their representatives. Due to the prism of gamesmanship through which political pundits understand and discuss politics, many citizens have learned to talk about their political leaders as though they're political strategists advising their clients as to the politically shrewd steps that should be taken ("this law is awful and unjust and he was being craven by voting for it, but he was absolutely right to vote for it because the public wouldn't understand if he opposed it"), rather than as citizens demanding that their public servants do the right thing ("this law is awful and unjust and, for that reason alone, he should oppose it and show leadership by making the case to the public as to why it's awful and unjust").
It may be unrealistic to expect most politicians in most circumstances to do what Jim Webb is doing here (or what Russ Feingold did during Bush's first term). My guess is that Webb, having succeeded in numerous other endeavors outside of politics, is not desperate to cling to his political office, and he has thus calculated that he'd rather have six years in the Senate doing things he thinks are meaningful than stay there forever on the condition that he cowardly renounce any actual beliefs. It's probably true that most career politicians, possessed of few other talents or interests, are highly unlikely to think that way.
But the fact that cowardly actions from political leaders are inevitable is no reason to excuse or, worse, justify and even advocate that cowardice. In fact, the more citizens are willing to excuse and even urge political cowardice in the name of "realism" or "pragmatism" ("he was smart to take this bad, unjust position because Americans are too stupid or primitive for him to do otherwise and he needs to be re-elected"), the more common that behavior will be. Politicians and their various advisers, consultants and enablers will make all the excuses they can for why politicians do what they do and insist that public opinion constrains them to do otherwise. That excuse-making is their role, not the role of citizens. What ought to be demanded of political officials by citizens is precisely the type of leadership Webb is exhibiting here.
March 7, 2009 | smh.com.au
When Barack Obama announced his champion to rescue the world from economic ruin, it was the first time most Americans had ever heard the name Tim Geithner.
The initial impression was good. The stockmarket surged and the pundits swooned. "Exactly a decade ago, he was Uncle Sam's golden-boy emissary sent into the stormy centre of what was then the world's worst financial crisis [the Asian crisis]," reported The New York Post.
The paper gushed: "Just 36 at the time, he'd been raised in Asia and knew the culture so intimately he scored successes and won confidences that other diplomats couldn't match. Geithner earned widespread plaudits for pulling together quarrelling Asian finance ministers into a $US200 billion rescue of their economies."
"A fantastic choice," said a Bank of Tokyo-Mitsubishi analyst, Chris Rupkey, as the Dow rose by nearly 6 per cent. Even one of Obama's political rivals, the hard-bitten Republican senator Richard Shelby, agreed Geithner was "up to the challenge".
If anyone in the US media had thought to ask a former Australian prime minister for his assessment, they would have heard a different view. And they would not have been so surprised at Geithner's performance since.
In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner's record in handling the Asian crisis: "Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis."
In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.
Geithner thought Asia's problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts.
The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.
But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans - Thailand, South Korea and Indonesia - all had sound public finances.
The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.
But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed, it only aggravated the problem.
Keating continued: "Soeharto's government delivered 21 years of 7 per cent compound growth. It takes a gigantic fool to mess that up. But the IMF messed it up. The end result was the biggest fall in GDP in the 20th century. That dubious distinction went to Indonesia. And, of course, Soeharto lost power."
Exactly who was the "gigantic fool"? It was, obviously, the man who wrote the program, Geithner, although Keating is prepared to put the then managing director of the IMF, the Frenchman Michel Camdessus, in the same category.
Worse, Keating argued, Geithner's misjudgment had done terminal damage to the credibility of the IMF, with seismic geoeconomic consequences: "The IMF is the gun that can't shoot straight. They've been making a mess of things for the last 20-odd years, and the greatest mess they made was in east Asia in 1997-98, so much so that no east Asian state will put its head in the IMF noose."
China, in particular, drew hard conclusions from the IMF's mishandling of the Asian crisis. It decided that it would never allow itself to be dependent on the IMF, or the US, or the West generally, for its international solvency. Instead, it would build the biggest war chest the world had ever seen.
Keating continued: "This has all been noted inside the State Council of China and by the Politburo. And it's one of the reasons, perhaps the principal reason, why convertibility of the renminbi remains off the agenda for China, and it's why through a series of exchange-rate interventions each day that they've built these massive reserves.
"These reserves are so large at $US2 trillion as to equal $US2000 for every Chinese person, and when your consider that the average income of Chinese people is $US4000 to $US5000, it's 50 per cent of their annual income. It's a huge thing for a developing country to not spend its wealth on its own development."
Is this some flight of Keatingesque fancy? The former deputy governor of the Reserve Bank of Australia, Stephen Grenville, doesn't think so: "After the Asian crisis, the countries of east Asia decided that they would never go to the IMF again. The IMF is taboo in east Asia. Look at the evidence. The revealed preference of the region is that no one has gone to the IMF since, even when they needed the money."
And Asian capitals know that they have no real influence over the IMF - while European governments enjoy 40 per cent of the voting power on the IMF, Japan, China and the rest of east Asia put together have only about 16 per cent. This is an artefact of the immediate postwar power structure, when the IMF was set up.
Keating urges that the fund should be decapitated, with control passing to the governments of the Group of 20 countries whose leaders are to meet in London on April 2. The summit, which is to include China, India and Indonesia as well as Australia, is meeting to consider solutions to the global crisis.
As for The New York Post's claim that Geithner was the hero who cajoled those quarrelsome Asians into agreeing to a $US200 billion rescue, the key fact burned into the minds of Asian elites is that the US was deaf to requests for funds. Washington did not contribute a cent of its own money to any of the emergency packages. Japan and Australia were the only nations that made loans to all three of the stricken Asian countries.
Keating went on to argue that, by frightening the Chinese into building their vast $US2 trillion foreign reserves, Geithner was responsible for the build-up of tremendous imbalance in the world financial system. This imbalance, in turn, according to Keating, contributed to the global financial crisis which has since devastated the world economy.
China invested most of its reserves in US debt markets. Keating again: "So we have this massive recycling of funds into the system by [the former US Federal Reserve chairman Alan] Greenspan's monetary policy so even if you are greedy Dick Fuld [the former head of the collapsed investment bank Lehman Brothers] or you are hopeless Charles Prince at Citibank, you're being told there's an endless supply of money at a low interest rate and no inflation. So of course the system geared up to spend it.
"That is the fundamental cause of the problem - the imbalance is the fundamental cause."
If Keating's opinion of Geithner had circulated in the US, the Americans would not have been so surprised and disappointed with their new Treasury Secretary. They quickly learned that he had failed to pay $43,000 in taxes owing.
Then, when he announced his much-anticipated plan to rescue the US banking system, share prices slumped by 4 per cent immediately and a new round of weakness in the financial sector began. The pundits turned savagely against him: "So much for the saviour-based economy," wrote Maureen Dowd of The New York Times. Senator Shelby changed his mind: "Aggravating economic problems by contributing to marketplace uncertainty about what steps the Government will take - is that what this is?" he fumed.
US bank stocks weakened so much that nationalisation seems to be the only remaining option to put them quickly out of their misery.
Australia's banks, by contrast, are strong, said Keating, because of his decision as Treasurer to create the "Four Pillars" policy. This requires that the four big banks remain separate, barred from taking each other over. This prevented them "cannibalising each other", in Keating's words. As protected species, they had no need to mount risky takeovers to bulk themselves up defensively.
Their strength certainly wasn't due to the brilliance of their managers, whom Keating described as "counterhopping clerks" who had managed to work their way up the bank hierarchies. A further source of the soundness of the Australian banks, he said, was that they had learned well the lessons of risky speculative lending as a result of "the recession we truly did have to have".
In sum, Tim Geithner is a gigantic fool, the IMF the gun that can't shoot straight, Alan Greenspan a bungler. The big US banks were run by the greedy and the hopeless, the Australian banks by counterhopping clerks. It's a world of many villains. And only one hero.
Putting The Culture On The Couch: ‘The Savior Projection’ Onto Politicians Running For High Office
We all do it when we are first in love: idealize ‘the other,’ seeing them as both ‘the I and the Thou’… not keeping much of a personal self, but somehow merging with an over-idealized vision of beauty and perfection we project onto this other soul…
That flush of enormous feeling, in actually, upon investigation, appears to be an unrealistic image, as though from a slide projector…an image projected over the loved one, an image that contains all of one’s hopes and dreams, and yes, one’s own unrealized gifts… all this projected you might say, onto the wall, hoping someone will walk by who fits its outlines exactly….
Thus, the loved one not only shines with their own gifts, but takes on double, triple, quadruple sheen…. for they are carrying an odd optical illusion that comes from a projection of magnitude…
all this can be caused by us unconsciously dreaming ‘Wondrous Perfection’ aloud, and draping it over another person… and then,
expecting them to live up to the unlivable (for humans) divine projection.
Many a politician, by virtue of righteously appealing to our dearest just dreams during a campaign for election, rouses the sleeping dreamer, the somnambulistic idealist in many of us. This is good in one way, bringing people back to life. But also, by so doing, such a politician also has to be prepared to suddenly find him or herself engulfed by the huge archetypes of Supreme Helper, Savior, or Hope of the World.
The man becomes Mountain, thereby. The woman becomes Wonder, thereby… Or else, Demon personified, because a wholly negative projection works similarly … negative projection can be filled with the bent iron nails and broken glass of our own foibles and errors that we resist admitting…. to ourselves about ourselves… and so instead, we aim them outwardly, finding in others grave omissions, grievous commissions, and so on.
But, most often, at first, before overly-negative projections occur, come overly-positive ones. The politicians (and sometimes those who are their side-men and side-women) reach beyond simple persona into the heart of dreams people have been carrying for a long time.
This is one way politicians, thereby, inadvertently, create many portals for projection of the Divine onto themselves. It is usually not solicited, but is a side effect of rousing people’s hopes and ambitions. Yet the politician is a mere mortal. No mortal can fulfill the projection of Divinity without in some way being reduced to scrap by the trying.
To remain innately kind and steady in the midst of such flurries of projected mirror shine, can be tough… the ego can become unbalanced by being overly thrilled by the adulation, but the soul is not…. the soul insists on holding its own shape, holding steady to one’s own greater mind, despite all the shimmy-shiny that is waved before it.
In the creative life which shares at least two walls with spirit, there are challenges to hold to the soul and not sell out to ego alone or/and to what everyone else wants us to be … for them.
It’s a feat to remain compassionate and visionary when one cannot give everything that every person desires, cannot fix everything in the world that is in dire need, but one hopes to, dreams it, wants it, is dedicated lifelong to mending the world.
It’s a feat to remain visionary when everyday somewhere in the world, no matter what the best persons do to mediate, grave losses continue to pile up, even as gains are made elsewhere. It’s a feat to hold to one’s own mortal shape and do the ordinary most often and the extraordinary as often as possible, to be fair and honest about oneself, one’s view of the world… while under continual duress to transform all things.
Projection of the Savior, or Great Hope of the World, is powerful. We have seen its deleterious effects in both the great leaders and also the great dictators of the world. We can see how, in the inexperienced and naive, that all can throw a politician off their heart game… and instead, dump them into a flashy, showy inflation that is about ego alone, about ‘looking and sounding good in order to win only,’ in order to shock . shake. transmute the world in a way that will make ‘the world’ take notice.
But then, one’s life is no longer about following the difficult directives of spirit and soul… and the politician often falters then, more scornful, even rageful, irritable then, and thus more prone to not watching over the process, the acolytes, the employees, the adulants, and more prone to errors of judgment and speech.
A politician resisting profound public projection and the undertows that go with it, knows when he or she is speaking according to the vision he or she dedicatedly carries, versus allowing themselves to lose their shape and try to fit the empty but golden carapace some overly-adorational groups have fashioned for them to inhabit… again, via a stunning projection the politician can never live up to.
The odd thing is, projection of the Divine is often incremental, and the politicians who receive this glossy projection are often not aware they are trying on its gilded clothing more and more as time goes on. That is until, as it was said in ancient Greece, ‘Whom the Gods once loved, they now seek to destroy.’
Hero-making projections in our presidential elections are bound to unwind and fall into an entropy, as all ‘too shiny’ projections must.
Remember, when we are first in love and think the other has no weaknesses, no icky habits, no part of themselves that is not just love personified? But, as time goes on, we see the person full and whole… and imperfect. Maybe we are disappointed and move on, ever wanting to project ‘perfect person-hood’ onto someone, anyone… but most often that perfect someone will never be found… for it’s an archetype one is enamored with, not a flesh and blood real human being who scratches and sneezes and sings sweetly sometimes.
But, maybe instead, we say, the true gold is so valuable in this person we care for, that even though there is an appreciable amount of untransformed lead in them–and us– too, that we will still care deeply, and we will remain close, joining our quests in life to theirs.
That’s when, as they say in our culture, ‘the honeymoon is over.’ But, what is left once the projection is shattered, is what is truly real. The real gold, as well as the real ‘not-yet-golden.’ The real deal.
Then, one might say, a durable love begins, a finely tuned love of not only of delight, but also of intense devotion. Based on what is real, rather than on what has suddenly jumped up out of thin air via a fantasmagoric projection.
The more shiny a projection was to begin with, the more unrealistically divine, the more it will begin to eventually lose its luster. And we are now, I believe, seeing the webbed feet rather than the shiny-shine of various candidates as time goes on in this election cycle.
The idea is not to scorn what/ who one once was madly in projective love with, but rather to face the touching reality about all of us: There is no perfect swan. There is no soul on earth who is not human at every level. Each has bodily functions to take care of every day. Each has urges and drives and instincts and oddities, weirdnesses and wildness.
Perhaps the real wonder, given all those ticks and tocks we all carry, is that we all do as well as we do on earth. That’s the real miracle, I think.
Yet, in this home stretch of the elections, we are in the denouement at the moment, I think, given all the ankle-biting and slam-booking going on on all sides by some…. the projections are being dismantled left and right….but whatever is left after all politicians running for office are finally at rest, in private, with those they trust, those who are conscious of these matters, will throw the too tall golden crowns in the corner, only taking them out for ceremonial occasions, perhaps…
for there is hardly anything more destructive that will or can ruin a potentially great leader than nurturing a hubris within oneself, one that rises higher and higher to match the more and more unrealistic projections he or she is receiving.
To allow hubris to rise to meet projection, is doom.
But also, to continue to project Hope of the World and Savior over every potential leader, is also doom. A leader cannot fit themselves to Divine projection without destroying others…. as well as, ultimately, themselves. All suffer then. All.
In any case, whatever was golden in a politician to begin with, will not tarnish as time goes on. That remains treasure. The question however, will ever be, how inhibitory or obstructive will what is still dead gray lead in the politician’s insight, mapping abilities, endurance, and strategic chess-like thinking, continue to be an issue, when/if he or she wins control and leadership of this beautiful America and her people?
photo by Manu
February 19th, 2009 | The Big Picture
There is a surprisingly interesting article at Money Magazine on why so many so-called experts utterly missed the market crash, credit crisis, and housing collapse.
Its an interview with Philip Tetlock who is (with no small amount of irony), an expert on experts. He is a professor of organizational behavior at the University of California-Berkeley’s Haas Business School, and has been studying experts for 25 years.
“But you shouldn’t simply write all gurus off. Tetlock’s research found that one kind of expert turns out consistently more accurate forecasts than others. Understanding what makes them better can help you make more reliable predictions in your own life. Tetlock explained it all to Money’s former managing editor, Eric Schurenberg, in a recent interview. . . .
What makes some forecasters better than others?
The most important factor was not how much education or experience the experts had but how they thought. You know the famous line that [philosopher] Isaiah Berlin borrowed from a Greek poet, “The fox knows many things, but the hedgehog knows one big thing”? The better forecasters were like Berlin’s foxes: self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence, were doubtful of grand schemes and were rather modest about their predictive ability. The less successful forecasters were like hedgehogs: They tended to have one big, beautiful idea that they loved to stretch, sometimes to the breaking point. They tended to be articulate and very persuasive as to why their idea explained everything. The media often love hedgehogs.
How do you know whether a talking head is a fox or a hedgehog?
Count how often they press the brakes on trains of thought. Foxes often qualify their arguments with “however” and “perhaps,” while hedgehogs build up momentum with “moreover” and “all the more so.” Foxes are not as entertaining as hedgehogs. But enduring a little tedium is worth it if you want realistic odds on possible futures.
My own thesis as to their problematic prognostications places a healthy amount of blame on the conspiracy of optimism.
And on a related note, Dean Baker and I are interviewed in Editor & Publisher magazine on what Journalists can do when interviewing these experts: What to ask, how to dig beneath the data, how to not get rolled by the spinmeisters:
Wish list for reporters covering this and future financial crises
Be more skeptical of sources. “You have to play lawyer, ask what is this person’s motivation for saying what they’re saying.” The best reporting on the automobile industry’s true financial predicament was at an upstart Detroit Web site that supplies unvarnished automotive reviews and editorials about the industry, The Truth About Cars. “They understood the business and its challenges; they were railing for several years against the unsustainable nature of the capital structure of the Big 3,” he says.
Question data, constantly. Last March, for example, The Wall Street Journal ran a story saying the vast inventory of foreclosed homes was starting to bring people back into the housing market, and cited figures from the National Association of Realtors showing a jump in sales in February of 2.9% from the month before. But he points out that in every year home sales are lowest in January, so changes from January to February are measuring seasonal differences, not actual improvements in house sales. The tendency to overemphasize the most recent data point in a monthly series is called the “recency” effect. “It is a foolish way to ignore the trend and give greater emphasis to today,” he notes.
Give good context. The struggle to control the narrative of how the housing crisis and ensuing financial meltdown occurred is in full swing, exemplified by Karl Rove’s op-ed in the Wall Street Journal in January that fingered Fannie Mae and Freddie Mac as among “the principal culprits of the housing crisis.” But he and others point out that the two government-sponsored enterprises, though they became too large and overleveraged, had nothing to do with the explosion of high-risk lending that took place between 2002 and 2007.
Both articles are thought provoking and worth exploring . . .
Why the experts missed the crash
Money Magazine, February 18, 2009: 4:10 PM ET
Expert Tips on Covering the Financial Crisis
Editor & Publisher, February 18, 2009 12:01 AM ET
- tryflyfishing Says:
February 19th, 2009 at 1:01 pm
My father -a journalist- told me to start with “Why is this bastard lying to me?” It would help if journalists started this way today.
- Transor Z Says:
February 19th, 2009 at 10:19 am
How to spot a fox:
1. They probably aren’t on TV, and if they are
2. The glib a-hole talking head interviewer is impatient and dismissive because the fox is taking too long/not following the standard TV interview formulas/not charismatic/too thoughtful and nuanced for the glib a-hole to understand. IMO most TV personalities are “hedgehogs” that attack foxes. “The medium is the message.”
There’s actually a term for this phenomenon: Sociology of Knowledge. See http://en.wikipedia.org/wiki/Sociology_of_knowledge
It’s a study of how society prioritizes which “experts” to listen to and arrives at consensus reality.
- ottovbvs Says:
February 19th, 2009 at 10:25 am
Most “experts” missed the signs because they had a vested interest in missing them. Now of course all the “experts” including the ones here are swinging too far in the other direction.
Yes we’ve got a rough year, profits will be in the tank, a big bank or two could get nationalized, unemployment will go to around 9%, negative growth probably for this and the next two or three quarters, but reports of the death of the US economy are being somewhat overstated.
Basically we’re faced with a couple of year when the US economy is going to be operating below optimum (not overheated) capacity. I accepted that long ago and adjusted accordingly.
All this running around forecasting jumps in protectionism, massive deflation, massive inflation (I’ve heard both predictions here) etc etc is somewhat overwrought.
This is the attitude of people like Doug Kass and Uncle Warren and it’s mine.
- danm Says:
February 19th, 2009 at 8:05 am
The less successful forecasters were like hedgehogs: They tended to have one big, beautiful idea that they loved to stretch, sometimes to the breaking point. They tended to be articulate and very persuasive as to why their idea explained everything. The media often love hedgehogs.
It’s much easier to be articulate when explaining a single big idea than when trying to explain the effects of multiple non-linear ideas.
I’ve often been told that to convince the masses you’ve got to stick to MAX three ideas. With the multitude of signs popping up to warn us but the expert rehashing the same 2 or 3 positive ones, it’s no wonder most did not see this coming!
Dori said it best: “Just keep swimming, just keep swimming, just keep swimming…”
- dead hobo Says:
February 19th, 2009 at 8:22 am
Being a little more serious now, I have learned that most people have something valuable to say. They can be famous, infamous, ordinary, or hermits. All are also capable of saying things of monumental stupidity. The secret is being able to listen, and do it on more than one level.
The listener has to privately ask himself “What is this person really saying?” A lot of messages will be coming out simultaneously. The challenge is to put all of them together into one story, then decide if you are learning something new or wasting some time. To listen well, you have to draw on outside information to see how what you hearing fits in? Also, you have to be smart enough to know there are unknowns and unknowables, and either work within those limitations or file what you heard away for future reference in another context elsewhere.
Let’s not even start on “are you talking to an expert, or just someone who is anointed or popular”. Or maybe just a psychopath who wants something from you and you were unlucky enough to maintain eye contact for too long.
- Steve Barry Says:
February 19th, 2009 at 9:11 am
The experts missed the crash, because since the early 80s, we were all on the same train of optimism…led there by Reagan at first, then Greenspan ran with it by fixing the system using monetary policy. If you weren’t a optimist, you were looked down on and more importantly, missed the big party or even worse, made very poor. I was in the lead car of the optimism train…then the Internet bubble crashed. I was shocked and made it my life’s work never to be fooled like that again. I became the ultimate realist…unfortunately right now that makes me an uber-bear. Most experts though were still drinking the even more powerful kool-aid in 2006-7 and thus of course could not see the track was out and the train derailed.
- H Salmon Says:
February 19th, 2009 at 12:16 pm
I learned critical thinking in an early career (one Barry shares). Then moved to Corporate America and found it completely discouraged. Those who engaged in it were feared/forced out as “hedgehogs” (we had another word) tried to spin whatever the leader wanted as great strategy. No surprise to me that so many companies are struggling - managing for short-term #s, executive bonuses, office politicians, and a revolving door as those executives leveraged short term success to jump ship for better opportunities just spells eventual disaster.
It’s now hard for me to invest in equities as I am always suspicious. Makes we want to only invest in companies that I control.
I am hoping that we are entering a new age of more critical analysis, but we certainly are not in Washington. Bloomberg had a great interview with Michael Porter where he nailed it - Washington just completely lacks any strategic thinking. Anyway, it is wonderful to have sites like TBP where you can hear from true thinkers and entertain different views.
And the risk of lack of knowledge is real. Summers is close-minded. That trait was part of his undoing as Harvard president. From the Financial Times, "Out of His League":“He himself is not widely educated,” said Judith Ryan, a professor of German literature. I met Ryan, a 63-year-old Australian who speaks with a mid-Atlantic drawl, in her office near Harvard Square. On her walls were pictures of Rilke and Kafka, watching as Ryan ate a late, rushed lunch of yoghurt and Starbucks coffee. She attended the faculty meeting in University Hall on February 7 and was one of the academics who stepped up to the microphone to criticise Summers.I have long believed that one of the most valuable traits for people in general, and leaders in particular, is to understand the limits of their knowledge, and to seek out sources and individuals who can help fill those gaps. Summers (and perhaps Geithner, if the Summers imprinting has taken) is of the reverse inclination: he thinks that what he knows has universal relevance. Scary.
“He is a brilliant economist but not really very curious about how other disciplines function and what is at stake today in those disciplines,” she said. Ryan regularly sat in on tenure meetings with Summers. “He really tends to translate things into economic models and he would start to talk about his impressions of the field. Our visitors were astonished. He would ask the meaning of words that I thought were part of most people’s vocabulary.” “Syntax” was one example, she said....
Ryan also expressed misgivings shared by some of the other professors I spoke to about the pro-science direction Summers was taking the university. “He had a very present-day notion of the aims of education,” she said with a shrug. “He didn’t see the point of studying ancient Greece.”
cj7 said... Yves,
Your simple phrase:
"I have long believed that one of the most valuable traits for people in general, and leaders in particular, is to understand the limits of their knowledge"
strikingly points to what is wrong in the world today. Good leaders can always tell when they are dealing with someone who exceeds their own knowledge on a particular subject, and this is indeed a very valuable trait. The problem with Western society today is that people are generally promoted exactly to their level of incompetence, which Geithner for some reason overshot by several levels.
The problem with this commonality is that we now see many people in positions of power throughout the corporate and political world that fail to see their own limitations and thus make decisions based on some combination of ignorance, arrogance, or a need to satisfy others. Humility throughout the course of human civilization has been considered one of the greatest virtues, yet sadly modern day Wall St. and Washington have construed this noble characteristic as a weakness.
UNIVERSITY OF AMSTERDAM
This essay explores the theoretical implications of Freud's notion of `the narcissism of minor differences' - the idea that it is precisely the minor differences between people who are otherwise alike that form the basis of feelings of strangeness and hostility between them. A comparative survey shows that minor differences underlie a wide range of conflicts: from relatively benign forms of campanilismo to bloody civil wars. Freud's tentative statements link up with the insights of Simmel, Durkheim, Lévi-Strauss, Dumont, Elias, and Girard.
Especially helpful is what Bourdieu writes in Distinction: social identity lies in difference, and difference is asserted against what is closest, which represents the greatest threat. An outline of a general theory of power and violence should include consideration of the narcissism of minor differences, also because its counterpart - hierarchy and great differences - makes for relative stability and peace.
Yes, another Fed slot is soon to be filled, with another Goldman Sachs alum.
I never bought into the conspiracy that Goldman is taking over the financial world, but the lack of diversity of thought and the risk of groupthink is increasingly becoming a concern . . .
The American Prospect
Matt Yglesias notes that left-of-center commentary has been notably more pessimistic on the state of the economy than right-of-center commentary. He offers three hypotheses (left-wing positions are psychologically correlated to pessimism, pessimism was correct, lefties wanted Bush to fail), all of which played a part. If you're interested in this subject, though, I'd recommend reading Larry Bartels' paper "It Feels Like We're Thinking: The Rationalizing Voter and Electoral Democracy."
In it, Bartels and coauthor Christopher Achens examine simple factual questions for evidence of partisan interpretation bias. Their first example comes from the 1996 National Election Survey, which asked whether the budget deficit had increased or decreased during Clinton's first term. The correct answer what that it had decreased. By 90 percent. But they found that only one-third of the public recognized that the deficit had decreased at all. Republicans found the question especially tricky: More than half thought the deficit had increased.
The next question asked whether the economy had improved or worsened during Clinton's term. During this period, GDP grew quickly, unemployment dropped, and wages rose. By any measure, the economy had improved. But only one-third of Republicans agreed with that statement. And Republicans, unsurprisingly, were twice as likely as Democrats to say that it had worsened.
Bartels and Achen go further, however, and break their results out by the voters' political information level. What they found was startling: The more an individual voter knew, the more they self-deceived. "Among the least well-informed respondents, neither objective reality nor partisan bias seems to have provided much structure to perceptions of the budget deficit," they dryly note. "Uninformed Republicans and Democrats were slightly, and about equally, more likely to say that the deficit had increased than that it had decreased." But travel up the information scale, and the situation dims. Partisan bias exerts its pull. Objective reality does not.
The thing to notice there isn't even how accurate the perceptions are. It's how different they are. The economy had improved. Democrats, who had no trouble aligning the economic improvement with their favored candidate, saw that easily. Republicans, who felt tension between the candidate they loathed and the economic news, tended to be much more tepid. Indeed, at the top of the information scale, Republican perceptions of the economy nosedive, presumably because they had enough information to construct a mental model of how the economy was actually doing badly (trade deficit, China, etc). And this is not a partisan point: If if George W. Bush had been in office during that period, the lines almost certainly would have reversed, but the distance between them would not. This is part of what makes political persuasion so difficult. Partisans don't simply disagree on the merits of candidates. They disagree on the shape of the underlying reality. And more information, because we tend to sort our information to strengthen our biases, aids our personal deceptions rather than correcting them.
Posted by Ezra Klein on January 7, 2009 12:26 PM |COMMENTS
Having read the "Authoritarians" pdf book, and seen some other work along related lines, I'd guess that this phenomenon is much more heavily a Republican phenomenon than a Democrat phenomenon, although certainly members of both parties are subject to it to some extent.
Note both these examples are ones where reality has a liberal bias.
Posted by: john | January 7, 2009 1:11 PM
January 5th, 2009 | The Big Picture
Why did Economists, as a group, miss the warning signs of housing, credit and market crisis?
I don’t mean individuals — several professional Economists got it right; Academics like Nouriel Roubini of NYU and Robert Shiller of Yale, as well as a few Wall Streeters, such as David Rosenberg of Merrill Lynch and Paul Kasriel of Northern Trust. Too many bloggers to name also got it right. Meanwhile, the vast majority of professional economists, strategists and analysts — the “Herd” — totally missed it.
One explanation comes from Dean Baker, who channels Keynes, and says “incentives in the economics profession, just as in finance, strongly encourage a lack of original thinking.” (That’s a variation of Keynes: “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally“). Paul Krugman wondered if it was a fear of going “against bubble denier Alan Greenspan.”
I find all these explanations wanting — and quite frankly, too generous by half.
My explanation is there were systemic failures in economics as a discipline, at least as it is employed in the real world. Note that these are not theoretical critiques (i.e., Keynesians versus Monetarists), but rather, these are broader inquiries as to why so many working economists were so utterly clueless about all of the red flags for so long. The inherent biases of working on Wall Street go along to explain why those economists were so awful — but I have less of an explanation as to why so many academic economists were so blind. Perhaps it is the profession itself.
As far as Central Bankers were concerned, they too missed the warning signs — but there were several notable exceptions to this to, including the Bank of England’s concerns about a credit crunch and a collapse in asset prices.
Ideas? I have a few. Here are my top 10 indictments as to why professional economists missed the crises until it was too late:
1. An inherent upward bias is built into ALL Wall Street research — including economic research;
2. Ideological rigidity prevented creative thinking;
3. Non-critical acceptance of official data from BEA, BLS, Commerce led to only a passing familiarity with reality;
4. Institutional rejection of negative analyses remains endemic;
5. Traditional (non-behavioral) economic analysis seems to have difficulty with human irrationality;
6. Political Bias; (Right wing during GOP Presidencies; Left Wing during DEM Presidencies);
7. Corporate bias — Stock option compensation — skewed views too optimistic;
8. “Timing” is very different from Analysis;
9. Factoring in excessive leverage and liquidity is exceedingly difficult from a traditional economic perspective (Derivatives especially);
10. Herding instinct is powerful;
Economics as a discipline does not seem to be particularly introspective. In my opinion, the sooner the profession develops some self doubt, recognizes its own failings and shortcomings, the faster they will be able to recognize the failing constructs of the profession and fix them. The Efficient Market Hypothesis, homo economicus, the deification of markets, all need an open public review and a good thrashing.
There were many professions that did not distinguish themselves in the lead up to the housing boom and bust, financial bust, the credit crisis, and the recession. Economics is near the very top of that list.
The Mystery of the Awful Economists
RealMoney.com, 3/2/2005 3:42 PM EST
(Free version at Investors Insight)
NYT December 23, 2008, 5:16 PM
APPLY ECONOMICS TO ECONOMISTS
The American Prospect, December 23, 2008 11:26 AM
Mystery of the Awful Economists, part II (April 8th, 2005)
Mystery of the Awful Economists (Part III) (April 13th, 2005)
‘City faces meltdown if debt crisis hits’
Edmund Conway, Economics Editor
UK Telegraph, 12 Jul 2006
Merrill’s Rosenberg Inspired by Farrell in Foreseeing Crash
Bloomberg, Dec. 30 2008
The Doomsayers Who Got It RightPERMALINK
More Bad News in Store for 2009? Last Year’s Cassandras Are Still Gloomy
JEFF D. OPDYKE
WSJ, JANUARY 2, 2009
15 Responses to “Why Economists Missed the Crises”
In his book of the same name, status anxiety is defined by author Alain de Botton as a worry "that we are in danger of failing to conform to the ideals of success laid down by our society and that we may as a result be stripped of dignity and respect."
Status anxiety loomed large in the housing boom for people who did sensible things. They looked askance at their used Hondas, humble dwellings, conservative fixed-rate mortgages, and budget hotels at Disneyworld, and, finding them deficient amid the neighbors' BMWs, McMansions, and forays to France, tried in vain to suppress a creeping apprehension that they had gotten something terribly wrong.
(Now they realize the neighbors did it by surfing a tsunami of debt, but it brings them little comfort, since their jobs and home values are in jeopardy thanks to the follies of the foolish and greedy.)
Beware of Schemers
In addition, it was status anxiety that propelled smart people to hand over enormous sums of money to Bernard Madoff without paying adequate attention to what he was doing with it.
"What strikes one about the investors in the Ponzi scheme is desperation -- and not necessarily desperation to become rich, but to earn status, honor, and esteem," Botton wrote me in an email. "If our position on the ladder is a matter of such concern, it is because how we feel about ourselves depends to an unfortunate degree on what others think of us.
"Except in societies where status is fixed at birth, our position on the ladder hangs upon what we achieve -- and success is uncertain," he continues. "And from failure will flow humiliation: a corroding awareness that we have failed to convince the world of our value and are henceforth condemned to consider the successful with bitterness and ourselves with shame. That's where Madoff came in: he promised an instant and painless release from these status anxieties."
Wired for Stature
Our appetite for status derives from a physiological drive that played a useful role in survival, according to evolutionary biologists. The higher the status, the larger the share of pie an animal got in competitive situations. Thus it survived better, lived longer, and left more living offspring, preserving its genes in the population. Our biology evolved to make us keenly attuned to status.
"Animals higher up in the hierarchy have less stress -- lower cortisol and adrenaline levels -- and higher levels of hormones associated with feeling good, like serotonin," says Denise Cummins, an author who studies the evolution of cognition and teaches psychology at the University of Illinois in Urbana-Champaign. "This has been shown among humans as well. You're wired for status -- your whole neurology and endocrine system are tuned to what your relative status is.
"Even small changes in status -- someone snubs you -- will cause a response in the endocrine system," she adds. "High-status individuals have priority of access to resources, and in a market-based economy that means money. You have a lot of money, you have power."
Bad for Your Health
Thus when one experiences a sudden, Madoffian-sized loss of status, the upshot is neurological and hormonal fireworks.
"Large, precipitous changes in status can have massive effects," says Cummins, including cardiovascular stress, immune system dysfunction, and a shift in the way the body metabolizes sugar and stores fat. "What your body is saying, ‘My God, I'm never going to reproduce, I'm not going to be alive and leave living offspring' -- because that's what status means in a truly Darwinian world."
But that primal sense of alarm lingers in the modern world -- exacerbated by our belief in meritocracy, suggests Botton.
Meritocracies Have Their Downside
Since the mid-18th century, Western governments have sought "to create a hierarchy based on actual ability, replacing posh, chinless halfwits with the meritorious," Botton wrote in an email. "This meritocratic ideal has brought opportunity to millions. Gifted and intelligent individuals who for centuries were held down within an immobile, caste-like hierarchy are now free to express their talents on a more or less level playing field."
Alas, the dark side of meritocracy is that if we believe individuals are exclusively responsible for their triumphs (and we hold financial success at the pinnacle of esteem), then individuals are ineluctably accountable for their failures -- and economic collapse (with its corresponding plummet in status) is equally deserved.
"Financial failure has become associated with a sense of shame that the peasant of old, denied all chances in life, had also thankfully been spared," Botton notes.
The Company You Keep
Is there any hope of defeating status anxiety in a species biologically primed to chase rank?
Start by changing your reference group, advises Cummins: "It's relative status that hits you the hardest. If you are the hedge fund manager and your business went under and all the buddies you meet at cocktail parties are doing OK, that's going to hit you a lot harder than if go to a cocktail party and everyone is in the same boat."
Another possibility: Unemployed hedge fund managers and investment bankers, among others, are turning to evangelical churches for relief. Botton thinks that's not such a bad idea.
"Christian moralists have long understood that to reassure the anxious it may be best to emphasize we will die, everyone we love will vanish, and all our achievements and even our names will be stamped into the ground," he wrote in an email. "To consider our petty status-worries from the perspective of a thousand years hence is to be granted a rare, tranquillizing glimpse of our own insignificance."
The Biggest Monkey Doesn't Always Win
Another escape from status anxiety might be found in taking bold risks based on your passions, rather than continue to pursue a job in which you display expertise but no joy.
"The paradox of success is that all those who have done well have tended to ignore questions of status for many years in order to pursue a passion," Botton argues. "In other words, seeking status directly is as futile as seeking happiness directly. Status should be the byproduct of a job well done rather than a goal in itself."
Or rather than avoid status anxiety, one might simply pursue new routes to the top of the hierarchy. One proven strategy: Network like crazy. "In a lot species, neither size nor aggression correlates with status -- it's more about social intelligence," Cummins says.
When two primates fight, each side will call for help, and the monkey with the biggest posse wins, she explains. "The literature shows quite clearly the individuals who come to help in situations like that are individuals that you groomed in the past, shared food with in the past, or engaged in some kind of helping behavior with in the past," Cummins says. "This forms strong coalitions, then reciprocation happens. If you do that enough, what happens is you can secure a nice, strong, stable position in the hierarchy."
Comfort in the Dark
Finally, if someone calls you, wretched with status anxiety, don't try to cheer them up with rosy bromides.
"One of the most consoling things one can hear anyone say is that everything is absolutely dreadful," explains Botton. "Something like this sentence from the Roman philosopher Seneca: ‘What need is there to weep over parts of life? The whole of it calls for tears.' Or else this from the 19th century German Arthur Schopenhauer: ‘Today it is bad and daily it will get worse -- until the worst of all happens.' Or this from the French 18th century thinker Chamfort: ‘A man must swallow a toad every morning if he's to be sure of not meeting with anything more disgusting in the day ahead.'
"These thoughts make us feel better because they perform that most valuable of all services: they tell us we're not alone with our darkest feelings."
December 12th, 2008 at 12:09 pm
One of the big contributors that led to this bull market in incompetence is the concept of “team building”. All major orgs in the ’80s emphasized team building which resulted in managers surrounding themselves with an echo chamber.
One need only look to the White House for an example of this. How many people on Wall St knew we were headed for disaster but did not speak up for being branded as “not a team player”. On the top mgt side a large bonus structure put the golden handcuffs on the disidents.
Look at the Army and the Shinseki incident. Does anyone think that he was the only general to understand the need for more troops to maintain order after the war? Everyone sat on their hands dreaming of that cushy job w/ a defense contractor, as we bumbled and stumbled into a mess.
We need to develop some game changers but the “system” does not breed them.
One of the most pervasive findings in social science, although it is seldom codified this way, is how suggestible people are. Numerous studies in behavioral economics have found that the same underlying bet elicits very different take-up rates when framed as a wager versus as insurance. Even worse, humans are susceptible to obviously exogenous influence.
One oft-repeated test that yields consistent results is to ask a group in a classroom setting to (among other things) to write their best estimate of the number of countries in the world. To show how to fill out the form, the leader spins a wheel of fortune, and takes the chosen number, (say 550) and uses it to illustrate how to record the estimate. Invariably, high results on the wheel of fortune, clearly an arbitrary figure, lead to markedly higher average estimates on the form.
The question du jour is why does the US have such a phobia regarding nationalization. Per the lead-in, I suspect it has a great deal more to do with social conditioning than a case-by-case assessment of possible gains and losses.
While the initial (correct) reflex is that undue government interference in a well-functioning private sector is not a good idea, the industries in question (financial services and automobiles) have top players that are now abject failures on taxpayer life support. These companies have been exempted from market discipline (aka bankruptcy) thanks to state intervention.
The very fact that they operated with minimal government oversight, drove themselves to the verge of bankruptcy, and managed to make themselves so essential that they cannot be permitted to collapse says they cannot be left in their former hands (incumbent management is either colossal incompetent, amazingly corrupt and scheming, or both).
But unlike the UK, and Sweden during its early 1990s crisis (widely touted as best practice) which were both ready to assume control of banks that wrecked themselves, the US continues to rationalize, nay, promote, the worst of all possible worlds: socialization of losses, the bozo management teams still largely (often entirely, as in the case of Citigroup) intact, inadequate to no supervision (where are the board seats?) and no upside participation, not even much explanation of what they intend to do with the dough (well, now great theater is being made of the auto industry, because it is easy to pick on guys from the grubby Midwest, but the banking crowd, which did far more damage and has gotten much bigger handouts and no unpleasant questions).
I saw a simpleminded but compelling explanation for this phenomenon: Europeans consume more government services than Americans do, and are pretty happy with it (they think we are barbarians for having private health care and, among other things, little state support of the arts). Why? They are reported to be better at it than we are. They deliver government services efficiently (relatively speaking, and healthcare provides some proof) and because they do a good job, the citizenry is willing to deploy tax dollars to these ends.
That is a long-winded way of saying that government inefficiency and incompetence is not a given, as is often depicted in the US. The demonization of government service has probably discouraged able people from seeking public sector jobs. Even so, some areas still get high marks (the FDIC). And the continued disparagement of government serves as cover for those who want subsidies and rescues but hope to avoid the demands that should properly go with them.
This New York Times article deals with the Obama team's reluctance †o be seen as "nationalizing". I see. So we would rather pander to the bankrupt ideology that helped create this mess, let the perps continue to get undeserved princely pay, and stick the hapless sop taxpayer with the guaranteed-to-be-rotten fruit of this exercise rather than demonstrate leadership and reframe the issues. The hesitation to demand even modest quid pro quos is beyond belief. No private sector negotiator would ever accept such a deal.
Is this "Change We Can Believe In?" Looks like the same old crap to me, with better salesmen in charge.
The golden rule is that he who provides the gold, makes the rules. Time to get over prostrating before the private sector when it has abjectly screwed up.
As the sociologist Ulrich Beck has written, "properly exploited, a novel risk is always an elixir to an ailing leader". By declaring a threat so awful as to be intolerable, a politician can limit the liberties of a free society in the name of risk-aversion. Musharraf utters hardly a sentence that does not contain the word terror. Pivotally close to the base from which 9/11 was apparently launched, his dictatorship has been indulged by London and Washington for a full seven years. This week Gordon Brown hailed him as a "key ally on terrorism", enabling him to take comfort in sacking his judiciary and curbing his media.
Had the war on terror been used only as a metaphor for better policing, like rhetorical "wars" on drugs, poverty and street crime, it might have passed muster. Bush and Musharraf have found the military metaphor too potent to resist and duly carried it into literal effect. The result has been a disaster for their countries, and incidentally for themselves.
The west's Afghan adventure is now devoid of coherent strategy. Soldiers are dying, the opium trade is booming and aid lies undistributed. Command and control of the war against the Taliban is slipping from the most bizarre western occupying force since the fourth Crusade to a tight cabal around the Afghan ruler, Hamid Karzai, who is fighting to retain a remnant of authority in his own capital.
Karzai's exasperation with the west has led him to refuse the services as "coordinator" of the former Liberal Democrat leader, Paddy Ashdown. The latter may have cut a dash in the subsidy swamp of Sarajevo, but in Afghanistan he would have been a boy on a man's errand. Karzai knows well that his fate lies not with the patronising platitudes of western proconsuls but in the hard graft of provincial warlords, drug gangsters and Taliban go-betweens.
These go-betweens have had their status massively boosted by the war on terror. Bush's demand in 2001 that Musharraf "join the war" sent Pakistani forces into the border territories, breaking old treaties and driving the Pashtun tribes into the eager arms of Taliban leaders. This undoubtedly saved Osama bin Laden's skin from the fury of the northern Tajiks, committed to avenge his murder of their leader, Ahmed Shah Massoud.
Musharraf, at America's bidding and with $10bn of American money, has done what even his craziest predecessors avoided, and recklessly set the Pashtun on the warpath - increasingly in thrall to a revived al-Qaida. The result is a plague of suicide bombings and killings in the heartland of his benighted state. From the law courts of America to the mosques of west London and the mountains of the Hindu Kush, the war on terror has been lethally and predictably counter-productive. It embodies the new stupidity in international affairs.
Nobody disputes that there are killer cells at large in the world, most of them proclaiming various Islamist creeds. It is the job of intelligence agencies and the police to catch as many as they can. After a hesitant start, they appear to be quite good at it. Some bombs will get through but they will not be deterred by draconian laws, any more than by machine gun-toting policemen in Downing Street and Heathrow. Robust societies can handle this admittedly intermittent threat. Only weak ones will capitulate to it.
The menace of these killers lies not in their firepower but in their capacity to distort the judgment and commitment to freedom of politicians too cowardly to bear on their shoulders the burden of risk. In two weeks' time, the fragile democracy of Pakistan will defy the bombers and hold an election prior, it is hoped, to some version of democratic rule. Such communities will defy a probable burst of terror bombs only if their leaders stop setting "terrorists" on a pedestal and using language that exaggerates their capacity, as Bush puts it, "to oppose the advance of freedom".
It is leaders, not bombers, who have the power to balk the advance of freedom. Already those leaders have used the war on terror to introduce the Patriot Act, Guantánamo Bay and a $1.5 trillion war in Iraq. In Pakistan they have used it as an excuse for emergency rule, the imprisonment of senior judges, and the provocation of unprecedented insurgency in the north-west frontier territories. In Britain leaders have used the war as an excuse for 42-day detention without trial, the world's most intrusive surveillance state, and not one but two contested military occupations of foreign soil.
This so-called war on terror has filled the pockets of those profiting from it. It has killed thousands, immiserated millions and infringed the liberty of hundreds of millions. The only rough justice it has delivered is to ruin the careers of those who propagated it. Tony Blair was driven to early resignation. Bush has been humiliated and Musharraf's wretched rule brought close to an overdue end. It may be an ill wind that blows no good, but it is hardly enough.
The American Prospect
Robert Shiller has an interesting discussion of how Alan Greenspan and almost the whole economics profession managed to overlook the $8 trillion housing bubble. Shiller attributed the failure in large part to "groupthink," the fact that no one wants to be standing out from the consensus within the group. According to Shiller, this sort of social pressure forced many of those who had concerns about the dangers of a bubble to tone down their concerns or to just keep them to themselves.
While there is undoubtedly some truth to this assessment, it only presents part of the picture. Challenging the consensus by raising concerns about the housing bubble would have posed serious risks to the careers of those within institutions like the Fed or in the economics profession more generally. On the other hand, completely missing the largest housing bubble in the history of the world carries no consequences for those whose job it was to recognize such risks to the economy.
In other words, the problem is that the personal risks were entirely asymmetric. Raising concerns about the bubble could jeopardize one's career, while ignoring the bubble carried no such risk. Under such circumstances, economists would expect that economists would opt to ignore the bubble.
The remedy that economists would recommend for other workers is to fire those who failed at their job. This would make the risks more symmetric. That way, in the future economists would have incentive to seriously consider arguments about financial bubbles and other dangers to the economy and not just unquestioningly accept the views of their bosses.
Unfortunately, it is unlikely that any economists in government, business, or academia will suffer any serious career consequences for failing to have done their job and warned of the bubble. Economists have enough political power so that they are not held accountable for their performance in the same way as dishwashers or custodians.
--Dean BakerPosted at 10:32 PM | Comments (4)
If Dean had been in a position of major responsibility such as head of the Fed in 1996 or in 2002, and had taken action to burst the stock-market or real-estate bubbles or forstall the excessive expansion, he would probably have been fired (or at least not reappointed in the case of Fed Chairman). The general opinion would have been that he killed prosperity by ill-considered action. This may have been good for the economy, but people like Dean are in short supply and would soon be shut out from public office (as in fact they already are).
As I have argued before, discretionary action by authorities to puncture bubbles is not likely to happen. It seems that the only way to break out of the cycle is to rein in by legislation those aspects of financial industries, etc. that lead to overexpansion. The New Deal actually attempted to do this and was successful in many respects, but instead of carrying on this work, economists and politicians were seduced by the false promises of "new" free-market economics. Deregulation and reliance on the Fed to fix the system go hand-in-hand in the paradigm which has failed.
But Dean, you yourself just wrote that challenging the consensus would have posed serious risks to most economists' careers. And that's because most of them work within institutions controlled by people in whose interests it was to create the bubble, and who will not suffer from the debacle that has been the result. Economists are held accountable for their performance -- their performance in supporting the status quo.
If the housing bubble had been stopped in its tracks by economists warning of its effects, huge bonus and commission losses would have resulted in the banking world. Loathsome regulations would have been imposed on the financial system. The people adversely affected would have shown their displeasure with reduced contributions to the universities and think tanks employing those economists. Had they failed to fire or discipline those rogue economists, the presidents and board members of those institutions would have felt the wrath of the thwarted.
And they'd have been criticized even from the left, which would have been incensed that they were discouraging a mortgage lending system that was allowing so many people to become home-owners -- and, since we know that real estate only goes up, we'd be denying those people the chance to partake in the only surefire investment, veritably dooming them to a life of penury.
And since all the losses will be covered by various forms of government insurance, financed by government borrowing, no one will lose money in the end, right?
ALAN GREENSPAN, the former Federal Reserve chairman, acknowledged in a Congressional hearing last month that he had made an “error” in assuming that the markets would properly regulate themselves, and added that he had no idea a financial disaster was in the making. What’s more, he said the Fed’s own computer models and economic experts simply “did not forecast” the current financial crisis.
Mr. Greenspan’s comments may have left the impression that no one in the world could have predicted the crisis. Yet it is clear that well before home prices started falling in 2006, lots of people were worried about the housing boom and its potential for creating economic disaster. It’s just that the Fed did not take them very seriously.
For example, I clearly remember a taxi driver in Miami explaining to me years ago that the housing bubble there was getting crazy. With all the construction under way, which he pointed out as we drove along, he said that there would surely be a glut in the market and, eventually, a disaster.
But why weren’t the experts at the Fed saying such things? And why didn’t a consensus of economists at universities and other institutions warn that a crisis was on the way?
The field of social psychology provides a possible answer. In his classic 1972 book, “Groupthink,” Irving L. Janis, the Yale psychologist, explained how panels of experts could make colossal mistakes. People on these panels, he said, are forever worrying about their personal relevance and effectiveness, and feel that if they deviate too far from the consensus, they will not be given a serious role. They self-censor personal doubts about the emerging group consensus if they cannot express these doubts in a formal way that conforms with apparent assumptions held by the group.
Members of the Fed staff were issuing some warnings. But Mr. Greenspan was right: the warnings were not predictions. They tended to be technical in nature, did not offer a scenario of crashing home prices and economic confidence, and tended to come late in the housing boom.
A search of the Federal Reserve Board’s working paper series reveals a few papers that touch on the bubble. For example, a 2004 paper by Joshua Gallin, a Fed economist, concluded: “Indeed, one might be tempted to cite the currently low level of the rent-price ratio as a sign that we are in a house-price ‘bubble.’” But the paper did not endorse this view, saying that “several important caveats argue against such a strong conclusion and in favor of further research.”
One of Mr. Greenspan’s fellow board members, Edward M. Gramlich, urgently warned about the inadequate regulation of subprime mortgages. But judging at least from his 2007 book, “Subprime Mortgages,” he did not warn about a housing bubble, let alone that its bursting would have any systemic consequences.
From my own experience on expert panels, I know firsthand the pressures that people — might I say mavericks? — may feel when questioning the group consensus.
I was connected with the Federal Reserve System as a member the economic advisory panel of the Federal Reserve Bank of New York from 1990 until 2004, when the New York bank’s new president, Timothy F. Geithner, arrived. That panel advises the president of the New York bank, who, in turn, is vice chairman of the Federal Open Market Committee, which sets interest rates. In my position on the panel, I felt the need to use restraint. While I warned about the bubbles I believed were developing in the stock and housing markets, I did so very gently, and felt vulnerable expressing such quirky views. Deviating too far from consensus leaves one feeling potentially ostracized from the group, with the risk that one may be terminated.
Reading some of Mr. Geithner’s speeches from around that time shows that he was concerned about systemic risks but concluded that the financial system was getting “stronger” and more “resilient.” He was worried about the unsustainability of a low savings rate, government deficit and current account deficit, none of which caused our current crisis.
In 2005, in the second edition of my book “Irrational Exuberance,” I stated clearly that a catastrophic collapse of the housing and stock markets could be on its way. I wrote that “significant further rises in these markets could lead, eventually, to even more significant declines,” and that this might “result in a substantial increase in the rate of personal bankruptcies, which could lead to a secondary string of bankruptcies of financial institutions as well,” and said that this could result in “another, possibly worldwide, recession.”
I distinctly remember that, while writing this, I feared criticism for gratuitous alarmism. And indeed, such criticism came.
I gave talks in 2005 at both the Office of the Comptroller of the Currency and at the Federal Deposit Insurance Corporation, in which I argued that we were in the middle of a dangerous housing bubble. I urged these mortgage regulators to impose suitability requirements on mortgage lenders, to assure that the loans were appropriate for the people taking them.
The reaction to this suggestion was roughly this: yes, some staff members had expressed such concerns, and yes, officials knew about the possibility that there was a bubble, but they weren’t taking any of us seriously.
I BASED my predictions largely on the recently developed field of behavioral economics, which posits that psychology matters for economic events. Behavioral economists are still regarded as a fringe group by many mainstream economists. Support from fellow behavioral economists was important in my daring to talk about speculative bubbles.
Speculative bubbles are caused by contagious excitement about investment prospects. I find that in casual conversation, many of my mainstream economist friends tell me that they are aware of such excitement, too. But very few will talk about it professionally.
Why do professional economists always seem to find that concerns with bubbles are overblown or unsubstantiated? I have wondered about this for years, and still do not quite have an answer. It must have something to do with the tool kit given to economists (as opposed to psychologists) and perhaps even with the self-selection of those attracted to the technical, mathematical field of economics. Economists aren’t generally trained in psychology, and so want to divert the subject of discussion to things they understand well. They pride themselves on being rational. The notion that people are making huge errors in judgment is not appealing.
In addition, it seems that concerns about professional stature may blind us to the possibility that we are witnessing a market bubble. We all want to associate ourselves with dignified people and dignified ideas. Speculative bubbles, and those who study them, have been deemed undignified.
In short, Mr. Janis’s insights seem right on the mark. People compete for stature, and the ideas often just tag along. Presidential campaigns are no different. Candidates cannot try interesting and controversial new ideas during a campaign whose main purpose is to establish that the candidate has the stature to be president. Unless Mr. Greenspan was exceptionally insightful about social psychology, he may not have perceived that experts around him could have been subject to the same traps.Robert J. Shiller is professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets LLC.
Was it Groupthink?:
Challenging the Crowd in Whispers, Not Shouts, by Robert Shiller, Economic View, NY Times: Alan Greenspan ... acknowledged in a Congressional hearing last month that he had ... no idea a financial disaster was in the making. What’s more, he said the Fed’s own computer models and economic experts simply “did not forecast” the current financial crisis.
Mr. Greenspan’s comments may have left the impression that no one in the world could have predicted the crisis. Yet it is clear that well before home prices started falling in 2006, lots of people were worried... It’s just that the Fed did not take them very seriously.
For example, I clearly remember a taxi driver in Miami explaining to me years ago that the housing bubble there was getting crazy..., he said that there would surely be a glut in the market and, eventually, a disaster.
But why weren’t the experts at the Fed saying such things? And why didn’t a consensus of economists at universities and other institutions warn that a crisis was on the way?
The field of social psychology provides a possible answer. In his classic 1972 book, “Groupthink,” Irving L. Janis, the Yale psychologist, explained how ... experts ... on ... panels ... are forever worrying about their personal relevance and effectiveness, and feel that if they deviate too far from the consensus, they will not be given a serious role. They self-censor personal doubts about the emerging group consensus...
From my own experience on expert panels, I know firsthand the pressures that people — might I say mavericks? — may feel when questioning the group consensus.
I was ... a member the economic advisory panel of the Federal Reserve Bank of New York from 1990 until 2004... While I warned about the bubbles I believed were developing in the stock and housing markets, I did so very gently, and felt vulnerable expressing such quirky views. Deviating too far from consensus leaves one feeling potentially ostracized from the group, with the risk that one may be terminated. ...
In 2005, in the second edition of my book “Irrational Exuberance,” I stated clearly that a catastrophic collapse of the housing and stock markets could be on its way. ... I distinctly remember that, while writing this, I feared criticism for gratuitous alarmism. And indeed, such criticism came.
I gave talks in 2005 at both the Office of the Comptroller of the Currency and at the Federal Deposit Insurance Corporation, in which I argued that we were in the middle of a dangerous housing bubble. I urged these mortgage regulators to impose suitability requirements on mortgage lenders... The reaction ... was roughly this: yes, some staff members had expressed such concerns, and yes, officials knew about the possibility that there was a bubble, but they weren’t taking any of us seriously. ...
Why do professional economists always seem to find that concerns with bubbles are overblown or unsubstantiated? I have wondered about this for years... It must have something to do with the tool kit given to economists (as opposed to psychologists) and perhaps even with the self-selection of those attracted to the technical, mathematical field of economics. Economists aren’t generally trained in psychology... They pride themselves on being rational. The notion that people are making huge errors in judgment is not appealing.
In addition, it seems that concerns about professional stature may blind us... We all want to associate ourselves with dignified people and dignified ideas. Speculative bubbles, and those who study them, have been deemed undignified. In short, Mr. Janis’s insights seem right on the mark. People compete for stature, and the ideas often just tag along. ...
I think there's some truth to this.
R.S.: Flogged? What does that word mean?
L.G.: I guess flogged is what happens in Singapore if you spit on the sidewalk. So, okay, go ahead and scoop your book some more.
R.S.: I have a publicity manager, and he said I shouldn't talk too much about it.
L.G.: Okay, but why don't you tell me that story at least.
R.S.: Well, that story was that Frank Nothaft claimed that they had considered price declines as much as 13.5 percent. And I said, "What if it was worse than that?" And he said, "It's never been worse than that." And then he corrected himself. "Except for the Depression." I don't remember exactly what I said to that, but plausibly it was something like, "Well, that could happen again too." So again, I started to sound at that point too academic-something like this isn't real anymore.
L.G.: Why do you think people just have trouble listening to these things?
R.S.: Well, I can talk as a sociologist—which I'm not trained to do—but there's a social construction of reality that happens. This is a basic principle of sociology. We have a "collective consciousness," to quote sociologist Maurice Halbwachs. As far as I know, he coined the term. And the point is, we talk so much. The human species is incessantly talking, and this incessant talk reinforces certain memories and facts. And other facts are not reinforced because no one's talking about them. So they elude our consciousness, and then we can't remember them. We can't act on them anymore, and so a certain sort of reality-construct forms. It's also informed by some kind of intuitive thinking. In the case of real estate, people think that the growing population is inevitable, and that means home-price increases are inevitable. And these are not economists thinking clearly about what that means. An economist who thinks about that would say, "Yes, but that doesn't make them a good investment." If everything is priced at the present value of the cash flow with the same interest rate, then it doesn't matter whether the cash flow is growing or not, and then everything is equally good as an investment. That's not something that the general public understands.
L.G.: The people who were getting into subprime mortgage-backed securities presumably understood all this. They're very sophisticated people. So what was driving them?
R.S.: Some of them were very sophisticated people [laughs], and there was a failure to communicate and a failure to put all this information together and act on it in a systematic way. There's a famous book written by Irving Janis, who's a psychologist, about 30 years ago, called Groupthink. He's a social psychologist, and he points out how even expert groups can make very colossal errors. He did a number of case studies in the book, and what tends to happen—suppose you imagine yourself and a group of experts who seem to have converged on an enlightened opinion which has arguments to support it, and it has prominent influential people saying that. It can be difficult for someone to stand up in that room and air what seem to be half-baked or half-formed doubts about it. It can be kind of damaging to your reputation. And you imagine that they have a reason to dismiss these doubts. But you don't want to be responsible for bringing it up—especially when they're reaching a decision. Sometimes they're trying to make an important decision. And at that time, you would think that people who have doubts should stand up and thrust them to the fore. But, in fact, they often retreat at that point, because they may just have a sense that they're being annoying, that they will lose status in the group. If we're close to a decision on something, and I'd raise doubts, and they're going to go ahead anyway and do it, you might think that's good—because it could be a disaster, and they'll remember that you had doubts. But the likelihood is to focus on, instead, "Now I'm kind of the party pooper," you know. "When they're going to implement this plan, they're not going to turn to me because I was the guy who doubted." Things like that went through peoples' minds, and they don't air doubts. And when Janis interviewed people afterward and asked them their memories of the discussion, they would say things like, "I think we had a very open and fair discussion, and everyone raised their views." That was their memory of what happened, but they couldn't remember the other arguments. So it wasn't happening—there was somebody who was expressing doubts, but not effectively. And so I think that's the kind of thing that happens when there's just a general presumption which becomes repeated everywhere.
L.G.: And do you think that's the sort of dynamic that might've been operating, not only in quasi-government agencies like Fannie Mae and Freddie Mac, but also in the banks on Wall Street?
R.S.: Yeah, I mean, it became the idea that risk was just not there.
I'm intrigued when a commentator gives high praise to a work by someone who comes from a political vantage different from his own. I get even more interested when another take on the same piece seems straight out of Rashomon, a radically different account with only a few facts in common.
The opus in question is a new book, Network Power: The Social Dynamics of Globalization, by David Singh Grewal. It caught the attention of Christopher Caldwell of the Weekly Standard (who also writes regularly for the Financial Times), who gave it high marks, and Tyler Cowen, who was singularly unimpressed.
I have to say that although I have never mentioned him in this blog, I very much like Caldwell, and therefore am prejudiced in his favor. He often has a fresh perspective (which is hard in and of itself to pull off), is fair minded and well reasoned, and even when I don't agree with him, I have to give him credit for making a good case.
We'll get to the balance of Caldwell's article on the book in due course, but I want to give his description of what it's about versus Cowen's so you can see how they come from parallel universes. First, Caldwell in the Financial Times:
At the heart of globalisation is a basic, and politically explosive, mystery; globalisation proceeds through the breaking down of boundaries, the unfolding of diversity and freedom of choice – so why is it experienced by so many people as a constriction, an oppression and a loss of freedom? In a brilliant and subtle book*, a Harvard graduate student has solved this mystery – even if he has not solved the problem. David Singh Grewal believes the answer lies in something called “network power”. Networks are the means by which globalisation proceeds. All networks have standards embedded in them. In theory we can choose among the standards and become more free. In practice, Mr Grewal shows, our choices tend to narrow over time, so that standards are imposed on us.Cowen is guardedly positive about the book. Yet (if you believe Caldwell's account), Cowen picked up on what appears to be a secondary thread as the focus of his comments:
Here is how it works. Networks tend to grow. As time passes, one of the most attractive things about a network will be simply that a large number of people have already chosen it. This is network power. Once a network reaches “critical mass”, Mr Grewal says, the incentives to join it can become irresistible. Certainly some standards are intrinsically better than others. “But as the network power of a standard grows,” Mr Grewal writes, “the intrinsic reasons why it should be adopted become less important relative to the extrinsic benefits of co-ordination that the standard can provide.” People defect from alternative networks. Eventually those alternatives disappear altogether. The choice of networks becomes a Hobson’s choice. You remain free to choose your network, but the distinction between choosing to join a network and being forced to join one is less evident.
Mr Grewal sees such a “merger of reason and force” in many areas, economic and non-economic – from the Windows operating system to the ISO 9000 standard of industrial control to Britain’s adoption of the metric system. Since English has become the first global lingua franca, many non-native speakers have freely chosen to speak it. But, for someone who wants to participate in the global economy – which is to say, the economy – to what extent is this really a choice?These may not be bad observations, but it appears that Cowen has mischaracterized what Grewal's main thrust is. Cowen appears to have been set off by the mention of socio-cultural issues, which seems a comparatively minor aspect of Caldwell's reading (as in, having to conduct business in English, a second language for most of the world's population, requires years of effort to attain reasonable competence and is a bloody nuisance, but given our world's Tower of Babel, any lingua franca will inconvenience many. But I don't see American cultural influence stemming from that but from the fact that the film industry was born in Hollywood and still has a considerable scale advantage).Indeed, while this convergence in ways of thinking and living may extend to influence cultural forms like music or food, it need not necessarily do so. It is striking that in this moment of global integration producing massive convergence in economic, linguistic, and institutional standards, we should be so worried about restaurant chains and pop music, neglecting much more significant issues. Famously, Sigmund Freud argued that nationalist rivalries between neighboring countries reflected the "narcissism of minor differences," a pathological focus on relatively trivial distinctions driven by the desire to keep at bay an anxiety-provoking recognition of fundamental sameness.That is from David Singh Grewal's Network Power: The Social Dynamics of Globalization, one of the most interesting books on cultural globalization in recent years. He uses the ideas of social networks and peer effects to argue that widespread cultural convergence is occurring, most of all in ways of life. Here is the book's home page.
There is much wrong in the central thesis. "Ways of thinking" may be less diverse across countries (France is more like Germany than it used to be) but ways of thinking are now much more diverse within countries and in fact within the world as a whole. What's so special about having diversity distributed according to geographic or political criteria? ...
Nor is he capable of simply coming out and saying that lots of countries in the world *ought* to be doing more to emulate Anglo-American ways of thinking.
The following claim is also questionable:To reshape or reduce the power that the social structures we create have over us, we can only summon the organized power of politics. The large-scale voluntarism of sociability, by contrast, has always delivered the most varied and elaborate forms of individual subjugation.
Cranky Tyler is about to come out of his shell, so maybe it is time to end this post. It's still a book worth reading and thinking about.
Guess this means we all have to read the book to see who got it right.
Grewal indirectly gives support to one of Dani Rodrik's notions, that globalization presents a trilemma. You can have any two of democracy, national sovereignty and global economic integration, but you cannot have all three at once. The notion of network power is a detailed working through of how networks, which are both a force for and an element of international economic integration, are at odds with local/national power structures (e.g., the EU's ongoing battles to get Microsoft to comply with its anti-trust rules).
From the balance of Caldwell's article:Networks, Mr Grewal believes, can impinge on our political autonomy, channelling it into situations where dissent is possible but pointless. Although people enter them freely, networks, like political systems, can bias outcomes. A new order can be camouflaged as a broadening of options. Networks vary along three dimensions, Mr Grewal thinks: “compatibility” (with other networks); “availability” (openness); and “malleability”. They tend to be open and compatible in the early stages, and open and incompatible in the later ones.
The transition from the General Agreement on Tariffs and Trade to the World Trade Organisation in the mid-1990s demonstrates this process, Mr Grewal believes. The logic of the WTO’s core principle of non-discrimination among trade partners gives the body and authority that goes far beyond regulating trade, into areas of domestic policy that were protected by sovereignty under Gatt. Mr Grewal does not deny that there are intrinsic efficiencies to a transparent and uniform trading standard. But he believes that most countries join the WTO for the extrinsic benefits of participating in the network, and find the standard the network upholds intrinsically undesirable.
Mr Grewal nails his own anti-capitalist colours firmly to the mast. But his political engagements never outrun his diagnoses. Network Power leans on Marx, Keynes and the Canadian philosopher, Charles Taylor, to examine the more general problem of “power structures” – how power can be exercised over people even when no one is visibly giving orders. But he avoids attributing network power to “false consciousness” – the Marxian idea that people are easily fooled out of knowing their own interest. Indeed, he grants that most standards are the product of consent, although of a funny kind. “One of the interesting things about globalisation is the extent to which people consent to structures that are consciously and explicitly viewed as undesirable.”
This is a patient and powerful argument. The book’s concepts are presented with such extreme theoretical clarity that all readers, even those who do not share Grewal’s commitment to trammelling global capitalism, will be able to deploy his insights to other ends. What network-power effects explain the sudden spread of anti-smoking activism? How was the US institution of the Social Security number transformed into a financial tracking system? Is “political correctness” just old-fashioned cant or does it draw a sinister new force from network power?
Mr Grewal calls for a reassertion of democratic sovereignty to counter the unintended (and undesired) consequences of network choices. But he admits that the political solutions to network power are not yet obvious. Networks are transnational, while politics remains national, and Mr Grewal does not consider global government either feasible or (as far as one can tell) desirable. What is valuable about this book is its diagnosis, not its prescriptions. It may be the richest and most hard-headed explanation yet of the relationship between globalisation and diversity. Clearly the two are closely related. Since there seems to be more variety right in front of our noses than there was in the world of our parents, we are tempted to think globalisation has fostered diversity. But this is an optical illusion. Globalisation merely reveals diversity that was already there. It flushes diversity out from the places it was hidden, much as a hunter flushes his quarry out of a thicket, and to similar effect.
Niceness Mistakes-For Good!,
June 11, 2003By Ilaxi S. Patel "Editor, kidsfreesouls.com & A... (India) - See all my reviews
How oft we create a wave to spell trouble with our own perfections being true and honest with good faith and intentions? We take on too much not saying what we want and that's exactly what the book reveals - the niceness mistakes that 'Damage' us! Unconsciously, we have planted strong messages in the back of our minds and with good intentions by our mentors, follow the moral code of conducts in life. Be good, be nice, be cool, share and care, don't be selfish, be reasonable, don't hurt others, help friends, say yes and so on. In real, trying to reach perfection and taking on too much lead us to exhaustion and sooner or later the ship of our life start sinking. The author gives an insight to the nine unconscious mistakes we often make daily and helps us correct them and pulls a person out of frustration and stress.
In not saying what you want and taking on too much, it leads to suppressed anger. Robinson provides healthy tips to express anger to orchestrate a balanced life. Life itself is like riding a bike up and down roads that are bumpy, curvy, hilly while juggling bananas, balloons and bowling balls says Robinson and so this is when you have a fall, life needs balancing back to pedal and steer with too much/too little, too rational/too emotional, to fast/too slow, too cautious/too reckless, too strong/too weak, etc. and remain upright empowering to get what you need and deserve. Irony is, sometimes our niceness betrays us and this book is a key to understanding our mistakes and bring about a 'change' in us. Robinson makes us a nicer person making one realise the mistakes, why we make and how to give up.
In doing so, Robinson guides in:
1. Liberating from the bondage of other's expectations
2. Saying no and saving work overloads
3. Telling what we want and analyze what we receive is worth or not
4. Express anger that heal and maintain relationships too.
5. Face irrationality and criticism
6. Tell truth to friends when they fail us
7. Care for others but do no burden own trying to run their lives.
8. In pain and grief, feel competent enough
A change is always welcome even for the nice to be nicer and avoid the mistakes that we keep making out of the blue. Our good intentions turn out to be damn-in-way for others who often misunderstand or shrug off not appreciating your worth as human being. This book is indeed a gem collection for every person who has learned to live being 'Nice' and remain being so without being emotionally hung up sometimes. Good Pick!
Former title was better., April 8, 2007By Geoffrey J. Barnes "CyberBronco" (Miami, FL United States)
The former title of this book was Good Intentions. From the information I gathered in the first few pages it was first published in 1997. I am not sure if that refers to the first publication under the current title or the previous one. I say that because the text feels more dated than just 10 years old.
I bought this book at Borders. The title caught my eye and a scan of the first few lines of each chapter confirmed I would like this book. As someone who is always accused of being too nice a guy and winding up burned more than once by relationships and employers, I thought I was on to something! Unfortunately I feel burned again by being naive enough to buy this book. There are those reading this that will say I should have done my homework first before making a purchase. Well, I'm sorry but I am not one of those jerks who sits in Barnes and Noble all day, taking up space and breaking in the backs of books I never intend to purchase. I wish those chairs would run a few megawatts of electricity through them every 10 minutes to get those creepy people out of the stores. They never buy anything and they smell bad! When my cell phone rings in the store, they have the nerve to "Shush" me. Hey people! This is a retail establishment! Buy something or move back into the library!
To give an example of what I am referring to in this book go to page 201, Mistake #8: Rescuing Others. The first page gives an example of a guy with a nephew who is having trouble staying in school or keeping a job. This is actually the chapter that made me buy the book. After getting a few pages into the chapter you realize they are only referring to people who try to rescue addicts and nothing else. My nephew is not an addict, but he otherwise fits the description in the example. Too bad this book didn't stick to its original title: Good Intentions. It is a better description of what is being preached here.
Mistake #7 is called Giving Advice. It tells you to never give advice, and lists several reasons why you should not. Ironically advice is what this book is based upon. The author is giving all of us poor "Nice" guys advice.
I believe the author had "good intentions" when he wrote this book. I believe the publisher had a great money making idea when he re-released this book under its new title.
Budget Cuts Are Not the Only Way Workers Are Forced from Jobs: Workplace Abuse“The mobbing syndrome is a malicious attempt to force a person out of the workplace through unjustified accusations, humiliation, general harassment, emotional abuse, and/or terror. “It is a ‘ganging up’ by the leader(s) - organization, superior, co-worker, or subordinate - who rallies others into systematic and frequent ‘mob-like’ behavior.
“Because the organization ignores, condones, or even instigates the behavior, it can be said that the victim, seemingly helpless against the powerful and many, is indeed ‘mobbed.’ The result is always injury - physical or mental distress or illness and social misery and, most often, expulsion from the workplace.”
-Mobbing: Emotional Abuse in the American Workplace, by Davenport, Schwartz, and Elliott, 1999.When a budget crisis hits a large institution, certain workers often seem to be treated as though they are“expendable,” and are often the first forced out. But this is not the only manner in which workers are driven out of the workplace. Mobbing has been recognized for many years in Europe, and it is also beginning to be identified as a serious workplace problem in the United States. The authors above go on to say, “Mobbing is an emotional assault. Through innuendo, rumors, and public discrediting, a hostile environment is created in which one individual gathers others to willingly, or unwillingly participate in continuous malevolent actions to force a person out of the workplace.”
“These actions escalate into abusive and terrorizing behavior. The victim feels increasingly helpless when the organization does not put a stop to the behavior or may even plan or condone it... Frequently productivity is affected... Resignation, termination, or early retirement, the negotiated voluntary or involuntary expulsion from the workplace, follows. For the victim, death - through illness or suicide - may be the final chapter in the mobbing story.” -ibid
Much of the original research on mobbing was done by Swedish researcher Heinz Leymann in the 1980’s. His findings have been slow in making it to the United States. However a number of local statutes have been enacted, and publications, conferences, and resources have surfaced recently in the U.S. For example, Peralta Community College District in Oakland recently established a regulation outlawing such behavior.
Often mobbing activities are directed at whistleblowers. Brian Martin, in Whistleblowing and Nonviolencen (Peace and Change, Vol. 24, No. 3, January 1999) describes attacks on whistleblowers this way:
Whistleblowing, in casual usage, means speaking out from within an organization to expose a social problem or, more generally, dissenting from dominant views or practices... The most common experience of whistleblowers is that they are attacked. Instead of their messages being evaluated, the full power of the organization is turned against the whistleblower. This is commonly called the shoot-the-messanger syndrome,... The means of suppression are impressive, nonetheless. They include ostracism by colleagues, petty harassment (including snide remarks, assignment to trivial tasks and invoking of regulations not normally enforced), spreading of rumors, formal reprimands, transfer to positions with no work (or too much work), demotion, referral to psychiatrists, dismissal, and blacklisting.
Whistleblowers often discover that formal channels for complaint or remedy are ineffective or easily blocked. As Martin explains, “Appeal bodies are part of the wider system of power and usually seek or reach accommodation with other powerful groups. Hence such bodies are highly unlikely to support a single individual against elites from a major organization, who usually have links with elites elsewhere.”
Whistleblowers have other resources, according to Martin: “One strategy is based on ‘mobilization,’ namely winning supporters by circulating relevant documents, holding meetings and obtaining media coverage.” Howeve, such attempts at mobilization are often met by more severe mobbing and harassment.Kenneth Westhues, has identified academic institutions as a primary location for mobbing attacks:
“Ordinarily, colleagues in positions of local power explain the situation in terms of failings of the targeted professor: bad teaching, too few publications or the wrong kind, ethical misconduct, shirking of duties, failure to live up to legitimate expectations of the job... Sometimes, however, the target's failings have little to do with why he or she is in trouble. The evidence may point to a sharply contrasting explanation: that colleagues and/or administrators have ganged up on the targeted professor for no good reason, to the point that collectively shunning, shaming, and tormenting the target bolsters the group's solidarity, its esprit de corps.” - Workplace Mobbing in Academe (2004)
Westhues also tracks the trajectory of mobbing, and its consequences for victims and perpetrators. Here are more of his comments:“Mobbing ... is an impassioned, collective campaign by co-workers to exclude, punish, and humiliate a targeted worker. Initiated most often by a person in a position of power or influence, mobbing is a desperate urge to crush and eliminate the target. The urge travels through the workplace like a virus, infecting one person after another. The target comes to be viewed as absolutely abhorrent, with no redeeming qualities, outside the circle of acceptance and respectability, deserving only of contempt. As the campaign proceeds, a steadily larger range of hostile ploys and communications comes to be seen as legitimate.”
“Not infrequently, mobbing spelled the end of the target’s career, marriage, health, and livelihood. From a study of circumstances surrounding suicides in Sweden, Leymann estimated that about twelve percent of people who take their own lives have recently been mobbed at work.... By Leymann’s and others' estimates, between two and five percent of adults are mobbed sometime during their working lives. The other 95 percent, involved in the process only as observers, bystanders, or perpetrators (though occasionally also as rescuers or guardians of the target), mostly deny, gloss over, and forget the mobbing cases in which they took part. That is one reason it has taken so long for the phenomenon to be identified and researched.
“Workplace mobbing is normally carried out politely, without any violence, and with ample written documentation. Yet even without the blood, the bloodlust is essentially the same: contagion and mimicking of unfriendly, hostile acts toward the target; relentless undermining of the target’s self-confidence; group solidarity against one whom all agree does not belong; and the euphoria of collective attack.
“The worker most vulnerable to being mobbed is an average or high achiever who is personally invested in a formally secure job, but who nonetheless somehow threatens or puts to shame co-workers and/or managers. “Ironically, it is in workplaces where workers’ rights are formally protected that the complex and devious incursions on human dignity that constitute mobbing most commonly occur. Union shops are one example... University faculties are another, on account of the special protections of tenure and academic freedom professors have...Mobbing appears to be more common in the professional service sector, where work is complex, goals ambiguous, best practices debatable, and market discipline far away. Scapegoating is an effective if temporary means of achieving group solidarity, when it cannot be achieved in a more constructive way. It is a turning inward, a diversion of energy away from serving nebulous external purposes toward the deliciously clear, specific goal of ruining a disliked co-worker's life. Less time, skill, and energy are required to write off a persistent critic as a "difficult professor" than to rebut the critic's arguments. Chalking up dissent to the dissenter's real or imagined flaws of character relieves overworked administrators of uncertainty and ambiguity. It lets them feel good about themselves.Westhues (and others) point out that the best way to deal with mobbing is to nip it in the bud. Organizations not able to do this are at least as much at fault as the perpetrators of the attacks. To stop it requires an open atmosphere at the very beginning: “The basic priority for constructive resolution of workplace conflict, namely to keep the conversation going, to let competing positions be expressed and the evidence for them reviewed, to listen to what opponents say, to respond honestly and respectfully, to try not to silence anyone.”
Westhues lists three points for a strong academic institution which has vaccinated itself against mobbing:
- Protect freedom of speech.
- Keep academic organization loose. A tight ship cannot be a university. It has to be full of contradiction and brimming with debate in order to fulfill its public purposes.
- Focus attention on these purposes, like educating youth, producing useful knowledge, and above all seeking truth.
These quotes on mobbing were collected and prepared by Karl Schaffer(firstname.lastname@example.org, x8214), as a public service to the DeAnza College community. In addition to the sources cited above, google “mobbing” or “workplace abuse” for more info.
Posted by Soulskill on Wednesday April 23, @03:39PM
from the competition-is-a-good-thing dept. An anonymous reader points out a Los Angeles Times report that Sony is planning on making movies and TV shows available for download through the PS3 "as early as this summer." Sony hopes to make use of the roughly 4 million PS3s already sold in the US to compete with similar services such as XBox Live, which began offering video downloads over a year ago.
"One of the service's greatest obstacles may be Sony's own culture. Sony Chairman and Chief Executive Howard Stringer has been battling a corporate silo mentality in which divisions within his company work in isolation, undermining new initiatives. The PlayStation group in Foster City, Calif., has been notoriously aloof. Once, a former executive said, it scuttled plans for a movie subscription service for the PlayStation Portable even though Sony Pictures had supported the initiative. What is more, the company, looking to safeguard its film, television and music holdings, has been an aggressive champion of copyright protection, often, critics suggest, at the cost of technological innovation."
The Myth of The Rational Economist,
November 3, 2007
The problem with this book is its basic premise, that our problems are caused by ignorant voters, is simply nonsense. Caplan fails to notice that the policies that this nation is following are not those that the voters want.
By Sanford Thier - See all my reviews
If it mattered what the voters thought, Gore would be president, American boys would not be dieing in a pointless war in Iraq, NAFTA would be be canceled, we would get out of the WTO, we would control illegal immigration, our government would protect the interests of American workers instead of the interests of multinational corporations that outsource the best American jobs to slave labor countries, and we would have free quality health care for all Americans. That is what the voters in this country want.
The point is that we are not in trouble because we are following the wishes of irrational voters. We are in trouble because we are ignoring the wishes of the voters and following the policies favored by irrational economists. like him.
"Don't confuse us with the facts!",
June 8, 2007By Nicole (Norwalk, CT USA) - See all my reviews
Many people have noted that democracy seems not to work - policies are implemented that often are not in the best interest of voters, and when voters are surveyed they routinely lack even the most basic civic knowledge. The way people have typically answered this problem is to say that voters are uninformed, and that if they simply had more access to good information, they would use that information to make better choices. But even so, the tiny informed minority will sway elections because the uninformed majority will vote at random.
Here, Caplan directly challenges that view by asserting that voters are not simply ignorant but irrational, and that this is in fact predicted by economic theory. Voting is not like shopping - it is more like making use of a commons, because the costs of a "bad" vote are borne by the public at large, and the chance of an individual casting the deciding vote is tiny. Therefore, people will vote for what makes them feel good without bothering to find out whether it really is good - it simply doesn't matter. Caplan explores four systematic biases voters hold against good economic policy - antimarket bias, antiforeign bias, make-work bias, and pessimistic bias. The fact that systematic bias exists means that the irrational majority does not in fact vote at random, so it's the irrational voters deciding who wins elections rather than the small, informed, rational minority. Voters get what they want, it's just that what they want is actually bad for them - and they don't care!
Caplan makes a persuasive case for viewing the average voter as irrational rather than simply ignorant, though admittedly I am sympathetic to this idea to begin with. I wish he had been able to include more recommendations in his conclusion, but this should be a promising area for further research.Economists know best?,
July 25, 2007
This book is a very interesting read, describing a utility-based model of why voters vote as they do. The author proposes that voters are naturally biased against their own interests. The concept is that the probability of any one voter changing the result of a vote is vanishingly small, and therefore each voter votes for what makes them feel better about themselves, even if the policies go against their own interest and the interests of the economy. For example, voters vote for higher taxes, large inefficient government programs, and protectionist policies.
By J. Gordon "nonfiction enthusiast" (Rye, NY) - See all my reviews
For example, a voter might vote for a politician who promises to raise the voter's taxes and give their money to the poor. The voter figures that the chances that their individual vote would make the difference between the candidate winning or losing is extremely small; making the cost of the vote effectively zero. However, the psychic benefit of the vote is positive.
Where the author fails is in the chapter where he measures the policy leanings of an artificial "enlightened voter". How he defines an "enlightened voter" is an average voter with the statistical characteristics of one having a graduate degree in Economics. Based on a sophisticated multivariate-regression-based analysis, the author determines that an "enlightened voter" would be predicted to view potential policies more like... an economist! What a surprise!
Caplan asserts that the voting public would support more reasonable policies if they all had graduate degrees in economics. However, there are plenty of Econ PhD's who put too much faith in government policies solving apparent market failures.
The book is well worth reading, and makes many good points regarding the reasons why voters vote for policies that go against their own best interests, and in aggregate against the health of the overall economy. However, it does not make a convincing case that economists should be running the show.
According to a report not yet released, the Council on Science and Public Health of the American Medical Association has recommended that a chronic and widespread affliction of Americans be officially declared a psychiatric disorder. It has been named the Political Attention Deficit Disorder (PADD). It is recommended that the disorder be included in a widely used mental illness manual created and published by the American Psychiatric Association. The current manual was published in 1994; the next edition is to be completed in 2012. The benefit to people of an official classification is coverage by health insurance.
"The symptoms of PADD are all around us and treating it professionally can do more for our country than any election," said Dr. Mable Wank in the report's introduction; she is chairwoman of the Council and a professor at UCLA.
Here are the Council's main findings on PADD:
Nearly 80 percent of adult American citizens are unable to pay sustained attention to issues and problems associated with their government. They are unable to accept their responsibility as citizens, including their obligation to vote, read in-depth articles and books on political issues, become active members of politically oriented groups, and initiate discussions on current events with friends and family. "The decades-old decline in voter turnout is a direct result of a national epidemic of PADD," said the report.
The chief cause of PADD is the desire to avoid the very real pain of cognitive dissonance, the difference between what Americans want to believe about the greatness of their country and the disturbing reality that their government and country are in terrible shape, which is a constant reminder when there is normal, healthy political attention. Such pain suppression, however, is counterproductive and was found through careful studies at several universities, including the Harvard Medical College, to correlate with depression and anxiety disorders, as well as a heightened level of cynicism and despair. According to the report, many suicides and possibly many criminal acts result from PADD.
Dear reader, even if your taste runs to the practical rather than the theoretical, I strongly suggest you read this post from Thomas Palley.
Like it or not, most news reporting and just about all policy discussions in the finance/economics realm are filtered through a particular frame of reference, namely, neoclassical economics. Palley points out that the illusion that there are two schools, namely the Chicago "free market" cohort (which has become the "Washington consensus") versus the more interventionist MIT camp, obscures the fact that they are subsets of neoclassical thought and that there are other frameworks that have merit yet have been shunted aside.
Put more simply: it's important to recognize biases, otherwise you have no hope of correcting for them.
For the past 25 years, the so-called “Washington Consensus” – comprising measures aimed at expanding the role of markets and constraining the role of the state – has dominated economic development policy. As John Williamson, who coined the term, put it in 2002, these measures “are motherhood and apple pie, which is why they commanded a consensus.”
Not anymore. Dani Rodrik, a renowned Harvard University economist, is the latest to challenge the intellectual foundations of the Washington Consensus in a powerful new book titled One Economics, Many Recipes: Globalization, Institutions, and Economic Growth. Rodrik’s thesis is that though there is only one economics, there are many recipes for development success.
Rodrik has rendered a major service by stating so openly the claim of “one economics.” A critic who made the same claim that economics allows only one theoretical approach would be dismissed as paranoid, whereas Rodrik’s standing creates an opportunity for a debate that would not otherwise be possible.
The “many recipes” thesis is that countries develop successfully by following eclectic policies tailored to specific local conditions rather than by following generic best-practice formulas designed by economic theorists. This challenges the Washington Consensus, with its one-size-fits-all formula of privatization, deregulated labor markets, financial liberalization, international economic integration, and macroeconomic stability based on low inflation.
But, while the many recipes thesis has strong appeal and empirical support, and suggests a spirit of theoretical pluralism, the claim of “one economics” is misguided, for it implies that mainstream neoclassical economics is the only true economics.
Part of the difficulty of exposing this narrowness is that there is a family split among neo-classical economists between those who believe that real-world market economies approximate perfect competition and those who don’t. Believers are identified with the “Chicago School,” whose leading exponents include Milton Friedman and George Stigler. Non-believers are identified with the “MIT School” associated with Paul Samuelson. Rodrik is of the MIT School, as are such household names as Paul Krugman, Joseph Stiglitz, and Larry Summers. This split obscures the underlying uniformity of thought.
The Chicago School claims that real-world market economies produce roughly efficient (so-called “Pareto optimal”) outcomes on which public policy cannot improve. Thus, any state intervention in the economy must make someone worse off.
The MIT School, by contrast, argues that real-world economies are afflicted by pervasive market failures, including imperfect competition and monopoly, externalities associated with problems like pollution, and an inability to supply public goods such as street lighting or national defense. Consequently, policy interventions that address market failures – as well as widespread information imperfections and the non-existence of many needed markets – can make everyone better off.
None of this is about fairness, which is a separate issue. Indeed, neither the Chicago School nor the MIT School say that market outcomes are fair, because actual market outcomes depend on the initial distribution of resources. If that distribution was unfair, current and future outcomes will be unfair, too.
However, Chicago economists seem to believe that real-world outcomes are acceptably unfair and, more importantly, that attempts to remedy unfairness are too costly, because tampering with markets causes economic inefficiency. Moreover, they believe that government intervention tends to generate its own costly failures because of bureaucratic incompetence and rent-seeking, whereby private interests try to steer policy to their own advantage.
MIT economists tend to espouse the opposite: fairness is important, the real world is unacceptably unfair, and government failure can be prevented by good institutional design, including democracy.
These differences reflect the intellectual richness of neo-classical economics, but they provide no justification for the claim that there is one economics. On the contrary, heterodox economists like Thorsten Veblen and Joseph Schumpeter long ago raised many of today’s cutting-edge issues in neoclassical economics, including the role of social norms and the relationship between technological innovation and business cycles.
More importantly, heterodox economics includes core theoretical concepts that are fundamentally incompatible with neoclassical economics in either of its two contemporary forms. These concepts result in significantly different explanations of the real world, including income distribution and the determinants of economic activity and growth. Moreover, they often result in different policy prescriptions.
The late Robert Heilbronner – one of Schumpeter’s most renowned students – viewed economics as “worldly philosophy.” Just as philosophers are divided on the nature of truth and understanding, economics is divided on the workings of the real world. Paradigms should co-exist in economics, just as in other social sciences. Yet, in practice, the dominance of the belief in “one economics,” particularly in North America and Europe, has led increasingly to a narrow and exclusionary view of the discipline.
This reality is difficult to convey. One reason is that liberal neo-classical economists like Stiglitz and Krugman share values with heterodox economists, and shared values are easily conflated with shared analysis. Another reason is that heterodox and MIT School economists also often agree on policy, even if their reasoning is different. Finally, most people are incredulous that economists could be so audacious as to enforce one view of economics.
The “many recipes” thesis enriches neo-classical economics’ contribution to the development debate, and many of its policy proposals will find support from heterodox economists. However, it fails to engage the deep intellectual divisions regarding economic development, trade, and globalization, because it refuses to admit the legitimacy of such disagreements.
By repeating the claim of “one economics,” Rodrik inadvertently reveals the censorship embedded in contemporary economics. The great challenge is not to admit that there are many recipes, but rather to create space for other perspectives on economic analysis and policy.
Copyright Thomas I. Palley
Groupthink occurs when the pressure to conform within a group interferes with that group's analysis of a problem and causes poor group decision making. Individual creativity, uniqueness, and independent thinking are lost in the pursuit of group cohesiveness, as are the advantages that can sometimes be obtained by making a decision as a group—bringing different sources of ideas, knowledge, and experience together to solve a problem. Psychologist Irving Janis defines groupthink as: "a mode of thinking people engage in when they are deeply involved in a cohesive in-group, when the members' striving for unanimity override their motivation to realistically appraise alternative courses of action. Groupthink refers to a deterioration of mental efficiency, reality testing, and moral judgment that results from in-group pressures." It can also refer to the tendency of groups to agree with powerful, intimidating bosses.
The concept of groupthink provides a summary explanation of reasons groups sometimes make poor decisions. Indeed, groups are supposed to be better than individuals at making complex decisions, because, through the membership, a variety of differing perspectives are brought to bear. Group members not only serve to bring new ideas into the discussion but also act as error-correcting mechanisms. Groups also provide social support, which is especially critical for new ideas. But when new perspectives are rejected (as in the "not invented here" syndrome), it is hard to correct errors. And if the social support is geared toward supporting the group's "accepted wisdom," the elements that can make groups better decision makers than individuals become inverted, and instead make them worse. Just as groups can work to promote effective thinking/decision making, the same processes which enhance the group's operation can backfire and lead to disastrous results.
(Hayes Brunswick & Partners, LLC )
Ken Lay understandably is among the least admired individuals in America today. Enron Corp.'s former chief executive officer allegedly oversaw one of the biggest accounting scams in corporate history, the full repercussions of which are still unknown as each day seems to bring a new twist to the horrific scandal.
Yet, it would be somewhat comforting if it turns out that Lay conceived and executed the scandal knowing in advance the repercussions of his actions, much like Frank Gruttadauria, the Cleveland stockbroker who allegedly bilked old ladies and other clients out of millions of dollars by doctoring their account statements. Gruttadauria reportedly displayed all the signs of a classic sociopath, including beguiling charm and feigned empathy for his victims. He apparently acted alone and mysteriously disappeared before his scheme was discovered, the telltale signs of a classic scam. How neat and simple it would be to similarly lay Enron's demise at the feet of one person.
But Lay did not act alone -- and that may very well be one of the most disturbing elements of the Enron debacle. He had the enthusiastic support of a venerable cast of characters, including some high-priced lawyers, accountants, investment bankers and management consultants. Did Lay systematically entwine his advisers into a preconceived web of deception? Highly unlikely. Indeed, it's becoming increasingly clear that financial legerdemain was not unique to Enron; several other companies disclosed this week that they are delaying or reconsidering their earnings. In what may be another ominous sign, The Wall Street Journal reported that Moody's Investor Service has quietly sent out letters to more than 4,000 companies the agency rates asking for more information on their "off-balance-sheet financial arrangements."
Given the tragic fallout resulting from Enron's collapse, the cacophony of voices clamoring to bring the scandal's alleged masterminds to justice will no doubt grow louder still in the weeks ahead. But it is naive to think that culpability rests entirely with Lay, his lieutenants, and some wayward lawyers and auditors. The tragedy of Enron is that it was caused by what is known as "groupthink." Truth be told, almost everyone associated with the company contributed in some way to its collapse. The concept of groupthink was identified and coined by Dr. Irving Janis, a professor of psychology at the University of California-Berkeley and at Yale University, to explain the faulty decisions that led to some of our nation's biggest tragedies, including the Bay of Pigs invasion, the escalation of the Vietnam War, the Watergate break-in and the explosion of the Challenger space shuttle. Janis defines groupthink as "a mode of thinking where pressure for unanimity overwhelms the members' motivation to realistically appraise the alternative courses of action. Group pressure leads to carelessness and poor decisions. This eventually results in irrational thinking and action." In the case of the Challenger space shuttle, for example, NASA engineers knew about the dangers of conducting a launch in 36-degree weather but chose to minimize them. The pressures from NASA's top brass not to further delay the historic mission were just too great.
Enron was fertile ground for groupthink to take hold. The company's macho ethos was to feed Wall Street's insatiable appetite for spectacular earnings at all costs. This led to the creation of "killer apps," "new paradigms" and a plethora of esoteric financial instruments that few people even understood. But given Wall Street's unmitigated support for (and vested interest in) the arcane products, it hardly mattered. The regulators nodded. Investors cheered. And the media trumpeted the innovations.
Lay and his management team eventually came to see themselves as true masters of their universe, replete with the inevitable illusion of invulnerability. The company proudly fostered a Darwinian atmosphere, in which employees falling into the lower percentiles of performance were summarily dismissed. In Enron's heyday, it was sheer folly for an employee to question Enron's innovative management practices, and the few that did either voluntarily resigned or were fired. Enron's accountants and lawyers no doubt knew that if they didn't go along and bless the company's activities, management could easily find some other high-priced firms that would. Enron was a cult, and there were no shortage of takers lining up for the company's sucrative Kool-Aid, oblivious that the sweet drink would have a very bitter aftertaste.
Groupthink is an enclosed system of thought, a folie, where those engaged cross the boundary into unreality. Clearly, it leads to defective decision-making, resulting in a low probability of successful outcome. In the end, at Enron, there was a massive failure to examine and appreciate the risks taken, along with a failure of contingency planning. The results speak for themselves. In the wake of Enron, responsible boards of directors should be aggressively investigating whether groupthink is permeating the companies they oversee. A healthy organization fosters a culture whereby employees are both empowered and expected to debate and challenge each other and consider alternative courses of action. A mechanism must be in place where employees can report any perceived irregularities without fear of retribution. It is incumbent on directors to ensure that the information on which they base decisions comes from sources other than the CEO and advisors or consultants that are beholden to the executive. It would be wise to occasionally bring in outside parties to conduct a "reality check."
At the end of the day, Lay was an inspired -- though highly flawed leader -- working in a company that lost its way. The policies and actions that caused Enron's downfall were years in the making. The "horse was out of the barn" and no one, including Lay, could change the adverse course of events once their world began to unravel. It appears that legions of normally thoughtful people crossed the boundary into unreality; they all "drank the Kool-Aid," reinforcing one another's view of reality and entered into a world of their own design and creation. It's likely that the growing pressures, as problems arose, drove Lay and his senior managers further beyond the boundary of accountability, and then deluded themselves further into believing that they could get away with their machinations and schemes.
Unfortunately, we all are victims of their delusion. It will be up to the courts to decide an appropriate punishment for their misguided ways.
"Our complex global economy is built upon millions of small, private acts of psychological surrender, the willingness of people to acquiesce in playing their assigned parts as cogs in the great social machine that encompasses all other machines. They must shape themselves to the prefabricated identities that make efficient coordination possible... that capacity for self-enslavement must be broken.” (Theodore Roszak - The Voice Of The Earth)
Few tasks are more challenging than that of attending to our subtle, internal responses to the world against the deafening roar of what is deemed ‘obviously true‘. Writing in the 1930s, the anarchist Rudolf Rocker made the point that the state is not a disinterested spectator on the issue of freedom of thought. In his classic work, Culture And Nationalism, Rocker wrote:
"The state welcomes only those forms of cultural activity which help it to maintain its power. It persecutes with implacable hatred any activity which oversteps the limits set by it and calls its existence into question. It is, therefore, as senseless as it is mendacious to speak of a ‘state culture‘; for it is precisely the state which lives in constant warfare with all higher forms of intellectual culture and always tries to avoid the creative will of culture." (Rocker, Culture and Nationalism, Michael E. Coughlan, 1978, p.85)
The stakes, Rocker noted, are high:
"If the state does not succeed in guiding the cultural forces within its sphere of power into courses favourable to its ends, and thus inhibit the growth of higher forms, these very higher forms will sooner or later destroy the political frame which they rightly regard as a hindrance." (Rocker, p.83)
If this strikes us as implausible (as it should), it is for a very good reason. It seems incredible to us that individuals working for the state - in government, education, local government - could be eagerly working to “reduce all human activity to a single pattern”. Are they not human beings like us? Do they not seek freedom of thought, independence of mind, for their own children?
It is a very reasonable argument and applies equally to the media. Dissident analysts claim, and in fact demonstrate, that truth is filtered, depleted to a dramatic degree by the corporate media. But surely the men and women of the press - again, human beings like us - are not eagerly striving to oppress humanity.
The answer is found in the way the performance of an organisation is shaped by its primary, bottom line goals. As I have discussed elsewhere, the process is similar to the mechanisms underlying crystal formation. The near-perfect, symmetrical shapes of snowflakes and other crystalline structures are no accident but flow from the founding conditions around which the crystals form.
[Posted August 29, 2001]You see it in daycare centers, and you see it in the public schools, from kindergarten to high school. Group projects abound, shoving together individuals who have no formal bonds, yet are banded together for the purpose of collective decision-making.
Universities, both public and private, are not immune to this affliction. In fact, if you attend a business college today, you’ll think it’s the newest rage, but it’s been the rule for decades.
Most university programs may not use group projects, but undergraduate and graduate programs in business are full of them. It is our contention that group projects are criminal in themselves and should be abolished on moral grounds, in that they function as collectivist indoctrination. Like government schools, group projects homogenize thought and neuter high achievers.
Individuality is forced out of our kids at an early age. After all, group projects are often the standard for young children in childcare situations, where the young ones are often taught that individuals don't do things or go places, groups do. By college age, the collective cast of mind has only gotten more oppressive. Groupthink is a process of gradualism that seeks to gently merge the followers into a pack with leaders, the hope being that the leaders will pull up those who typically reside on the low end of the motivation and achievement scale.
For example, a professor assigns an innocuous academic exercise, such as a term paper, communications presentation, or marketing proposal. It is turned into a group project by fiat—the professor segments the class into groups. More often than not, these groups are not even voluntary. When the students turn in their papers, the professor usually assigns the same grade to everyone in the group.
Another common stratagem in this setting is to have group members grade one another and develop useful constructive criticism for fellow teammates. However, this commonly dovetails into grades by mutual agreement. If one member doesn't go along with this forced "agreement" by granting the agreed-upon concessions, he is usually excoriated by his fellow groupthinkers for doing so. This is a pact where honest evaluations take a back seat to easy A's and phony feel-goodism.
Shirking is the most immediate danger within group projects. Usually, the group members with some semblance of a work ethic labor hard and often to take up the slack from the free riders. There are other dangers as well. In a case experienced by one of us, for example, a group member simply cut and pasted text from the Web instead of writing up his share of the research. Thus, the final version of the paper given to the professor was 20 percent pure plagiarism, unbeknownst to the rest of the group until it was too late. The slacker got a grade of 98 for the project, as did the people who actually worked.
In other cases, the shirking of duties simply cannot be overcome. High achievers are forced to relax their standards and accept being reduced to the lowest common denominator in the group. This can have a dreadful effect on work ethic and attitudes through the following insidious lessons instilled by group projects:
Lesson 1: You will learn cooperation, not competition.
Lesson 2: The achiever will be taxed: The reward of his efforts will go to others, so the low achiever who exerts little effort and contributes almost nothing will be taken care of by the professor (serving as the government).
Lesson 3: Individualism will not be allowed. The individual with the best ideas will do what the group decides. If you have an original or daring thought, forget it. The group will write up a bland sack of platitudes that represents the thinking of its lowest common denominator.
Lesson 4: Conservatism and caution are the name of the game. Whereas high achievers constantly strive to better themselves and have the room to operate in a more daring realm, the low achievers want things quickly and easily as they conform to less strict standards for excellence. The result is likely to be one of mediocrity.
Lesson 5: Get used to the emotional feel of a collectivist, totalitarian state. If you are an individualist with a work ethic and a drive to excel, you will be pounded down until you adopt the debilitating, depressing learned helplessness that socialism produces. If you are a slacker, however, a free rider with no qualms about living on the purloined toil of honest people, you can feel relieved, satisfied, secure; if you are a thoroughgoing scumbag, you can even feel pride in any good grade given you on the backs of your teammates.
Business programs, in forcing group settings upon (previously) ambitious students, are responding to the demands of the business community. This can be dangerous.
First, the business community isn’t always the only entity to ask for the secrets of success. Successful businessmen such as Ted Turner and Warren Buffett have proven they don’t understand well what makes success possible. They know how to make money in ignorance of the economic principles that make it possible. This is due in part to the fact that most tycoons have navigated an ocean of government regulations in making their fortunes, and they mistakenly conclude that the government therefore had something to do with their success.
Second, and more ominous, business schools are usually the only programs on campus employing any right-wing (if mildly so) professors. Having the only campus department that makes extensive, mandatory use of group projects, business programs subject and desensitize their hapless students to the most realistically socialist experience available at most universities. Administrators are probably comfortable in the knowledge that the group project experience more than compensates for professors who occasionally dare to admit publicly that market solutions are better than government dictates. And students aren’t the only ones ruined: after enough years of being commissars, professors may slowly convert to the leftist mentality as well.
In truth, groupthink has become a chronic problem in universities; it is a consensus-seeking process that does not allow for the preservation of individuality. It stifles creativity for the purpose of compromise and agreement. The university—through its group-project mentality—has become a test lab for socialization skills. The fostering of such rigid cooperation and coerced integration can be had only at the expense of lesser accomplishment.
Ayn Rand had it right when she said that any collectivist system is necessarily self-defeating no matter what its specific policies or leaders. After all, if Johnny is in your group and he can't read or write very well, you'll be getting Johnny's grades.
WASHINGTON - In a 1972 book, 'Victims of Groupthink: A Psychology Study of Foreign-Policy Decisions and Fiascoes', Irving Janis identified the Vietnam War and the Bay of Pigs invasion of Cuba as particularly compelling examples of how very smart people can collectively make very stupid decisions.
In studying the Bay of Pigs, for example, Janis noted that the group around President John Kennedy made a series of assumptions -- that Cubans would welcome the invasion and rise up against Fidel Castro and that the U.S. could credibly deny involvement in the invasion, if necessary -- that were fundamentally deluded.
As in Iraq, many of those assumptions were based largely on the accounts of exiles and defectors, but the group dynamics involved in decision-making also played a key role in rallying the administration of the ''best and the brightest'' behind an adventure that proved disastrous, according to Janis.
A great deal more is known about group dynamics within the Bush administration foreign-policy apparatus today -- as a result of leaks, memoirs, and books, such as Bob Woodward's 'Plan of Attack' and Jim Mann's 'Rise of the Vulcans' -- than was known at the time about the Kennedy administration.
And what is known suggests the existence of two major groups -- an ''in-group'' of hawks whose captain is Vice President Dick Cheney and which has had a decisive influence on Bush himself, and an ''out-group'' of ''realists'' headed by Secretary of State Colin Powell and his deputy, Richard Armitage.
While the out-group, which ironically boasts men, including Powell, Armitage, ret. Gens. Anthony Zinni and Brent Scowcroft, with real war experience, the in-group is dominated by individuals, particularly Cheney and virtually the entire civilian leadership of the Pentagon, who have none at all.
Hence the moniker ''chickenhawks'', defined as individuals who favor military solutions to political problems but who themselves avoided military service during wartime. Cheney, who received five different deferments from the military draft during the Vietnam War, famously told an interviewer once that he ”had other priorities'' in the 1960s than military service.
What also makes the in-group so remarkable is its very small size, the long history it has shared together, and its close personal relationships.
Pentagon chief Donald Rumsfeld and Cheney, for example, worked together under Richard Nixon and have been the very best of friends ever since. Their neo-conservative aides and advisers, such as Deputy Defense Secretary Paul Wolfowitz, former Defense Policy Board (DPB) chairman Richard Perle, and DPB member Kenneth Adelman, likewise have been close for more than three decades and have personally mentored other top aides and advisers, such as Cheney's chief of staff, I. Lewis Libby, Defense Undersecretaries for Policy and Intelligence, Douglas Feith and Stephen Cambone, respectively, and Weekly Standard editor William Kristol, to name just a few.
The sense of kinship that unites the group is illustrated in part by a dinner hosted by Cheney shortly after U.S. troops took Baghdad 13 months ago. The guests included Wolfowitz, Libby, and Adelman; the atmosphere, warm and celebratory as they recounted their defeat of the ''realists. ''Someone mentioned Powell, and there were chuckles around the table'', Woodward noted. And then ''They turned to Rumsfeld, the missing brother'', and told affectionate stories about their past associations with the crusty Pentagon chief.
When Adelman said he had been surprised U.S. troops had not yet found weapons of mass destruction (WMD), he was assured by Wolfowitz, ''We'll find them'', and by Cheney, ''It's only been four days really. We'll find them''.
Students of Groupthink list a number of symptoms of the phenomenon that can lead the group into disaster, among them:
- believing in the group's inherent morality;
- sharing stereotypes, particularly of the enemy;
- examining few alternative or contingency plans for any action;
- being highly selective in gathering information;
- avoiding expert opinion;
- protecting the group from negative views or information that would contradict their basic assumptions;
- and - having an illusion of invulnerability.
From what is now known about planning for Iraq, each of these factors obviously played a role, and they continue to inform U.S. policy not only against perceived enemies, but even against out-groups in the administration or in Congress. And, because the in-group was so small, many of these characteristics were unusually pronounced.
The notion that the chickenhawks were morally superior, not just to Saddam Hussein or the ''terrorists'' or ''Ba'athist dead-enders'' whom they've been fighting since the war ended, extended even to the ''realists'', who were denounced in internal battles as ''appeasers'' or worse. As Cheney was recently quoted as declaring with regard to State Department proposals to engage North Korea, ''We don't negotiate with evil; we defeat it''.
Middle East experts at the State Department and the Central Intelligence Agency (CIA) were likewise scorned and excluded from both planning and the immediate aftermath of the invasion, while the creation in Feith's office of ad hoc intelligence analysis groups that ''stovepiped'' evidence of Iraqi WMD and ties to Al Qaeda was a classic illustration of selective intelligence gathering that would confirm pre-existing stereotypes.
Similarly, the total failure to prepare contingency plans to deal with looting, or even with the emergence of an insurgency against the occupation, displayed a confidence that turned out to be completely unwarranted. Likewise, former Army chief of staff Gen. Eric Shinseki's prediction that more than 200,000 troops would be needed to occupy Iraq in order to ensure security had not only to be rejected in order to protect the group from negative views; it had to be publicly ridiculed by Wolfowitz as ''wildly off the mark''.
In his latest expose on the prisoner-abuse scandal at Abu Ghraib, New Yorker correspondent Seymour Hersh noted that Rumsfeld's penchant for ''secrecy and wishful thinking'' -- characteristics that also apply to Groupthink -- resulted in the Pentagon's failure to do anything about it or about the many other problems they have encountered.
And whenever Powell or Armitage tried to bring to the attention of the highest levels in the administration the growing concern about prisoner abuse, according to a source recently cited in the ''Nelson Report'', an insider Washington newsletter, they were forced to endure from the chickenhawks what an eyewitness source characterized as ''around-the-table, coarse, vulgar, frat-boy bully remarks about what these tough guys would do if THEY ever got their hands on prisoners...''
On July 8, Asia Times Online broke the story (Patriotic pride and fear) of how noted Canadian psychologist Daniel Burston (two PhDs from Canada's York University and a widely acclaimed author) perceived a broad retreat into "social fantasy systems" and "socially patterned defects" as explaining much of the Bush administration's decision-making. He observed for ATol that such flaws bring those involved to "act in ways which - from an outsiders perspective - look insane". On the following day, July 9, the US Senate Intelligence Committee released its report on the United States' justification for the Iraq war, claiming an erroneous "groupthink" was to blame, and coincidentally highlighting the validity of Burston's observations.
Groupthink is defined as "a mode of thinking that people engage in when they are deeply involved in a cohesive group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action". In other words, retreat into a "social fantasy system" allowed "socially patterned defects" to flourish within the group's members.
The Senate Intelligence Committee chairman, Republican Senator Pat Roberts of Kansas, stated that "it is clear this groupthink also extended to our allies and to the United Nations and several other nations as well". The July 8 ATol piece provides parallel commentary on this, noting that "in most cases, destructive impulses are rationalized, ensuring 'at least a few other people or a whole social group share in the rationalization and thus make it appear to be realistic to the members of such a group'. In effect, an emotional-support network is formed, providing its individual members with a mistaken sense of legitimacy."
In an October 2003 article titled "Cheney's hawks hijacking policy", this journalist revealed that former senior Pentagon staffer Lieutenant-Colonel Karen Kwiatkowski (retired) described "a subversion of constitutional limits on executive power and a co-optation through deceit of a large segment of the Congress", adding that "in order to take that first step - Iraq - lies had to be told to Congress to bring them on board". Planned and deliberate lies were told in order to manipulate Congress and the American people purposefully, effectively, and criminally, undercutting the very foundations of US democracy.
Not to be misunderstood, the "groupthink" in question is far from innocent error, and administration critics charge that the Senate Intelligence Committee reports' attempts to couch blame as mere "fuzzy thinking" highlight the propaganda efforts ongoing, the groupthink still dominating policy. But this psychological phenomenon perhaps best translates to a broad failure to appreciate the reality of circumstance, the nature or implications of actions, the very difference between right and wrong. And while a hard core of believers/leaders is typically central to such a phenomenon's workings, their influence radiates broadly outward through their immediate group(s) and those they interface with.
Coincident with the Intelligence Committee's report, Senator Roberts defended the Iraq war as justified for humanitarian reasons, though numerous human-rights organizations have condemned the US record in Iraq, the war crimes that US forces are alleged to have committed there.
Notably, before the Iraq war began, numerous figures had publicly challenged the Bush administration's prewar assertions. On September 9, 2002, CNN had headlined "Former weapons inspector: Iraq not a threat", noting, "Former UN weapons inspector Scott Ritter says US military action against Iraq would be a mistake." And oil-war questions were abundant.
But highlighting the dynamics of what was ongoing, Kwiatkowski had charged that "there was an extra-governmental network operating outside normal structures and practices, 'a network of political appointees in key positions who felt they needed to take some action, to make things happen in a foreign affairs, national security way'. She said Pentagon personnel and the DIA [Defense Intelligence Agency] were pressured to favorably alter assessments and reports", a hard core of misguided individuals within the administration of US President George W Bush enjoying "a mistaken sense of legitimacy" in their efforts, spreading this false and wrongful mindset to many of those they encountered.
While groupthink is undoubtedly to blame for the Iraq war's false premises, the full implications of the "groupthink" that occurred, as well as that which is ongoing, appear to have yet to emerge.
Highlighting a disturbing reality, Burston had noted parallels between the social psychology of the present and that of the 1930s.
In a further parallel to the 1930s, on July 9 the conservative Chicago Sun-Times (one of the United States' top 50 papers) ran a commentary on US fascism, stating that "fascism' is not an exaggeration", and adding that anyone who doubted this "doesn't know what fascism is". It went on to note: "Some liberals suggest that the administration is capable of canceling the November election on the grounds of national security if it looks like Bush would lose. I doubt this." But on July 11 and 12, news of the administration seeking legal authority for just such an election postponement - a delay in the November election for national-security reasons - widely broke.
Burston had said he believed the US could be poised "on the verge" of a corporate fascism, and eminent political scientist Dr Michael Parenti (Yale PhD in political science and author of 18 books) spoke similarly. And indeed, the slippery slope of "groupthink" in effect provided the basis for the psycho-dynamics dominating the rise of 1930s fascism, its proponents of a "new order" perceiving endless lies, propaganda, repression, mass violence, and even mass murder as legitimate means to what they perceived as their "noble" ends, versus tragic and criminal delusions. Students of history will note the "groupthink" evidenced in Germany's 1930s mass rallies at Nuremberg, though the realization of what was then occurring didn't fully emerge until the Nuremberg War Crimes Tribunals of the 1940s.
As discussed in ATol's July 8 article, the process of groupthink then in effect spawns "'socially patterned defects' that enabled large groups of people to adjust themselves comfortably to a system that, humanly speaking, is 'fundamentally at odds with our basic existential and human needs'". Burston then noted that this resulted in "deficiencies, or traits, or attitudes which don't generate internal conflict when, in fact, they should". He then cited "Nazi mass-murderer Adolf Eichmann as representing the 'prototypical example' of what the phenomenon of 'socially patterned defects' can engender", emphasizing that "with one very questionable exception, Eichmann tested normal on all psychological tests that were administered to him by mental-health experts before his trial".
In discussing questions of contemporary fascism with Asia Times Online, Dr Parenti said, "When fascism came to power [in the 1930s], what it did was cut back on the public sector, privatize a lot of state-owned industries, abolish inheritance taxes and other taxes on the rich, abolish corporate taxes, cut wages, destroy labor unions, and destroy or undermine opposition parties." He described fascism as simply a tool employed by ruthless power-elites in achieving their ambitions. He added: "There's a concern that we're [the US] heading towards fascism, or that we're replicating fascism today."
Parenti saw citizenry being mobilized by "waving the flag in their face, and wrapping the flag around the leader, and telling them that they're being threatened by one menace or another, from abroad or within." In a parallel, Bush critics have long charged his administration with precisely this. Parenti cited Nazi Field Marshal Hermann Goering's similar explanation of popular motivation, which emerged from the period of the Nuremberg Tribunal.
In a purely American vein, Parenti recalled that former US secretary of state John Foster Dulles had said: "To get the people to support large military budgets and intervention, you've got to conjure up a threat, and you've got to make this scenario of 'one nation is a hero, another nation is a villain'. It's got to be hero versus villain." And the Senate Intelligence report does aid parallels between Dulles' vision and the Iraq war.
"You fool the people into thinking that you're protecting them, you're watching out for their interests, and you get them to vote against their own interests," Parenti charged.
Comparing today's United States to the 1930s, Parenti addressed the recent US Supreme Court decision allowing Vice President Dick Cheney and the Bush administration to refuse public access to the documents of Cheney's so-called Energy Task Force. Indications exist that oil-war questions were discussed within this group, a September 2003 Inter Press Service article, "Oil war questions surround Cheney energy group", addressing such concerns. Parenti strongly emphasized the implications of the court decision.
"The Supreme Court decision does, in effect, lift the executive power to an unaccountable and undemocratic status. So you really have no way for Congress or the public to hold these people accountable for what they're doing. You're, in effect, setting up a cloak of impunity on their actions under the guise of 'executive privilege' ... so what we're getting here is many of the same things that the fascists accomplish, while maintaining a democratic veneer," Parenti claimed, adding: "You're getting enormous tax cuts for the rich - there are now corporations that are making billions of dollars in profits that are paying no taxes - you're getting the rollback of trade unions through outsourcing, closing down unionized factories ... you're getting depressed wages, wages aren't keeping up with inflation; increasing spending in the military sector - this is just exactly what the fascists did. So you're accomplishing a lot of these same things without having to 'go all the way' and destroy every little shred of democracy." Parenti then proceeded to draw a firm parallel with the Italian 1930s "corporative state".
"In practice, the big decisions regarding the political economy were made by the industrialists," Parenti noted, but prefacing that by saying all groups within the Italian corporative state were "supposed to" share the decision power. He likened the large Italian industrialists' group to America's National Association of Manufacturers, saying, "in effect, those were the guys who were really thoroughly incorporated, and most of the ordinary people were left out in the cold, as subjects of the state".
After a moment, Parenti quickly observed that "the people always get a share of this action, though. The American people get a share of it, the Italians did ... their share is the taxes and the blood. They pay the taxes, and they send their sons off."
Notably, with the Nuremberg Tribunals, society long ago determined that those who may commit criminal acts while influenced by groupthink are nevertheless criminals, and should be judged accordingly.
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The phenomenon that group discipline and dynamics leads to hindrances for new ideas in groups.
- "Yes! We're all individuals!" "I'm not"
Most broadly, groupthink occurs when a group makes suboptimal decisions because of process problems or communication problems due to SocialNormalization. Most or all of the group members may, privately, realize that the decisions is a poor one but feel powerless to change it for fear of offending other group members, injuring SacredCows, or detonating LandMines.
If everyone takes for granted the group's perceived opinion, the group will choke itself to death. This can give rise to the Wiki:AbileneParadox. Usually when this happens, the group is considered to have an identity all unto itself. Sometimes it gets fuzzy whether or not the individuals have identities or are even conscious. Sometimes it's fuzzy whether or not there's even such a thing as an individual.
GroupThink is absolutely not collective intelligence. In CollectiveIntelligence, decisions are taken or opinions are set up by a group of people in such a way you can't distinguish an individual as the "author" of the decision or the opinion. To be achieved, it requires to get over groupthink. In the situation where groupthinking occur, each individual tend to conform his opinion to the opinion reached by the group. That often lead to bad choices, as no individual entirely agrees with what he finds himself ultimately supporting; also, it reduce creativity, as individuals tend to forget they have other choices than the one displayed by the group.
Contrast BarnRaising, where TheIndividual grants TheCollective influence over his actions, but not his thoughts. This is much more healthy.
Further reading: Groupthink : Psychological Studies of Policy Decisions and Fiascoes, by Irving L. Janis
You will often see online people complain about GroupThink and how it must be combatted. This is justified by people's general, cynical understanding of groupthink. To quote an anonymous author on this page:
- Groupthink generally refers to the collective stupidity, or lowest common denominator of individual intelligence. It is mob rule. To err is human, to really f*ck things up requires a committee.
However, certain AntiAuthoritarians use GroupThink as a foil for their inappropriate behaviour. They rationalize or justify their anti-social and often (psychologically/sociologically) violent behaviour towards others by saying they are combatting GroupThink. People not used to this strategy, and those aware that GroupThink is an invisible evil, will be caught by this justification. They will begin to ask themselves whether or not they are experiencing GroupThink, and surely FreedomOfSpeech? is a paramount good? We should, therefore, allow this pesky irritant to annoy us for the sake of democratic principles.
But that is not exactly how life works. A pesky irritant is undoubtedly confronting and limiting someone else's rights or freedoms. And more to the point, the person who feels that it is necessary to be as annoying as possible to all types of people is likely to be very angry for some reasons that reach well beyond their interaction with the community (under an AngryCloud from birth). ControlYourself, but that also means we EnforceResponsibility.
GroupThink is only a problem when valid individual voices are squashed due to a collective unwillingness to listen. It is not GroupThink to police oneself. It is legitimate to not listen to someone trying to squash your voice. Rather, it is illegitimate to gain voice through ManipulativePower.
If there really was a problem with GroupThink, the best way to change that is to introduce contravening opinions in a constructive, positive way. The only way out of GroupThink is to lead. Creating a fight is only going to reinforce the GroupThink as it creates a SeparationOfPositions?. More to the point, it creates an UsAndThem situation by making the boundary of the group clear where before it was fuzzy; it at least signals to the group that the individaul AntiAuthorian? is outside the group, and thus that person will be perennially excluded.
If you are a victim of such a ploy, just ask the person to lead the group out of the groupthink, rather than try to fight it. Ask them to be constructive, and positive. Help them with this, as the real problem may be that they are lacking the social skills necessary to navigate group situations.
For similar manipulative reasons, the term "groupthink" is often used by trolls.
Leadership promotes and manipulates GroupThink. The only way out of GroupThink is to not follow. The simple statement "I dissent" is a better and non-violent way to not follow compared to the combatative approach of the typical
AMPP: Indoctrination - Part 1
- Or even more likely, starve itself to death because no one is contributing any ideas.
As far as starving to death goes, I think that's highly unlikely. To start with, OddBalls? turn up and add a different personality to the mix. This helps prevent ThoughtStagnation? . Merely by being here, 'posting' something slightly different, I'm affecting others' thoughts and injecting something a little different, causing people to potentially behave a little differently than before they encountered me. Likewise, the different people here affect me and how I behave and this, in turn, filters into the way we all behave with each other. As with anything in life, there are factors which simply can't -be- factored (yet). For instance, one could argue a certain WayOfThought? needs to exist before one would even find oneself in a scenario like wiki. This suggests an IncestuousMindset? in the first place. However, this is offset by raw, potential growth. -- DominicBurns
A pod of whales, communicating at high bandwidth, function as a group incredibly well. They even work very well with humans with limited communication. We can't speak their language, they have to learn ours. Perhaps this is why a pod beaches themselves after losing a key member. They cannot function alone. Neither can we. -- JimScarver
People cooperate toward common goals, nothing new there. People form structured groupings to divide labor, provide for mutual defense, and so on. When it gets to be a problem is when a "group" is really a mob.
A collection of people who have no intentional common alignment is not a group in the "going somewhere together" sense. The bigger this collection gets, the narrower the scope of things they will all agree on. Unfortunately, for whatever reason, the narrower scope doesn't tend toward greater benefit either for the group of its individuals. It tends to be more destructive.
If you extract the individuals and consult them directly you get a wide range of responses, complete with nuances. Asked the same questions while surrounded by a group, the answers are usually different.
Try this: Get a group of individuals, and survey them individually on some matter or other. If you "load" the questions you're going to get "loaded" results, so don't bother. Now, collect all these individuals together in a room and have them "vote" on the same matters. When we did this we found consistently that people didn't "vote" along the same lines as their stated individual preferences.
So, if you want a truer representation of the inclination of a group, ask the individuals *seperately* and not collectively.
GroupThink is, on the whole, a bad way to make decisions. You get better vectors if you collect each discrete vector and then average them, rather than poll a mob and take the resulting apparent vector.
I did some brainstorming on why GroupThink occurs just based on my own experience.
- A confident voice claiming to speak the consensus will make individuals think that is the consensus, even when it is not.
- Fear of being wrong and therefore embarassed in front of the group.
- Fear of retribution, such as being shunned by more powerful members of the group.
- People AvoidConflict, and they certainly will want to avoid conflict with a group they have GroupAffinity? for.
- People take sides. You may be inclined to support positions of your group that you disagree with as long as you agree with most of what they think.
- As professionals (BeProfessional), we all know how important it is for a group to speak with one voice to the outside even if internally we vehemently disagree. The CluetrainManifesto speaks against this, however.
I think, though, the biggest reason people don't speak up in a group is that they are unsure of themselves, their status/position within the group, and the veracity of what they would say. People that HaveCourage? don't have trouble dissenting in a group, and conversely groups that AlleviateInsecurity? facilitate more individual contributions. Perhaps groupthink is merely a failure mode of a community with weak BehavioralNorms? -- SunirShah
Seems to be a lot about status (continue brainstorming):
- People want to be part of the community, so they adapt. If they feel weak they may fear to be rediculed. -- Wiki is about taking all opinions seriously, any contribution is welcome.
- People are part of an informal hierarchy. If they feel up to, a different opinion may be seen as a claim for leadership. One may want to avoid that or test his chances. -- Wiki seems to be open for that kind of problem. Trolls that split a community, usurpers who want to take leadership, leaders that feel attacked by opposing opinions.
- Loyal members or obliged members defend the rules and decisions of their community externally, even if they want to change it internally. This makes it necessary to be able to make the difference between internal and external! That means between internal communication (other members, topics) and external communication (guests, visitors)!
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What is Groupthink
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What is Groupthink?
Groupthink, a term coined by social psychologist Irving Janis (1972), occurs when a group makes faulty decisions because group pressures lead to a deterioration of “mental efficiency, reality testing, and moral judgment” (p. 9). Groups affected by groupthink ignore alternatives and tend to take irrational actions that dehumanize other groups. A group is especially vulnerable to groupthink when its members are similar in background, when the group is insulated from outside opinions, and when there are no clear rules for decision making.
References (also see annotated bibliography of books, articles and websites below)
Janis, Irving L. (1972). Victims of Groupthink. New York: Houghton Mifflin.
Janis, Irving L. (1982). Groupthink: Psychological Studies of Policy Decisions and Fiascoes. Second Edition. New York: Houghton Mifflin.
Symptoms of Groupthink
Janis has documented eight symptoms of groupthink:
- Illusion of invulnerability –Creates excessive optimism that encourages taking extreme risks.
- Collective rationalization – Members discount warnings and do not reconsider their assumptions.
- Belief in inherent morality – Members believe in the rightness of their cause and therefore ignore the ethical or moral consequences of their decisions.
- Stereotyped views of out-groups – Negative views of “enemy” make effective responses to conflict seem unnecessary.
- Direct pressure on dissenters – Members are under pressure not to express arguments against any of the group’s views.
- Self-censorship – Doubts and deviations from the perceived group consensus are not expressed.
- Illusion of unanimity – The majority view and judgments are assumed to be unanimous.
- Self-appointed ‘mindguards’ – Members protect the group and the leader from information that is problematic or contradictory to the group’s cohesiveness, view, and/or decisions.
When the above symptoms exist in a group that is trying to make a decision, there is a reasonable chance that groupthink will happen, although it is not necessarily so. Groupthink occurs when groups are highly cohesive and when they are under considerable pressure to make a quality decision. When pressures for unanimity seem overwhelming, members are less motivated to realistically appraise the alternative courses of action available to them. These group pressures lead to carelessness and irrational thinking since groups experiencing groupthink fail to consider all alternatives and seek to maintain unanimity. Decisions shaped by groupthink have low probability of achieving successful outcomes.
Examples of Groupthink: Past and Present
Examples of groupthink “fiascoes” studied by Janis include US failures to anticipate the attack on Pearl Harbor, the Bay of Pigs invasion, the escalation of Vietnam war, and the ill-fated hostage rescue in Iran. Current examples of groupthink can be found in the decisions of the Bush administration and Congress to pursue an invasion of Iraq based on a policy of “preemptive use of military force against terrorists and rogue nations”. The decision to rush to war in Iraq before a broad-based coalition of allies could be built has placed the US in an unenviable military situation in Iraq that is costly in terms of military deaths and casualties, diplomatic standing in the world, and economically.
Groupthink and the News Media
Knowledge is power and we as citizens and as a nation are becoming less powerful. We face an administration that believes in operating under high levels of secrecy. The American press, especially the television news media, has let down the American people and the American people have allowed this to happen. US television news is geared more toward providing entertainment than information. When one compares the news Americans received about the “war on terrorism” and “war in Iraq” with the news citizens of other countries received, it is easy to see why many Americans were eager to launch an attack on Saddam Hussein while most of the world thought this was not a good idea. The major news networks eagerly voiced almost exclusively the Bush administration’s (questionable) justifications for the attack on Iraq and ignored the voices of millions who knew that other ways of addressing the issues were still possible. Furthermore, the rapid pace of CNN, MSNBC, and Fox News opinion programs makes it difficult for viewers to process information in any depth. Americans need a press that serves as a devil’s advocate to alleviate the ongoing groupthink concerning the war on terrorism and the invasion of Iraq.
Review the following consequences of groupthink and consider how many of them apply to the Bush administration’s handling of the ‘war on terrorism’ and the issues related to Iraq and Saddam Hussein:
a) incomplete survey of alternatives
b) incomplete survey of objectives
c) failure to examine risks of preferred choice
d) failure to reappraise initially rejected alternatives
e) poor information search
f) selective bias in processing information at hand
g) failure to work out contingency plans
h) low probability of successful outcome
Remedies for Groupthink
Decision experts have determined that groupthink may be prevented by adopting some of the following measures:
a) The leader should assign the role of critical evaluator to each member
b) The leader should avoid stating preferences and expectations at the outset
c) Each member of the group should routinely discuss the groups' deliberations with a trusted associate and report back to the group on the associate's reactions
d) One or more experts should be invited to each meeting on a staggered basis. The outside experts should be encouraged to challenge views of the members.
e) At least one articulate and knowledgeable member should be given the role of devil's advocate (to question assumptions and plans)
f) The leader should make sure that a sizeable block of time is set aside to survey warning signals from rivals; leader and group construct alternative scenarios of rivals' intentions.
Hart, P. (1994). Government: A study of small groups and policy failure. Baltimore:
The Johns Hopkins University Press
In the first book-length study of groupthink since Janis’s work, Paul ‘t Hart has provided a rigorous and systematic version of this influential theory which opens several new avenues for research. Groupthink in government examines the circumstances most likely to produce or counteract groupthink, and applies the theory to issues such as leadership style, risk taking, accountability, and prevention. ‘t Hart’s elaborate case study of the Iran-Contra scandal demonstrates the continuing relevance of the groupthink theory in the examination of flawed decision making.
Janis, I.L. (1972). Victims of groupthink: A psychological study of foreign policy
decisions and fiascoes. Boston: Houghton Mifflin Company.
Janis defines groupthink as the psychological drive for consensus at any cost that suppresses disagreement and prevents the appraisal of alternatives in cohesive decision-making groups. In this, the first edition, Janis showed how this phenomenon contributed to some of the major U.S. foreign policy fiascoes of recent decades: the Korean War stalemate, the escalation of the Vietnam War, the failure to be prepared for the attack on Pearl Harbor, and the Bay of Pigs blunder. He also examined cases, such as the handling of the Cuban Missile Crisis and the formulation of the Marshall Plan, where GROUPTHINK was avoided.
Janis, I.L. (1982). Groupthink: A psychological study of policy decisions and fiascoes.
Boston: Houghton Mifflin Company.
In this edition (2nd), Janis applies his hypothesis to the Watergate cover-up, portraying in detail how GROUPTHINK helped to put the participants on a disastrous course and keep them there. In addition, he presents some new ideas on how & why GROUPTHINK occurs, and offers suggestions for avoiding it.
Kowert, P.A. (2002). Groupthink or deadlock: When do leaders learn from their
advisors? Albany: Blackwell Publishing.
This book argues that too much advice can lead to policy deadlock depending on leadership style. The danger of groupthink is now standard fare in leadership training programs and a widely accepted explanation, among political scientists, for policy-making fiascoes. Efforts to avoid groupthink, however, can lead to an even more serious problem-deadlock. Groupthink or Deadlock explores these dual problems in the Eisenhower and Reagan administrations and demonstrates how both presidents were capable of learning and consequently changing their policies, sometimes dramatically, but at the same time doing so in characteristically different ways. Kowert points to the need for leaders to organize their staff in a way that fits their learning and leadership style and allows them to negotiate a path between groupthink and deadlock.
Ahlfinger, N. R. & Esser, J. K. (2001). Testing the groupthink model: Effects of
promotional leadership and conformity predisposition. Social Behavior &
Personality: An International Journal, 29(1), 31-42.
This article discusses two hypotheses that were derived from groupthink theory and were tested in a laboratory study which included measures of the full range of symptoms of groupthink, symptoms of a poor decision process, and decision quality. The hypothesis that groups composed of members who were indisposed to conform would be more likely to fall victim to groupthink than groups whose members were no predisposed to conform received no support. It is suggested that groupthink research is hampered by measurement problems.
Esser, J.K. (1998). Alive and well after 25 years: A review of groupthink research.
Organizational Behavior & Human Decision Processes, 73(2-3), 116-141. This article provides a summary of empirical research on groupthink theory. Groupthink research, analyses of historical cases of poor group decision making are included, and laboratory tests are reviewed. Results from these two research areas are briefly compared. Theoretical and methodological issues for future groupthink research is identified and discussed.
Fuller, S.R. & Aldag, R.J. (1998). Organizational Tonypandy: Lessons from a quarter
century of the groupthink phenonmenon. Organizational Behavior & Human Decision Processes, 73(2-3), 163-184. In this paper, Fuller and Aldag argue that the quarter-century experience with groupthink represents an unfortunate episode in the history of group problem solving research. There has been remarkably little empirical support for the groupthink phenomenon, and that the phenomenon rests on arguable assumptions, that published critiques of groupthink have generally been ignored by groupthink researchers, and that groupthink is presented as fact in journal articles and textbooks. They see continued advocacy of groupthink as a form of organizational Tonypandy, in which knowledgeable individuals fail to “speak out” against widely accepted, but erroneous beliefs. They explore the nature and causes of the Tonypandy and encourage researchers to cast off the artificial determinism and constraints of the groupthink model, and instead, seek to inform the general group decision making literature.
Kramer, R.M. (1998). Revisiting the Bay of Pigs and Vietnam decisions 25 years later:
How well has the groupthink hyposthesis stood the test of time? Organizational Behavior & Human Decision Processes, 73(2-3), 236-271. This paper explains how in the twenty five years since the groupthink hypothesis was first formulated, new evidence, including recently declassified documents, rich oral histories, and informative memoirs by key participants in these fiasco decisions have become available to scholars. This casts a new light on the decision making process behind both the Bay of Pigs and Vietnam. Much of the new evidence does not support Janis’s original characterization of these processes. In particular, it suggests that dysfunctional group dynamics stemming from group members’ strivings to maintain group cohesiveness were not as prominent a causal factor in the deliberation process as Janis argued. Viewed in aggregate, this new evidence suggests that the groupthink hypothesis overstates the influence of small group dynamics, while understating the role political considerations played in these decisions.
Hart, P. (1998). Preventing groupthink revisited: Evaluating and reforming groups in
government. Organizational Behavior & Human Decision Processes, 73(2-3),
This article critically examines Janis’s recommendations for preventing groupthink in high-level policymaking. It puts forward three models of small group functioning in government, each of which highlights different dimensions of collegial policymaking and distinct criteria for evaluating group performance. Each model also inspires different proposals for groupthink prevention and improvement of group performance in general. The article concludes with an agenda for increasing the policy relevance and practical feasibility of research on political decision groups.
McCauley, C. (1998). Group dynamics in Janis’s Theory of groupthink: Backward and
forward. Organizational Behavior & Human Decision Processes, 73(2-3), 142- 162. This paper traces groupthink to its theoretical roots in order to suggest how a broader and a more consistent use of research in group dynamics can advance understanding of decision-making problems. In particular, the paper explores and reinterprets the groupthink prediction that poor decision- making is most likely when group cohesion is based on the personal attractiveness of group members.
Moorhead, G., Neck, C.P. & West, M.S. (1998) The tendency toward defective decision
making within self-managing teams: The relevance of groupthink for the 21st century. Organizational Behavior & Human Decision Processes, 73(2-3), 327- 351. Groupthink theory has continued relevance to organizations because of the organizational trend toward self-managing work teams. A typology is developed linking the key differentiating characteristics of self-managing teams to groupthink antecedents of group cohesion, structural faults of the organization, and provocative situational context. Building upon this framework, we more specifically examine variables that will impact the occurrence of groupthink within self-managing teams. Implications for the prevention of groupthink in self-managing teams are discussed.
Paulus, P.B. (1998). Developing consensus about groupthink after all these years.
Organizational Behavior & Human Decision Processes, 73(2-3), 362-374. In the context of these papers of this special issue, the models of groupthink are evaluated. The major focus is on the basis for its impact and its scientific status. The groupthink perspective is seen as consistent with some other contributions to the group’s literature. Interesting parallels between the groupthink and the brainstorming literature are noted. It is conclude that many of the issues raised by the groupthink model are worthy of further examination in a broad-based study of group decision processes.
Peterson, R.S., Owens, R.D., Tetlock, P.E., Fan, E.T. & Martorana, P. (1998). Group
dynamics in the top management teams: Groupthink, vigilance, and alternative models of organizational failure and success. Organizational Behavior & Human Decision Processes, 73(2-3), 272-305. This study explored the heuristic value of Janis’ (1982) groupthink and vigilant decision-making models as explanations of failure and success in top management team decision making using the Organizational Group Dynamics Q-sort (GDQ). Top management teams of seven Fortune 500 companies were examined at two historical junctures—one when the team was successful (defined as satisfying strategic constituencies) and one when the team was unsuccessful. Results strongly supported the notion that a group’s decision-making process is systematically related to the outcomes experienced by the team. The results illustrate the usefulness of the GDQ for developing and empirically testing theory in organizational behavior from historical cases.
Raven, B.H. (1998). Groupthink, Bay of Pigs, and Watergate reconsidered.
Organizational Behavior & Human Decision Processes, 73(2-3), 352-361. In this paper, Raven argues that group decisions have often been seen as offering the benefits of collective wisdom, but may also lead to disastrous consequences. Groupthink then focuses on the negative effects of erroneous group decisions, the two major examples being the disastrous Bay of Pigs, which then led to the Watergate scandal. While Janis seems to suggest that groupthink will ultimately lead the group to fail in its ultimate endeavors, we need to consider the frightening possibility that in the case of the Nixon group, the group actions came close to being successful.
Schwartz, J. & Wald, M. L. (2003, March 03). Smart people working collectively can be
dumber than the sum of their brains: “Groupthink”is 30 years old, and still going strong. NY Times. Retrieved February 20, 2004, from Ebsco database. This issue came into sharp focus in Houston in 2003 at the first public hearing of the board investigating the Columbia disaster last month. Reprinted at: http://www.mindfully.org/Reform/2003/Smart-People-Dumber9mar03.htm.
Street, M. D. & Anthony, W. P. (1997). A conceptual framework establishing the
relationship between groupthink and escalating commitment. Small Group
Research, 28(2), 267-294. This article presents three propositions designed to demonstrate a theoretical relationship between the groupthink and escalation commitment models. Proposition that groups exhibiting groupthink characteristics are more likely to escalate commitment to a losing course of action than are groups not exhibiting groupthink characteristics.
Turner, M. E. & Pratkanis, A. R. (1998). Twenty-five years of groupthink theory and
research: Lessons from the evaluation of a theory. Organizational Behavior & Human Decision Processes, 73(2-3), 105-115. Retrieved January 20, 2004, from Ebsco database. This is from a special issue on theoretical perspectives of groupthink, a twenty-fifth anniversary appraisal. The article examines the historical development of the groupthink model of decision-making processes and discusses recent responses to the body of empirical evidence amassed on the model. The article concludes by articulating general lessons implied by the evolution of research on the groupthink model.
Whyte, G. (1998). Recasting Janis’s groupthink model: The key role of collective
efficacy in decision fiascoes. Organizational Behavior & Human Decision Processes, 73(2-3), 185-209. This paper advances an explanation for decision fiascoes that reflects recent theoretical trends and was developed in response to a growing body of research that has failed to substantiate the groupthink model (Janis, 1982). In this new framework, the lack of vigilance and preference for risk that characterizes groups contaminated by groupthink are attributed in large part to perceptions of collective efficacy that unduly exceed capability. High collective efficacy may also contribute to the negative framing of decisions and to certain administrative and structural organizational faults. In the making of critical decisions, these factors induce a preference for risk and a powerful concurrence seeking tendency that, facilitated by group polarization, crystallize around a decision option that is likely to fail. Implications for research and some evidence in support of this approach to the groupthink phenomenon are also discussed.
Groupthink Central: http://www.groupthinkcentral.blogspot.com/
This website is for groupthink central, and has the following quote by Walter Reuther. "There is no greater calling than to serve your fellow men. There is no greater contribution than to help the weak. There is no greater satisfaction than to have done it well." --
A First Look at Communication Theory: http://www.afirstlook.com/main.htm
This website is primarily designed as a companion to communication theory by Em Griffin and the Instructor’s Manual by Glen McClish, and Jacqueline Bacon. This site includes links to resource materials for texts, and a description of Conversations with communication theorists, a video of the interviews conducted with the authors of a number of theories featured in the book. Links to theories in the current (5th) edition can be found, as well as theories in the archives of past editions. Chapter 18 by Irving Janis, in the book A First Look at Communication Theory (1997), by Em Griffin http://www.afirstlook.com/archive/groupthink.cfm?source=archther.. In this chapter, Janis discusses the events behind the Challenger disaster, as a model of defective decision-making. He describes the mode of thinking and how people in a cohesive group have a tendency to seek concurrence with others in the group to finalize their decisions. The chapter outlines the eight symptoms of groupthink, and offers a critique on avoiding uncritical acceptance of groupthink.
Errors and Accidents: Groupthink http://www.ess.ntu.ac.uk/miller/error/groupthink.htm#linking.
This BSc Psychology website developed by Hugh Miller and Bill Farnsworth at the Nottingham Trent University offers chapters on Groupthink by Irving Janis and others.
Argos Press GROUPTHINK Risk Management and Decision Making Glossary: http://www.risk-management.argospress.com/groupt.htm.
This website is a glossary to risk management and decision making, systems thinking, and situation awareness. This site has a comprehensive glossary of utility terms and a Peer Tool that can be ordered free online to guide the group towards making better decisions.
Back to Groupthink Resources
The Challenger space shuttle explosion. The Bay of Pigs invasion. The Korean War debacle (Janis 1-28). These are examples of situations where group communication failed. Group communication involves a shared identity among three or more people, a considerable amount of interaction among these people, and a high level of interdependence between everyone involved (Trenholm 196-97). It is essential to understand group dynamics for a variety of reasons. Everyone participates in groups throughout the course of a lifetime, and these groups are often very goal-oriented. The business community, non-profit organizations, and town governments all use groups to make decisions. Sometimes a condition known as Groupthink can occur in groups that are extremely task-oriented and goal-driven. Groupthink is as "a mode of thinking people engage in when cohesiveness is high" (Blumberg and Golembiewski 134). Groupthink leads to poor decision making and results in a lack of creativity. Although Groupthink has been studied extensively, many people are unaware of its dynamics and the consequences that they might induce. This paper was designed to raise awareness about Groupthink and to provide some suggestions that can help task-oriented groups avoid this condition. To understand Groupthink it is essential to have a basic familiarity with group communication dynamics. Once this is accomplished some symptoms of Groupthink will be explored and some solutions will be offered.
Groupthink Theoretical Framework
Communication Theory A First LookChapter 18
On the morning of January 28, 1986, the space shuttle Challenger blasted off from the Kennedy Space Center in Florida. Seventy-three seconds later, millions of adults and school children watched on television as the rocket disintegrated in a fiery explosion, and the capsule plunged into the Atlantic Ocean. The death of all seven crew members, and particularly teacher Christa McAuliffe, shocked the nation. For many Americans, the Challenger disaster marked the end of a love affair with space. As they learned in the months that followed, the tragedy could have been—should have been—avoided.
President Reagan immediately appointed a select commission to determine the probable cause(s) of the accident. The panel heard four months of testimony from NASA officials, rocket engineers, astronauts, and anyone else who might have knowledge about the failed mission. In a five-volume published report, the presidential commission identified the primary cause of the accident as a failure in the joint between two stages of the rocket that allowed hot gases to escape during the ‘‘burn." Volatile rocket fuel spewed out when a rubber O-ring failed to seal the joint.
The average citizen could understand the mechanics of the commission’s finding. After all, everyone knows what happens when you pour gasoline on an open flame. What people found difficult to fathom was why NASA had launched the Challenger when there was good reason to believe the conditions weren’t safe. In addition to the defective seal, the commission also concluded that a highly flawed decision process was an important contributing cause of the disaster. Communication, as well as combustion, was responsible for the tragedy.
As the person in charge of the Flight Readiness Review for NASA, Jesse Moore had the ultimate authority to approve or scrub the shuttle mission. He relied on the assessments of managers at the Kennedy, Johnson, and Marshall Space Centers, who in turn consulted with engineers from the companies that designed the Challenger’s subsystems. The film Apollo 13 dramatized the final phase of this ‘‘go/no-go" launch procedure.1 NASA has always taken the position that ‘‘a launch should be canceled if there is any doubt of its safety."2
The day before the launch, Morton Thiokol engineers warned that the flight might be risky. As the team responsible for the performance of the rocket booster, they worried about the below-freezing temperature that was forecast for the morning of the launch. The O-ring seals had never been tested below 53 degrees Fahrenheit, and as Thiokol engineer Roger Boisjoly later testified, getting the O-rings to seal gaps with the temperature in the 20s was like ‘‘trying to shove a brick into a crack versus a sponge."3
The O-ring seals had long been classified a critical component on the rocket motor, ‘‘a failure point—without back-up—that could cause a loss of life or vehicle if the component failed."4 Yet when Thiokol engineers raised the safety issue in a teleconference, NASA personnel discounted their concerns and urged them to reconsider their recommendation. After an off-line caucus with company executives, Thiokol engineers reversed their ‘‘no-go" position and announced that their solid rocket motor was ready to fly. When the Kennedy, Johnson, and Marshall Space Center directors later certified that the Challenger was flight ready, they never mentioned any concern about the O-rings. At the top of the flight readiness review chain, Jesse Moore had every reason to believe that the shuttle was ‘‘A-OK."
Irving Janis, Yale social psychologist, was fascinated with the question of how an acknowledged group of experts could make such a terrible decision. He was convinced that their grievous error wasn’t an isolated instance limited to NASA decisions, corporate boardrooms, or matters of a technical nature. He believed he could spot the same group dynamic at work in other tragic decisions. He was especially interested in White House fiascos—Roosevelt’s complacency before Pearl Harbor, Truman’s invasion of North Korea, Kennedy’s Bay of Pigs fiasco, Johnson’s escalation of the Vietnam War, Nixon’s Watergate break-in, and Reagan’s Iran-Contra scandal coverups. If Janis were alive today he would probably also examine Clinton’s approval of the raid on the Branch Davidian compound in Waco, Texas. Janis didn’t regard chief executives or their advisors as stupid, lazy, or evil. Rather, he saw them as victims of ‘‘groupthink."
A Concurrence-Seeking Tendency
[The following notes were compiled from a variety of internet sources.]
Irving Janis originally defined groupthink as ‘‘a mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ strivings for unanimity override their motivation to realistically appraise alternative courses of action." According to his definition, groupthink occurs only when cohesiveness is high. It requires that members share a strong ‘‘we-feeling" of solidarity and desire to maintain relationships within the group at all costs. When colleagues operate in a groupthink mode, they automatically apply the ‘‘preserve group harmony" test to every decision they face."
Janis introduced the concept of groupthink through the popular press in 1971. The idea struck a responsive chord with policy planners who had hastily approved courses of action that just as quickly turned out to be major blunders. The term groupthink paralleled the ominous expression doublethink in George Orwell’s novel 1984, and it immediately caught on among business and government leaders as a catch-all term to refer to any ill-conceived group plan. In later extensions of his theory, Janis emphasized that not all bad decisions are the result of groupthink, and not all cases of groupthink end up failing.
Janis later proposed a refined conception of groupthink. To begin, there are six conditions that make the occurrence of groupthink possible. The first of these factors is high group cohesiveness. Usually cohesiveness leads to the free expression of ideas; however, in groupthink circumstances, the opposite occurs. Second, the members have an authoritarian-style leader who tends to argue for "pet" proposals. Thus, we would not expect groupthink to occur in groups that have a tradition of democratic leadership. Third, the group is often isolated from the "real world"; that is, the group is not forced to deal with what is happening "out there" beyond the group.
Fourth, the group does not have a definite procedure, or method, for decision making. Fifth, the members of the group come from similar backgrounds and have similar viewpoints. The sixth condition for groupthink follows from Janis and Mann's arousal theory of decision making. The group is in a complex decision-making situation that causes a significant amount of arousal in each member, and the members feel that finding an alternative better than the leader's pet proposal is unrealistic. Under these conditions, "defensive avoidance" will occur, and the group will either procrastinate or, more likely, adopt the leader's pet proposal. The presence of any one of these six conditions will not ensure that a cohesive group will suffer from groupthink. The more of these conditions that exist, however, the more likely it is that groupthink will occur.
Because a close-knit group at the top of an organization is insulated from outside opinions, Janis suggested breaking up into subgroups that work simultaneously on the same issue. Each subgroup can draw on the expertise of trusted subordinates who are encouraged to give their advice freely.
Leaders climb to the top by being ‘‘take-charge" people. Unfortunately, the very force of personality that placed them in authority can have a chilling effect on group candor. Some leaders are able to lead an impartial discussion without imposing their opinions, but Janis’s prescription for open inquiry is to have the leader periodically leave the group so that members will feel free to express their personal views.
Since many groups have no set procedures to ensure close scrutiny of favored solutions, Janis recommended assigning the role of critical evaluator to every member. Instead of representing his or her own constituency or narrow area of expertise, each participant would take responsibility for the entire plan. Of course, a leader’s request for critical comments is a hollow exercise if he or she shows irritation or cuts off debate when the group starts to carve up a cherished idea. If these measures fail, we can spot the presence of groupthink by its observable effects (listed below).
Symptoms of Groupthink
What are the signs that group loyalty has caused members to slip into a groupthink mentality? Janis listed eight symptoms that show that concurrence seeking has led the group astray. The first two stem from overconfidence in the group’s prowess. The next pair reflect the tunnel vision members use to view the problem. The final four are signs of strong conformity pressure within the group.
1. Illusion of Invulnerability. Janis summarizes this attitude as ‘‘everything is going to work out all right because we are a special group."
2. Belief in the Inherent Morality of the Group. Under the sway of groupthink, members automatically assume the rightness of their cause.
3. Collective Rationalization. This collective rationalization supported a mindset of ‘‘hear no evil, see no evil, speak no evil." (believe that nothing can be wrong with their plan even if there is significant evidence to prove otherwise)
4. Out-group Stereotypes. Typically negatively biased with oversimplification of member similarities (profiles)
5. Self-Censorship. group members don't share their ideas with the rest of the group because of fear of being rejected
6. Illusion of Unanimity. silence can often be interpreted as acceptance
7. Direct Pressure on Dissenters. a group member who questions the rightness of the goals is pressurized by others into concurring/agreeing.
8. Mindguards. ‘‘Mindguards" protect a leader from assault by troublesome ideas.
Does all this automatically produce a ruinous outcome? Not necessarily. Groups that do everything wrong may luck out from time to time. There are also many routine occasions when a groupthink mode is actually helpful because it makes for a speedy and amicable consensus on issues of minor importance. But according to Janis, when a group confronts a great threat or a grand opportunity, concurrence-seeking almost always produces an inferior solution.
Most students of group process regard members’ mutual attraction to each other as an asset. Marvin Shaw, a University of Florida psychologist and the author of a leading text in the field, states this conviction in the form of a general hypothesis that has received widespread research support: ‘‘High-cohesive groups are more effective than low-cohesive groups in achieving their respective goals." But Janis consistently held that the ‘‘superglue" of solidarity that bonds people together often causes their mental process to get stuck:
The more amiability and esprit de corps among members of a policy-making in-group, the greater is the danger that independent critical thinking will be replaced by groupthink. . . . The social constraint consists of the members’ strong wish to preserve the harmony of the group, which inclines them to avoid creating any discordant arguments or schisms.
Janis was convinced that the concurrence-seeking tendency of close-knit groups can cause them to make inferior decisions.
Groupthink may result in the following:
- The group limits the number of alternative courses that it considers. Usually such a group examines only two options.
- The group fails to seriously discuss its goals and objectives.
- The group fails to critically examine the favored course of action. The members do not criticize, even in the face of obvious problems.
- The members do not reach outside the immediate group for relevant information.
- The group has a selective bias in reactions to information that does come from outside. The members pay close attention to facts and opinions that are consistent with their favored course of action and ignore facts and opinions that are inconsistent with their choice.
- After rejecting a possible course of action, the group never reconsiders the action's strengths and weaknesses.
- The group fails to consider contingency plans in case of problems with implementation of the course of action the members choose.
Avoiding the worst of Groupthink
Janis offers recommendations to avoid bad group decisions.
- The leader can refuse to state which course of action he/she prefers until late in the decision-making process.
- Appoint group members to roles which evaluate group processes and contributions of other members (e.g., Devil's Advocates).
- Challenge the data - assess its significance and reliability. In discussion, focus fully on areas of doubt and uncertainty - be tenacious in challenging tethered assumptions and presenting the fullest possible information.
- Group leaders need to solicit and receive feedback/criticism from others re- his/her judgments. This feedback and examination process needs to seen as a contributor to quality and not a gripe or complaint mechanism. The potential for holding grudges and punishment of "critics" must be avoided.
- Consult with informed people outside the group and invite them to meetings. The outside people may add information and challenge the group's ideas/assumptions.
- Set aside time to rehash earlier decisions, thus avoiding "premature closure.". This provides chances to consider any new objections to the decisions that the group members might have.
- Help the group to take regular time-out breaks to give individuals room to re-think, re-formulate, gather further data and re-present. Sub-groups can do more detailed work for re-presentation. Group cohesion as a problem-analysis and solution development unit is assisted as difficult tasks are decomposed and alternatives properly synthesized.
- Have the group continue searching for warning signs even after the chosen course of action has begun to be implemented.
Two further phenomena, "risky shift" and "cautious shift" and may also be seen.
A. With Risky shift , the decision group becomes more radical and willing to take a risk. The decision makes as a group gamble more than an individual often would when making the same decision.
B. With Cautious shift - the group shifts to being more conservative than solo individuals would usually be.
Risky shift or cautious shift behaviors in a group may undermine good decision making and group members need to be sensitive to such processes and their implications.
We normally think that committee decisions are usually slow and cautious where think that bland consensus compromises result yet we be frustrated by slow, rule bound, bureaucratic processes involved. However committees can often be bolder and more adventurous decisions than single members acting alone. Why?
- Some risk takers are more powerful and persuasive in a group situation.
- Member responsibility is diffused as there is a degree of anonymity (a corporate veil) in the group. The group is responsible for decisions and risky decisions carry less of a burden for individuals.
- The converse also applies, a group can be overly cautious.
- A group can polarize into cautious and risk-taking opposites.
- As with groupthink, the group may not rationally and systematically process decisions based on full information and all member views.
Group behavior research into 'choice shifts or group polarization' offers more insight into some of group processes which may be enacted. When deciding between dilemmas involving different levels of risk, groups sometimes assume riskier positions than those held by individuals prior to joining the group. When reaching consensus "the group" did not average individual judgments but 'shifted' to greater risk but not always. Sometimes there was no shift or sometimes the group demonstrated greater caution.
When, in a group, individuals make social comparisons and adjust prior positions relative to the group majority view.
- In group discussion, information and arguments may favor a 'majority view'. The individual is exposed and, conforming, may shift to the emerging polar position of the majority.
- Individuals face a choice of being members (in) or marginalized (out). To be accepted they need to anticipate the group's perspective and this may move them further towards 'the norm' and the group average leans to more to the extreme or polarized position.
- In a group social diffusion of responsibility may be evident - those who are less dominant may not press their point of view as they are able to hide behind 'cabinet responsibility'.
Diffusion of Responsibility
The story of a woman who was murdered in 1964 just outside her New York home is often told to illustrate the cautious and risky shift phenomena. She fought the murderer off but he latter returned and attacked her again over a 30 minute period. She screamed for help but nobody responded or called the police even though her cries were heard by many. Did everyone assume that someone else was taking action? The burden of responsibility was diffused ..... by the assumption that "somebody was doing something about the screams ".
Social diffusion of responsibility reflects a belief that the presence of other people in a situation makes one less personally responsible for the events that occur in that situation.
In terms of risky shift, the individual is less included to challenge the tethered assumptions of the majority position - but instead may find it more comfortable to hide within a 'majority' view. Thus the 'risky shift' or 'cautious shift' group decision may prevail. The individual - post decision - can always state in private, 'Well, I really felt that too big a risk was being taken, but everyone wanted to move in that direction'.
The term scapegoating comes from the ancient Hebrew tradition in which, on the Day of Atonement, the Rabbi would confess the sins of the community over the head of a goat. The goat would then be released into the desert, carrying the sins of the community away with it.
Similarly, one way to view many acts of discrimination is to see them as examples of displaced aggression. According to frustration aggression theory, frustration leads to an aggressive impulse directed towards reducing that frustration. However, often it is impossible to aggress against the source of the frustration or even to accurately identify a target. In many instances, the aggression will shift to convenient scapegoats, which are often members of other groups (e.g., minority groups) or people with little power to retaliate (e.g., kick the dog).
Historical examples of scapegoating include Hitler's successful campaign to blame most of Germany's problems on European Jews. The benefits of scapegoating include:
- Deflection of negative attention and punishment.
- Avoidance of confronting the complexities of the real problems.
- Avoidance of the social and financial expenses involved in confronting powerful groups (e.g., veterans or senior citizens) and interests (e.g., large corporations).
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Last modified: December 04, 2013