US - economy of arrogance

The paper says that gas prices are headed for $3.50 a gallon by Christmas, and $4.00 a gallon by spring. It also says home heating prices are going to set records this year. And then, mystifyingly, amid stories of hardship, it says the consumer hasn't noticed this yet because the average family income has been rising faster than gas prices ... so far.

GM announces a loss of 39 Billion US dollars but says not to worry, everything's fine.

Meanwhile, a vicious spiral has begun of US banks announcing billions of dollars in losses is eroding confidence worldwide, which is hurting the dollar, which is hurting businesses and consumers that import anything including oil, which is leading to more corporate losses.

The Chinese spooked the US stock market yesterday with the announcement that they were going to start diversifying out of dollars into "stronger currencies." The Federal Reserve is now trapped - lower rates will accelerate the pressures of foreigners to get out of dollars and companies measured in dollars, but higher rates will hurt consumers who will stop buying things which will hurt companies measured in dollars.

The LA Times article quoted below notes that part of this problem is due to a loss of confidence of international investors in the competence of large US bankers to basically know what they're doing. This comes on the heels of US "hedge funds" with super-brilliant "quants" making disastrous mistakes, costing more tens of billions of dollars, possibly much more.

"Tim", as always, asks what's upstream of all this occupational incompetence.
The only way that huge numbers of experts in such corporations can be so effectively blind is that they are effectively blinding themselves by institutionalized arrogance, where people at the top are simply not listening to, or not hearing, and certainly not heeding, voices from below that surely raised the alarm months and years ago. This may be silent bias, expressed simply in it never occurring to people on the top that other opinions exist besides their own. Or it may be worsened by realizing other people differ or will be harmed, but deciding that "doesn't matter."

In any case, it's fairly certain that dissenting voices were quashed and dissenters that persisted removed for being pessimists or nay-sayers or being "contrary." Diversity of opinion was dealt with not by striving for overarching unity, but by simply bulldozing uniformity.

After the third executive was sacked, when the boss asked if anyone had any objections to his policy, surprisingly, no hands went up. Passed "without dissent." A short run gain, in exchange for long-term pain.

The lessons that need to be learned here have nothing to do with fiscal policy or corporate structure, and everything to do with how human beings respect and treat each other, especially across "class" lines. If that root-cause problem is not fixed, the exact same kind of headlong rush into disaster will simply continue until there's nothing left to continue it with.

We need to recognize that there is not enough visibility of complex systems from the corporate executive suite to manage affairs, regardless how brilliant or aggressive or stubborn the CEO can be. Changing CEO's won't help. The task is beyond one man, or one group of people that walk as the shadow of one man. Or woman.

Trying to deal with complexity while retaining "control of everything" leads to being overwhelmed with important detail, that is resolved with an axe, as it's simply too hard to follow all that and care about the problems of less powerful groups, and it's too hard to deal with hundreds of issues, so let's just focus on the two or three "most important" ones.

That may have worked when all the other people and problems moved very slowly and could and would wait. These days, the old assumptions are no longer true. Hundreds of problems may be equally important and tangle together so they cannot be addressed separately. The rest of the world is not waiting for us to get our act together.

"Prioritizing" in that context is not a virtue - it is an admission of failure, of inability to cope. The boat is leaking in 200 places, but we only have 10 fingers so we'll prioritize and that will have to do. Well, sometimes it doesn't do. Like now. In any case, it would only make sense if problems could be "ranked" and listed in order by a single variable, a single dimension, and that's not true either.

There is no "most important" problem many times -- like holes in the boat, they all have to be addressed or none of them matter.

If most people's problems keep on not making it to the agenda, then the whole approach is fatally flawed and needs to be re-thought and replaced. If Congress, for example, can't decide which issues are the most important to deal with, that has to be recognized as a much broader problem than politics or stubborn or dumb people -- it's a change in the whole scope and nature of what has to be managed simultaneously these days.

If replacing one President with another doesn't seem like it will address all the issues, this suggests the problem isn't with the person in that role, it's with the whole concept of trying to funnel so much onto the desk of any human being.

Maybe, we're past the point where one person can do that kind of job. There simply isn't enough "bandwidth". It doesn't matter what their politics or attitudes or beliefs are, what matters is that they are "one person".

The problems caused by 6 billion people interacting with each other do not fit in the mind of any one person, without being oversimplified and "prioritized" to the point where the answer cannot be correct, regardless who the person is.

This is new. In the history of the Earth, we've never been at the point where a decision made in Beijing, say, affects what's going on in New York 5 seconds later. Suddenly it's a very small world, and things that didn't used to interact are interacting a lot.

So, we need to learn how to address conflicts, and how to listen to people who are different from ourselves. We need to figure out how to engage many more people in better decisions, instead of fewer and fewer people in faster (but wrong) decisions.

In an increasing number of cases, they know and see important things that we are blind to. Diversity is not something "nice" if there is time -- it is the key to getting out of the mess we are in. Failing to understand the role that arrogance and racism, class-ism, sexism, and not-me-ism have on outcomes will be the single biggest error we can make. Trying to have control of everything results ultimately in more and more control of less and less.

We don't need to look abroad for magic answers - we only need to start listening better to our own people. Making everyone "like us" only ensures that everyone shares our blind spots and is a sure-fire recipe for the kind of self-imposed disaster we see going on now.

The "authority" of wisdom has to be disentangled from the "authority" of command. We need a command and control structure we authorize to lead , but it has to be informed from below or leadership is irrelevant.


My prior post "Houston, we have another problem" looks at this "bandwidth" issue more. It's an important issue. The entire US National Incident Management Plan, under which FEMA should be operating, seems on my reading to be similarly based on a "star" architecture - that is, everything flows the the top where issues will be "prioritized" and the few important ones decided based on what the top knows and believes at that time. The shining example of a government agency that worked out well in Hurricane Katrina was the Coast Guard, with the opposite model, where powers had been pre-delegated to each ship's captain to do what made sense locally -- particularly if communications with the top were down or slow.

As the planet gets more like a single living body, it gets harder and harder to imagine a world in which one cell of a body could be given authority to make decisions for and give orders to the rest of the 10 trillion cells. There is no such super-cell. That's not the model our body uses to manage itself. Maybe we need to pay more attention to our own bodies.

Of course, integrity and honest also matter. This mortgage and credit fiasco was also brought on by the arrogant belief that millions of poor people could be exploited and tricked out of their homes, and no one would ever know or care. People in the middle thought they could put "AAA" ratings on junk and sell it for prices of gold, and they did. Now, any "AAA" rating by these people for anything is suspect in the world's eyes. God may work in mysterious ways, but we ultimately end up reaping what we sow, with interest.

One can hardly guess what impact the probable coming shutdown of the US Government in December will have on world opinion of our ability to work with ourselves to get important decisions made in hard times. It can't be good.

Anyway, here's the news.

Today's New York Times says this:

HOUSTON, Nov. 7 —

The national average for regular gas surpassed $3 a gallon this week, and drivers could be paying record prices this holiday season, experts said. The timing of such an unusual jump could crimp consumer spending at a vital time for retailers.

Barring some unexpected development like a big drop in the price of oil, Mr. Kloza and other experts said, gas could be headed toward $4 a gallon by spring.

Average gasoline prices in November had never exceeded $3 a gallon before this year. A year ago, the average price at the pump was $2.20, meaning it costs roughly $12.50 more today to fill a car with a 15-gallon tank.

But recently they have been rising by 2 cents a gallon every day. Motorists are feeling the pain across the nation.

If gasoline prices are causing motorists to drive less over all, it is not evident in the national statistics.

But there are signs that many Americans are feeling the pinch, and business economists are worried that rising gasoline prices will cut consumer spending this holiday season.

Michael P. Niemira, chief economist for the International Council of Shopping Centers, said that average weekly earnings of American households over the last year have outpaced increased expenditures for gasoline. But he added, “With the expectations of higher gasoline prices and home heating expenses this winter, the potential exists that consumers will have less discretionary purchasing power.”

Meanwhile, lower-income drivers are especially unhappy with prices at the pump.

... drivers said the cost was crimping their lives.

Energy experts see few signs that gasoline prices will ease soon.

... be at least $3.20 by Christmas.... a price as high as $3.50 by Christmas

Meanwhile, the LA times notes this (excerpts)

Stocks plunged Wednesday as the dollar sank to new lows against other major currencies, in a one-two punch that deepened concerns about the outlook for the U.S. economy.

The latest rout on Wall Street was led by already-battered bank shares. ,.....

But the central bank now risks being caught in a bind, some analysts say: If it continues to lower interest rates, it could further undermine the sagging dollar and drive away foreign investors, sending markets reeling.

"The soft landing we were anticipating quickly transitioned to a severe downturn," Kerry Killinger, the Seattle-based company's chief executive, told investors in New York.

The tumbling dollar is compounding investors' fears. Each decline in the greenback devalues the substantial U.S. investments of foreigners, who have been a crucial source of funding for the nation's huge budget and trade deficits.

The dollar's continuing slide raises the risk that foreign investors could balk at buying more American securities, such as Treasury bonds. That, in turn, could worsen the already severe credit crunch rooted in the housing market's woes.

The dollar crumbled Wednesday after Chinese officials implied that the country might sell off dollar-denominated securities to diversify its $1.4 trillion in foreign-currency reserves.

"We will favor stronger currencies over weaker ones, and will readjust accordingly," Cheng Siwei, vice chairman of China's National People's Congress, said at a conference in Beijing, Bloomberg News reported.

Some analysts said the dollar's steep slide in recent months in part reflects foreign investors' ebbing confidence in the U.S. economy, as the housing market bust has worsened and some of the nation's most important financial institutions have been battered by huge losses on home loans.

"Any currency is a kind of a report card on the country," said Brian Gendreau, strategist at ING Investment Management in New York.

"The foundation of the U.S. is its capital markets, and we have the biggest players in the capital markets making terrible mistakes in their assessments of risks," said Peter Morici, an economist and business professor at the University of Maryland.

The confidence of U.S. consumers and executives has slumped in recent months, national surveys show. Waning faith in the economy can make a downturn a self-fulfilling prophecy if people and businesses begin to cut back their spending because they aren't sure what's ahead.

Record oil prices also threaten the economic outlook.

Some economists say the surge in oil prices partly stems from the dollar's ongoing plunge. Because oil is priced in dollars worldwide, oil exporters in effect get less for their crude as the U.S. currency weakens -- unless the price rises.

A dollar panic also could make it impossible for the Federal Reserve to further reduce interest rates to help the domestic economy, because lower rates make returns on U.S. fixed-income securities even less attractive to foreigners compared with what they can get abroad.

For the U.S. economy, "that is checkmate -- when the Fed can't come to the rescue," Kasriel said.

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Side-note

Household Income in the United States is described in what looks like a pretty solid article in Wikipedia, with dozens of links to the source data at the Census Bureau, etc. Houshold income by race in the US, in 2005, from that article looks like thins:

Over time, things seem worse.

"From 1969 to 1996, median household income rose a very modest 6.3 percent in constant dollars... ."- John McNeil, US Census Bureau

So, if this rose 6.3 percent over 27 years, TOTAL, was there household income in the last decade? How can income be rising faster than gas prices? And, if you left out the influx of wealthy Asians, what would these figures look like for just everyone who was here at the start of the period?

Again, what was the average change, not the change in the average?

Household income growth (above) is shown in a chart that you shoujldgo to the original to view in full-screen size here. This is based on census data and looks credible. What's clear is that almost all the growth in real household income from 1965 to 2003 occurred in the top 50% of households, while the bottom 50% remained flat.

(photo credits - thinker behind bars by by Mike_fj40 on flickr.)