OK, seriously, WHY didn't we see it coming?

"OK, enough! This tree has got to go!"

My comment in response to Paul Krugman's NY Times column today, "Lest We Forget".
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Your question is superb - How did those at the top not see this coming, or take it seriously, despite many stifled voices below pointing at it in alarm?

Yes, if financial things broke on this shoal, fix the financial things.

But, at the same time, this shoal has got to go, or it will just demolish the repair effort in a never-ending cycle of "How did that happen? Fix and forget."

This exact problem is well known and well documented by everyone, across industries, government agencies, auto companies, universities, etc. This process is ALSO broken, and needs to be addressed, by as many billion dollars as spent repairing the damage it caused.

Social decision making processes are no more abstract than financial markets, but get no respect, being in a higher leverage, further upstream, less visible place in the chain of events.

High-reliability human systems have been studied extensively, from Chernobyl to The Bay of Pigs to Challenger to aircraft cockpit teams to hospital surgical teams to the US Army Leadership Field Manual. The answer always comes down to the same thing -- dissenting views need to be heard, and dissenters need what Harvard Professor Amy Edmondson calls "Psychological Safety" or they will wilt and become ineffective. This is how humans always behave and unless steps are taken it always breaks along this fault line.

The right question then should be, who is going to take charge of seeing that those steps are taken and that level of social literacy achieved?

I can't emphasize enough how much more important this is than more math and science, in the absence of this. As T.S. Eliot said, we repeatedly get burned "dreaming of systems so perfect that no one will need to be good, but the man that is will shadow the man that pretends to be."

Much of my weblog is about what we really need to do to avoid such errors in judgment. I can only hope the right person wakes up and reads it and the links to sources such as MIT's papers or John Sterman's work on how poorly we can see systems that involve feedback.

"Why we have so much trouble seeing" (and what to do about it.)
http://newbricks.blogspot.com...

(photo by myself - "Fixed at last!" )

The illusion of consensus on deficit

image: from http://www.moillusions.com/
The two vertical red bars are the same height on the screen if you measure them with a ruler. "All" you have to do is ignore the the subway walls and just look at the two red bars. (or get a ruler, or move to the side and look across the screen.) Some illusions are so powerful they work even when you know they are working.

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The cartoon figure Dennis the Menace once wondered "How come dumb stuff seems so smart when you're doing it?"

It's a very insightful question we should not rush by.

I think what's missing here the most is a popular understanding of the power of fear and desire to distort one's thinking.

There are three errors related to that most popular human activity, yielding to temptation.

The first is the incredible power of desire to overcome reason and twist perception so that the reasons for doing what you want to do anyway seem solid and strong, and the reasons against it seem distant and weak.

The second is the remarkable ability of people to be unaware of the difference between how things look from the inside and how they look from the outside. In the same breath as condemning home-buyers and banks for going way too far into debt, the same people turn and suggest with a straight face that the solution is "obviously" for the country to go much further into debt.

There is zero realization that the sin they accuse the bankers of looked exactly the same to the bankers as this "consensus" of going a few more trillion in debt looks to politicians today. And the actions that make so much sense today will look as unfathomable as the homebuyers and hedge-fund's actions look to us today.

"How could they have been so stupid?" It's worth understanding exactly how they could have been so stupid, and why very bright people end up doing very dumb things.

And the third is the remarkable power of group-think to solidify an opinion in a closed room and decide that those who have a different opinion are enemies of all that is right and decent, again obviously. And, as everyone knows, once everyone around you is sinning, it is much harder not to fall in line with them yourself, especially if you wanted to all along.

Again, rationality comes up behind, making up and changing justifications on the fly to make the choice look sane and rational and even fair and balanced.

Prompt for this post was the following
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The New York Times hs an article this morning

Deficit Rises, and Consensus is to let it Grow
Louis Uchitelle and Robert Pear
Excerpt:

Like water rushing over a river’s banks, the federal government’s rapidly mounting expenses are overwhelming the federal budget and increasing an already swollen deficit.

and

But the extra spending, a sore point in normal times, has been widely accepted on both sides of the political aisle as necessary to salvage the banking system and avert another Great Depression.

“Right now would not be the time to balance the budget,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a bipartisan Washington group that normally pushes the opposite message.

Confronted with a hugely expensive economic crisis, Democratic and Republican lawmakers alike have elected to pay the bill mainly by borrowing money rather than cutting spending or raising taxes.

First, I noted that the vast majority of the comments on this article were very negative, so, like the bailout itself, it seems the consensus in Washington flies in the face of the concensus on Main Street.

I did comment myself, as follows:

The cartoon figure Dennis the Menace once wondered "How come dumb stuff seems so smart when you're doing it?"

Teenagers with their first credit card, families with their first great deal on a mortgage, hedge funds and even conservative banks with their soaring debt, all are so swayed by the temptation that they forget the bills will come due some day.

Regardless of the consensus on the issue, I would suggest that letting the debt out of the bag is less "river water over the banks" and more "water over-topping the earthen levee". God help us all.

and, later,

If more debt is acceptable, why not just borrow $3 trillion and give everyone $10,000?

I think that's a reasonable alternative to compare any other borrow-and-spend scheme to for pros and cons.

Now what - contemplating the market crash

You say "Americans deserve to hear much more detail about how the candidates would reform the financial system to prevent another crisis like this one."

I think we desperately need to expand the frame in which "this problem" is perceived. That discussion should precede solutions within that frame.

For one thing, this cannot be isolated to be a "financial system" problem. It involves other economic and social systems, including trust, social decision-making, governance, jobs, social safety nets, education, attitudes towards expertise, sources of blindness in how humans see the world, etc.

They are all tangled. They cannot be solved "separately", or put into a priority order. If there are 200 holes in the bottom of the boat, addressing the "three most important ones" doesn't really cut it. Causes, effects, symptoms, are in tangled feedback loops.

Most of all, I don't think that 200 bright people can "solve" this while the rest of the country and world watches TV, or that it will be solved by voting to pick the best of the two solutions they come up with in some back room somewhere.

A billion people are willing to help. How can that work? THAT's the question we should be addressing.

— Raymond, Detroit

See also:

Failure is perhaps our most taboo subject (link to John Gall Systemantics)

Active strength through emergent synthesis

Why more math and science are not the answer.

OECD PISA - Our education system should teach collaboration not competition

US - Economy of arrogance (and blindness)

Virtue drives the bottom line - secrets of high-reliability systems

High-Relability Organizations and asking for help

Secrets of High-Reliability Organizations (in depth, academic paper)

High-Reliability.org web site

Threat and Error Management - aviation and hospital safety

Failure is perhaps our most taboo subject (link to John Gall Systemantics)

Houston - we have another problem (on complexity and limits of one person's mind)

Institute of Medicine - Crossing the Quality Chasm and microsystems (small group teamwork)

Pathways to Peace - beautiful slides and reflections to music on the value of virtues

You say "No system can be smart enough to survive this level of incompetence and recklessness by the people charged to run it."

T.S. Eliot, writing in the last Great Depression, in "Choruses from 'The Rock'", said it well.

"They constantly try to escape
From the darkness outside and within
By dreaming of systems so perfect that no one will need to be good.
But the man that is shall shadow
The man that pretends to be."

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MIT's John Sterman, in his book "System Dynamics - Systems Thinking and Modeling for a Complex World", describes how poor intuition is at predicting the behavior of "complex adaptive systems."

Books like Gene Franklin's textbook for control system engineering, "Feedback Control of Dynamic Systems" describe the universally applicable conditions for any system of any type to be stable, and I don't see them met or even discussed.

The only thing that seems CLEAR to me is that a whole new feedback loop has been added, responding with almost certainly short-range horizons to events that used to be decoupled and now that will be coupled by that unpredictable response.

We are way past the point where well intentioned humans can follow their "insight" and improve things with that strategy.

I have a number of relevant quotes from Sterman's book on my weblog post on the credit crunch that I made in August, 2007: http://newbricks.blogspot.com/2007/08/credit-crunch-reaches-larger.html and this post I made in January, 2007 on Jay Forrester's Law of Unintended Consequences: http://newbricks.blogspot.com/2007/01/law-of-unintended-consequences.html

At risk of running on, I briefly quote that paper: The classic paper in this field is Jay Forrester's congressional testimony: "The Counterintutive Behavior of Social Systems", http://web.mit.edu/sdg/www/D-4468-2.Counterintuitive.pdf

Quoting the abstract: Society becomes frustrated as repeated attacks on deficiencies in social systems lead only to worse symptoms. Legislation is debated and passed with great hope, but many programs prove to be ineffective. Results are often far short of expectations Because dynamic behavior of social systems is not understood, government programs often cause exactly the reverse of desired results.

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