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.

More on foreclosures - from the Baltimore Sun

The Baltimore Sun had a top front page story this morning
AT-RISK LOANS RISING IN STATE (in caps in the original)
by Jamie Smith Hopkins - 6/14/07

Here's some highlights

Geographic and socioeconomic distribution:

Rates in the suburbs are rising faster than in Baltimore, with defaults of pricey suburban homes, condo-conversion projects and even an undeveloped section of a new-home community in Harford County - which went back to the lenders at an auction this week.... loan problems are particularly focused in a handful of states, ones with persistent job losses - Ohio, Indiana and Michigan - and ones that had a lot of real estate speculation, including California and Florida.

The number of homes in the foreclosure process in Ohio, Indiana and Michigan is so high that together the three states account for about 20 percent of all U.S. foreclosures. Ohio tops the country, its share of homes in the foreclosure process more than six times Maryland's. [ note - this is big-3 auto industry downsizing effect]

Trend:

I think there is a clear indication that the number of foreclosures is only going to increase," said Phillip R. Robinson, executive director of Civil Justice Inc., a Baltimore legal-help group. "The concern that I have as a public-interest advocate is, what do we do to help people in that pipeline save their home ... and how do we prevent people from getting into inappropriate loans?" [ emphasis added]

Root cause and solutions:

Now, I find it interesting that the "solutions" to this problem all seem to involve some kind of governmental legal or policy action.

One "solution" in Maryland and elsewhere is to use taxpayer money to bail out those in trouble and, well, reward those who got this whole thing rolling in the first place which, one might think, would only reinforce that behavior in the future. ("unintended consequence"?)

The state said this week it has commitments for $100 million to refinance Maryland homeowners from such ARMs into fixed-rate mortgages so borrowers aren't overwhelmed. "We're going to stand up ... to protect that building block of wealth for the middle class that is homeownership," Gov. Martin O'Malley said as he announced the initiative.

Another "solution" involves "going after" those people who oversold these loans in the first place, people who say in self defense "why blame us?" Congressmen are threatening to change which agency "regulates" such loans if much stronger rules are not put in place to "bring this under control." [ Hmm... sounds like a regulatory feedback process to me...]

What is, to me, conspicuously absent from those solutions is raising the effective economic IQ of the people who fell for this very bad idea in the first place.

Trying to "regulate" this once it's at full throttle is like trying to control the flow of smoke with huge billboards, instead of putting out the fire.



We keep trying to come up with "foolproof" ways to, well, make life safe for fools. It's very expensive, and it doesn't work very well, if at all. It also results in being a real pain for those who were responsible in the first place, who end up bearing the costs for those who were irresponsible.

But the irresponsible claim immunity on account of stupidity. "The car was going so fast that there was nothing I could do to stop on the ice! It's not my fault!"

Right. And media feed this concept. I bounce off the walls every time I see headlines like "ice causes pileup on freeway" or "fog causes 27 car crash - 5 dead."

In aviation, there is no such thing as a crash caused by "bad weather." There is "a decision to continue operations into weather beyond the skill and experience of the pilot." This gets back to people. To us.

In my mind, that's what needs to be fixed. We need to overcome collective stupidity and greed, by changing the story, and working together, and trying to have a group IQ that is at least as large as the largest individual IQ among us, if not larger.

That used to be one of the points of civilization, literature, history, science, and government.
We've abandoned that in favor of downstream damage-control efforts, the same way our health care system focuses money on heroic repair instead of prevention.

Curious. Why do we do that?

------- post script

I wanted to clarify one point. I'm not saying that people as individuals are stupid, but that the way we're interacting and interconnected (or not) is what's stupid and what's broken.

This is why understanding that basic concept about "systems" is so critical, or we can't even begin to see "where" this is broken. The problem isn't with what's between our ears, because humans are pretty smart animals. The problem is at a different "level".

There are "levels" and each one has properties that are mostly independent in the short run from other levels. I'm talking about a "systems" problem in that the way otherwise-smart people INTERACT and INTERCONNECT is what's broken here.

And therefore, that's what needs to be "fixed."

This is not a problem that just affects "dumb" people, or that has anything to do with native intelligence. This happens to doctors, scientists, airline pilots, CEO's. There's even a book called "Why do smart people do dumb things?"or some similar title. Individuals can make just a little indent to try to keep order around themselves, and this can be totally undone by a larger tilt to the playing field on a neighborhood or cultural level.

In the short run, "gangs" or groups of teenagers go off and do things that are incredibly stupid that are almost incomprehensible and that no single one of them would have done if left to himself. There's a "group effect." It can be for the good, or for the bad - it's neutral.




(Picture from my post on The Toyota Way viewed as feedback control).

For high-reliabilty, critical operations, like an Intensive Care Unit, or an aircraft cockpit,
or a nuclear reactor control room, literature shows that you can't get the results you need unless both levels are engaged and working well - the individual level and the group / team level. Individuals aren't strong enough to manage alone, regardless how bright they are.

Bryan Sextan presented data that 74% of commercial airline accidents happened on the very first day a new team of people was formed out of people that used to be on other teams. The pilots are still 20,000 hour professionals, but the "TEAM" has not yet gelled, and that leave a gap between levels that the accident can leak through.

(See my clever cartoons on accidents leaking through "swiss cheese" that's not well interconnected here in "The road to Error" ).

Loose people are like "dust in the wind" and can be blown anywhere. Interconnected people are like mountains and can defy the wind.

In that metaphor, I'm less interested in "reimbursing the dust" than I am in understanding why the mountain has turned to dust, and whether that is reversible, and if so, how and when can we start?