Why we have so much trouble seeing

(Columbia shuttle launch. / NASA )



The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds. John Maynard Keynes

To understand how we “see things”, we need to realize that vision is not at all some kind of biological TV camera that simply projects its image where “we can view it carefully and without bias. The picture that forms has been so filtered, edited, and amended as to sometimes bear little relationship at all to what is before us. Our hopes, fears, mental models, stereotypes and prejudices intervene long before the image delivered to us has been formed – as surely as a political candidate’s own words have been replaced by many layers of handlers. And, worse, the intervention is itself as invisible to us, and hard to see, as our eyes’ own “blind spots” – which are effectively papered over with an extrapolation of the surroundings so that we are not burdened (or informed) by what is there.

In our evolution it was valuable to be able to discard the ten thousand leaves and, based solely on a little patch showing through here and there, to connect the dots and so perceive the dangerous animal behind them, and to do so with sufficient certainty that we would take immediate defensive action, even if sometimes over-reacting to shadows. The process is built into our hardware and is automatic and invisible. The process is accelerated if everyone else around us is screaming and running – we too see the beast, real or not.

Two features of our visual system contribute greatly to disagreements between humans to what is “obviously going on”.

One feature is a type of automatic “zoom” feature, which brings whatever we are contemplating at whatever scale to just fill our mental TV screen. Whether it is tying our shoe-lace, or contemplating global thermonuclear war, the subject occupies exactly one mental screen.

A second feature, adopted from our need to survive, is the way our eyes cause anything that is constant to fade from view, literally, so that we are able to detect quickly anything that is moving or changing or different.

These two features combine to make it startlingly easy to take some small disagreement between two people and have each person “blow it all out of proportion” and lose track entirely of how much in common they have, and all the good things they share. After cooling down, each wonders how that could possibly have occurred. This is a perfect example of a problem actually caused by the “features” of our visual system.

Another problem is the astounding impact of context on how “the exact same data” is seen on our mental TV screen.

Here’s one example, in which you should simply ignore the background and note that the two vertical red bars are exactly the same height. It is extremely hard to do, even after you print out the image and measure them and confirm it.

Below is an even stronger illusion.

The dark gray square at the top was made by simply cutting out a section of the "light" gray square in the "shadow", and pasting it up in the white background area.

Your eyes "auto-correct" it for you to account for the "shadow." You can’t stop them from doing this. I have yet to find anyone who can easily “see” that the two squares marked are the same shade of gray, even when they have confirmed that they are.

I know this seems hard to believe, so do this" print out the picture, get a pair of scissors, and cut out the square in the shadow and slide it over to the edge, where it magically "changes color" and becomes dark. As you slide over "the "shadow", the same square changes shade right in front of you.

This is just one of the thousands of things your perceptual system is doing to be "helpful" to you, including altering the way you perceive people around you, so that they fit your mental model of how things "should" be.

The same effect is at work if you're deep into depression, when your mind is "helpfully" coloring everything around you "depressing" before it shows it to you.

That's what makes prejudice or bias or depression so hard to detect and treat - they seem so "obvious" and "external" that you can't figure out that your eyes changed reality before they showed it to you. This realization that your mind can lie, convincingly, to you, is the first step in Cognitive Behavioral Therapy and overcoming depression.

So, our minds and eyes can be gripped with not just an image, but an attitude or mental model that is almost alive, that filters and twists and selects and changes everything around us to fit its own view and thereby survive. It fights back against our inroads, undoing our progress. No wonder earlier humans thought they had become “possessed” by a demon.

This, sadly, is not just something that occurred to ancient man, and we, being modern, are no longer subject to. These are the same bodies and visual systems that ancient man had, with all the pros and cons.

In modern terms, we are captive to mental models and feedback loops. The famous economist John Maynard Keynes, observed the same thing here (quoted in http://en.wikiquote.org/wiki/John_Maynard_Keynes )

The General Theory of Employment, Interest and Money (1935)

• The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.
• Preface
• The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.
• Ch. 24 "Concluding Notes"

Sadly, we have not even exhausted the features of human perception that control us invisibly, intervening before we can see what they have done.

Charles Schultz’s cartoon character Snoopy, lying atop his dog house one night, captured it perfectly as he mused:

Did you ever notice

That if you think about something at 2 AM

And then again at noon the next day

You get two different answers?

An equivalent morsel of wisdom from “Dennis the Menace” cartoon is this thought, as Dennis is in the corner being punished for his later mischief:

“How come dumb stuff seems so smart when you’re doing it?”

For better or worse, we are all caught up in an invisible current created by those around and near us, especially our peers. The resulting “group think” can often lead us all to the same wrong conclusion at once, and then sort of latch that thought in where none of us can escape “seeing it” as “obvious”.

This might not be so bad, but if we simultaneously interpret those who disagree as “enemies, out to destroy us”, we have a serious problem.

In any case, as we have all experienced, it is far easier to fall into mischief or sin or wrong ideas if the entire herd around us has already fallen into it.

This impact is remarkably strong, and well known to magicians. If only one person in an audience sees through your trick but no one else near them sees it, they will tend, strongly, to actually “un-see” what they “thought they saw” to reduce the discord.

Because all these effects take place before the images reach your mental TV screen, you can try all you want to be “unbiased” after that, with no impact. And usually, if charged with being biased or prejudiced, people react with anger and outrage, because they are trying to “be careful.” Sadly, they are carefully reasoning with distorted information.

One professor I had in Business School was involved in the design of the Pentagon’s War Room. He noted that, by the time the billions of pieces of information had been processed, filtered, summarized, tweaked, and massaged to make them fit in a one page summary, the conclusion was already built in by the system. Anyone would make the same conclusion, wrong or right, viewing that information. The War Room or central headquarters concept has a fatal flaw that way. How, for example, could General Motors executives not realize that people would switch to smaller cars when their financial pain rose? From the outside, it seems incredible.

Corporations and large organizations have a worse problem, that so far no one besides me seems to have noticed: What small facts or “dots” add up to, how they connect, depends on what scale you are operating on, not just on where you stand.

Here’s one of the classic pictures that illustrate the problem. View this image from normal viewing range, and then stand up, walk across the room, turn and look again.

The image above is from the 31 March 2007 issue of New Scientist and it is from a paper entitled 'Hybrid Images'

http://www.yoism.org/?q=node/141 has many more such images and illusions, as well as this delightful picture:

People who liked this post may like these as well:

Things we have to believe to see

Why men don't ask for directions

Pisa/OECD - Why our education stresses the wrong way of seeing

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

Active strength through emergent synthesis

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)

Here's a few quotations from MIT Professor John Sterman's textbook "Business Dynamics".

Many advocate the development of systems thinking - the ability to see the world as a complex system, in which we understand that "you can't just do one thing" and that "everything is connected to everything else." (p4)

Such learning is difficult and rare because a variety of structural impediments thwart the feedback processes required for learning to be successful. (p5)

Quoting Lewis Thomas (1974):

When you are confronted by any complex social system, such as an urban center or a hamster, with things about it that you're dissatisfied with and anxious to fix, you cannot just step in and set about fixing things with much hope of helping. This realization is one of the sore discouragements of our century.... You cannot meddle with one part of a complex system from the outside without the almost certain risk of setting off disastrous events that you hadn't counted on in other, remote parts. If you want to fix something you are first obligated to understand ... the whole system ... Intervening is a way of causing trouble.

IN reality there are no side effects, there are just effects.

Unanticipated side effects arise because we too often act as if cause and effect were always closely linked in time and space. (p 11)

Most of us do not appreciate the ubiquity and invisibility of mental models, instead believing naively that our senses reveal the world as it is (p16).

The development of systems thinking is a double-loop learning process in which we replace a reductionist, narrow, short-run static view of the world with a holistic, broad, long-term dynamic view and then redesign our processes and institutions accordingly. (p18)

Quoting Nobel Prize winner Herbert Simon (p26) : The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problem...

These studies led me to suggest that the observed dysfunction in dynamically complex settings arises from mis-perceptions of feedback. The mental models people use to guide their decisions are dynamically deficient. As discussed above, people generally adopt an event-based, open-loop view of causality, ignore feedback processes, fail to appreciate time delays between action and response in the reporting of information, ... (p27)

Further the experiments show the mis-perception of feedback are robust to experience, financial incentives, and the presence of market institutions... First our cognitive maps of the causal structure of systems are vastly simplified compared to the complexity of the systems themselves. Second, we are unable to infer correctly the dynamics of all but the simplest causal maps. (p27)

People tend to think in single-strand causal series and had difficulty in systems with side effects and multiple causal pathways (much less feedback loops.) (p28).

A fundamental principle of system dynamics states that the structure of the system gives rise to its behavior. However, people have a strong tendency to ... "blame the person rather than the system". We ... lose sight of how the structure of the system shaped our choices ... [which] diverts our attention from ... points where redesigning the system or governing policy can have a significant, sustained, beneficial effect on performance (Forrester 1969.). p29.

People cannot simulate mentally even the simplest possible feedback system, the first order linear positive feedback loop. (p29). Using more data points or graphing the data did not help, and mathematical training did not improve performance. ([p29). People suffer from overconfidence ... wishful thinking ... and the illusion of control... Memory is distorted by hindsight, the availability and salience of examples, and the desirability of outcomes.

The research convincingly shows that scientists and professionals, not only "ordinary" people, suffer from many of these judgmental biases. (p30). Experiments show the tendency to seek confirmation is robust in the face of training in logic, mathematics, and statistics. (p31).

We avoid publicly testing our hypotheses and beliefs and avoid threatening issues. Above all, defensive behavior involves covering up the defensiveness and making these issues undiscussable, even when all parties are aware they exist. (p32).

Defensive routines often yield group-think where members of a group mutually reinforce their current beliefs, suppress dissent, and seal themselves off from those with different views or possible disconfirming evidence. Defensive routines ensure that the mental models of team members remain ill formed, ambiguous, and hidden. Thus learning by groups can suffer even beyond the impediments to individual learning. (p33).

Virtual worlds are the only practical way to experience catastrophe in advance of the real thing. In an afternoon, one can gain years of simulated experience. (p35).

The use of virtual worlds in managerial tasks, where the simulation compresses into minutes or hours dynamics extending over years or decades, is more recent and less widely adopted. Yet these are precisely the settings where ... the stakes are highest. (p35).

Without the discipline and constraint imposed by the rigorous testing imposed by simulation, it becomes all too easy for mental models to be driven by ideology or unconscious bias. (p37).

System dynamics was designed specifically to overcome these limitations. ... As Wolstenholme (1990) argues, qualitative systems tools should be made widely available so that those with limited mathematical background can benefit from them. (p38).

Most important ... simulation becomes the main, and perhaps the only way you can discover for yourself how complex systems work. (38).

On the "most important issue"

When you are confronted by any complex social system, such as an urban center or a hamster, with things about it that you're dissatisfied with and anxious to fix, you cannot just step in and set about fixing things with much hope of helping. This realization is one of the sore discouragements of our century.... You cannot meddle with one part of a complex system from the outside without the almost certain risk of setting off disastrous events that you hadn't counted on in other, remote parts. If you want to fix something you are first obligated to understand ... the whole system ... Intervening is a way of causing trouble. (Lewis Thomas, 1974)

An earlier post on "magic dice" showed an example where each
one of four dice could generally beat another one, and yet there
was no overall "best" one.

Strange as it seems, the concept "best" only really works where
things have a single dimension, such as cost, for comparison.

Where things are much more multi-dimensional, there often
is no "best", even though, taken two at a time, it is clear which
one is "better".

That is, a whole series of "betters" does not have to add up to
having a "best" at one end. Instead of a "stack" of betters, there
can be a necklace, or loop of "betters, as in the dice example.
The staircase below, by M.C. Escher, is such a loop.

Any 2 or 3 stairs next to each other make perfect sense, and yet,
somehow, the overall sense of "above" and "below" fails. The
"error" is extremely subtle and hard to point to.

Here's another example of such a loop: We know water flows "downhill",
right? Trace out the water flow as far as you can and find the lowest spot.







So in real life, even though you may be able to tell which
house / date / candidate / investment is "better" than
another, you may still not be able to conclude which one
is "best" because, in reality, there is no such thing as "best".

This partly explains why there is so much trouble picking
the "Most Important" problems to work on, even when the
problems are disconnected from each other.

Sadly, in the real world, the problems are more like parts
of a huge mobile, and even touching one to work on it shifts
all the others around crazily.

These interlocked problems do not yield to the typical
"scientific" approach of "divide and conquer". There is
no "most important part" of such a "system."

Like 200 holes in the bottom of the boat, there are
no "three best" to plug. Solving 3 of 200 doesn't
actually ward off disaster.



(Image above, Ascending and Descending, 1960 M.C. Escher )

U.S. Suicide Rate Increases

October 21, 2008

According to Johns Hopkins School of Public Health,

U.S. Suicide Rate Increases

Largest Increase Seen in Middle-Aged White Women

The rate of suicide in the United States is increased for the first time in a decade, according to a new report from the Johns Hopkins Bloomberg School of Public Health’s Center for Injury Research and Policy. The increase in the overall suicide rate between 1999 and 2005 was due primarily to an increase in suicides among whites aged 40-64, with white middle-aged women experiencing the largest annual increase. Whereas the overall suicide rate rose 0.7 percent during this time period, the rate among middle-aged white men rose 2.7 percent annually and 3.9 percent among middle-aged women. By contrast, suicide in blacks decreased significantly over the study’s time period, and remained stable among Asian and Native Americans. The results are published online at the website of the American Journal of Preventive Medicine and will be published in the December print edition of the journal.

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.

========================

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
==========================================


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.

Returning to what matters

---

October 19, 2008
New York Times

Op-Ed Columnist

The Downturn’s Upside

By NICHOLAS D. KRISTOF

Your retirement savings are swirling through the drain of the market meltdown, your home isn’t worth what a Chihuahua’s doghouse was a year ago, and the United States may be facing the most severe recession since the Great Depression.

But cheer up, for this is a happy column! The economic misery is numbingly real, but it’s also true that a downturn isn’t uniformly bad and might even be good for you in several ways:

[snip]

Income doesn’t have much to do with happiness. Americans haven’t become any happier as they have prospered in the last half-century. And winning the lottery doesn’t make people happier in the long term.

This is called the Easterlin Paradox: Once they have met their basic needs, people don’t become happier as they become richer. In recent years, new research has undermined the Easterlin Paradox, yet it’s still true that happiness has less to do with money than with friendships and finding meaning in a cause larger than oneself.

“There’s pretty good evidence that money doesn’t matter much for how you feel moment to moment,” said Alan Krueger, a Princeton University economist who is conducting extensive research on happiness. “What seems to matter much more is having good friends and family, and time to spend on social activities.”

The big exception to all this is people who lose their jobs or homes, and the new president should act immediately to help them. Professor Krueger argues that for these people, the losses are greater than we have generally realized, for their losses are not only monetary but also the erosion of self-esteem and friendships as they are wrenched out of social networks that enrich their lives (and help them find new jobs). And for those who lose health insurance, a medical or dental problem is enormously stressful, even life-threatening.

[snip]

On education and the real world

In times when we watch our resume's burning up behind us, and education is a life-long experience, we should spend some time looking for skills with lasting value.

The area that seems most crucial to a shared prosperity relates to relationships, and how we get along and work together. Curiously, this area seems absent in most educational programs, as if it's obvious or something.

Most of our lives are spent dealing with one kind or another of relationships, from parents and siblings, to classmates, bosses, subordinates, peers, friends and lovers, community councils, etc.

I have yet to see an actual course in the K-12 curriculum anywhere on "relationships". For that matter, if there is a college or graduate course on "relationships", it has a very low profile.

Isn't that strange?

We have a huge emphasis on math and science, and yet, the average person has far more need of training in getting along and listening than they do for algebra and chemistry.

And yet, the invisible elephant in the room that is guiding our choices remains unidentified.

Colleges are now somewhat torn on the subject, requiring the dread "group work" of students who hate it, taught by faculty who don't understand it. Our businesses are failing from our inability to actually work together, but seem unable to address the problem.

And yet, this is not a national priority. Why not? Usually, if we don't know something, like how to get to the moon, we can assemble people and figure it out.

Puzzling.

Some posts on educational directions of the US:

"Now What -- after the crash"

"OECD/PISA - Our education system should teach collaboration not competition"

The Road to Ruin

The Road to Error (illustrated)

"Why More Math and Science are Not the Answer"

On High Reliablity organizations, which are sobering. They try really really hard to not have accidents, and still don't succeed from time to time:

http://www.highreliability.org/

I'm sure the US military tries very hard to keep nuclear weapons under control. Even that intense level of attention isn't enough to do the job 100% of the time, illustrating John Gall's law that "complex systems simply find complex ways of failing."

"Honey, I lost the nuclear weapons"

The US National Institutes of Medicine on how much the social relations of the front-line teams matter when your job is to get reliability in hospital care:

Crossing the Quality Chasm and other links

Readers' Favorites

In passing

Why do people interpret criticism as unpatriotic?

I got the same thing as a project manager, when I said "These are the major obstacles we'll need to address to succeed" and others said "Why do you hate this project? Why are you trying to kill it?"

Apparently to them, things are either perfect or perfectly wrong, so identifying an issue is seen as hateful not loving.

Is this the way your raise your children? Why do you hate them? Should our teachers give students A's when their work is shoddy? Should our doctors tell us we're fine when something is seriously wrong? Should we take a car back from a mechanic that still doesn't work and pay, lest we damage the mechanic's fragile sense of self worth?

We've seen where a world with no discipline goes, and it is not the promised land.

"Tough love" is a nuanced concept these days, apparently. Let's all pretend we're perfect is the theme, as we get further and further behind because we perfect our skill at pretending instead of our coping skills.

We never fix what's wrong because we keep on pretending nothing is wrong, and we "shoot the messengers" who keep trying to tell us something is seriously wrong. Until we pass "denial" there will be no recovery.

By most measures, the USA today has just about the worst population health of any industrialized nation, and we keep saying it's tops. Our students have the highest opinions of themselves, despite the fact that they score at the bottom, globally, and that the fantasy will not translate into jobs for them. They are preparing to be arrogant and useless.

How is this helpful or loving?

Reponse to Paul Krugman's: Moment of Truth (NYTimes Op Ed)

Quoting Wikipedia, as good as any for this purpose, "Cybernetics is a broad field of study, but the essential goal of cybernetics is to understand and define the functions and processes of systems that have goals, and that participate in circular, causal chains that move from action to sensing to comparison with desired goal, and again to action. Studies in cybernetics provide a means for examining the design and function of any system, including social systems such as business management and organizational learning, including for the purpose of making them more efficient and effective."

In a complex or white-water uncharted world, it is simply crucial that the cybernetic loop actually function. Errors or even sluggishness in observation, perception, correct parsing, admitting error, modifying mental models, and revising action are absolutely required.

These facts need a seat at the table. The "command and control" system needs to become, and very quickly, apolitical and based on cybernetics, not some form of politics that worked in 1900.

Some fraction, at least 5%, of the "bailout" should go into intensive and immediate public discussions of why our command and control system is so out of touch and what to do about it.

Behavior theory would argue that changing the few humans at the top will NOT alter the system, all by itself. We need an entire culture pressing, and demanding, for that loop to work, for government to be responsive to facts as well as to lobbies, fear, and greed. Nation rebuilding must start with that on the agenda.

This is a "paradigm shift", moving from lines of causality to loops of causality. It is huge and defies our linear intuition regarding where things break and where to push to fix them. When we see increasingly words like "spiral", "feedback", "in turn" our answer should no longer be "who could have known?"

I wrote a "gentle introduction to feedback" for those who want to pursue this thread.
http://newbricks.blogspot.com...

The Road to Ruin

I think we're standing way too close to the problem to see the root-causes here and address them.

We've leapt to the conclusion that this is some sort of financial problem as a cause, versus as a symptom, and are trying to put out the symptom without addressing the cause - sort of the definition of "quack medicine" -- and just as dangerous.

While some politicians have mastered the art of managing pressure and bullying, we seem to have very little to zero actual civil, grown-up discussion of what's gone wrong here. I would suggest this traces back directly to our cultural disdain for the skill of actually reasoning together and listening to each other, and of seeking dis-confirming evidence before betting the farm on a proposed solution.

We argue over whether this expert is better than that expert, and fail to wonder why, collectively, 300,000,000 people can't work together better to find solutions to common problems. It's as if we've given up on that approach, and I challenge that.

Abe Lincoln is reported to have said that if he had 10 minutes to chop down a tree, he'd spend the first 5 minutes sharpening his axe. Our "axe", our social problem-assessing and decision-making process, is clearly way too dull. Thousands of people saw this coming and they were dismissed, ignored, and trampled, with the results we see around us now.

This doesn't just affect the "financial" crisis, it affects how we react to global warming, pandemics, pollution, water shortages, urban crime, unemployment, health care, etc. It's CENTRAL to all of those.

And yet, how many people recall a required course, anywhere in their education from K-12 to PhD, in "relationships" or "working together" ?

Instead we get brilliant "quants" working alone, building models that need the air of peer review, and that take out our banks.

People - listen up. It doesn't matter what else we fix -- if we don't fix how we (don't) reason together on hard problems, we are done for by one of the other problems we ignored or worsened to solve this one.

We don't even know how to address the problem of what problem to address, and what to spend our scarce dollars attempting to accomplish.

But there is such an incredible void and vacuum in the area of actually reasoning together that almost any progress would have huge leverage on so many different fronts.

In the darkest night, even a single candle casts amazing light.

That's where we should be looking now -- at least some of us, and with some urgency and with great attention to starting a national dialog on this subject.

further reading: The Road to Error (illustrated)

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."

===========================

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.

==============================

=============

Reality-based Bailouts

I can imagine an economy in which there were no "banks" and businesses simply bought and sold shares in each other, or made loans to each other. That could work.

I cannot imagine an economy in which there were no underlying businesses, only banks lending (or not lending) money to each other.

The failure to realize which one is real and which one is an illusion will lead to ineffective strategies for national prosperity.

- rws

Loss of Trust on Wall Street and Main Street

(comment)

2008 12:35 pm

I think there is a more specific kind of "trust" that has been lost, not just banker's knowledge of individuals.

It is my clear impression, perhaps wrong, that decades ago there was a social norm of honesty and an ethic of hard work. Everyone didn't have an attorney who found loopholes, and people depended on having "a reputation" in the community, that they cared about, whether anyone was watching or not.

A man's record of honesty is what generated "trust" in the society, because he was, well, trustable.

These days it seems that the social norms have changed, and people in general certainly seem less "trustable" to keep their word, even when inconvenient or expensive to do so. Bankers do not trust other bankers. Countries sign treaties and then abandon them at the first inconvenience.

Some political advisors not only recommend dishonesty but seem to exult in their ability to be dishonest "successfully."

Political candiates seem willing to promise whatever suits them, or the crowd, at that moment, and seem to feel no obligation whatsoever to do what they promised before being elected. The idea seems strange that they should be, in any way, "held to" what they promised.

Without THAT kind of trust, no one is willing to make any sort of verbal deal with anyone else for anything. No politician is willing to give away X now in exchange for a promise from another politician to give back Y later. The promise, which used to be disaster to violate, now seems to have no weight at all.

Not too surprisingly, by discounting the past and wantonly disregarding the future, there is very little room left to negotiate in "this instant."

Maybe rich people never trusted each other, and they certainly never trusted poor people - but many poor people actually do trust each other, surprise. Many communities are places where neighbors don't lock their cars or their doors. [see note]

That worked. This doesn't.

=============================
[note: - Michael Moore noted in one of his movies the amazing distinctions crossing the river from Detroit Michigan to Windsor Ontario, heading South. (check the map, yes, South.) In much of Windsor, people don't lock their houses. Moore interviewed one person and asked if they had ever been robbed. Yes, they had. So now do they lock their house? No, "it would just feel wrong." ]

Re Rescue the Rescue ( Friedman, NYTimes)

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."

It's worth reading the whole thing. There is a huge amount of content and reflection there.

"But you, have you built well,
that you now sit helpless in a ruined house?"

It is very hard to find the entire poem online, so here's a link to a copy in google books.
http://books.google.com...

— Raymond, Detroit

response to Nihilist's Revolt - Bailout Plan

30, 2008 4:13 am

Let's take this pause to examine several alternative "frames" for "this crisis", and what candidate solutions each one would suggest. In every case except psychological, we need to distinguish perceptions from reality.

One view is that something has "broken" in the global system to extend credit to responsible borrowers, and it needs to be "fixed." Perhaps what has broken might break more, and we need more attention and adrenaline.

A different lens would say that the credit business is a symptom, not a "root cause." What is broken is psychological, a global sort of unjustified panic, and what we need is to calm the panic and then everything will be fine again. Actually, less attention and way less adrenaline would be good in this scenario. "Nothing to see here folks, false alarm." A calm voice, a firm hand on the helm, a sense of authority would be good, we can all go back to watching television.

A third view is that this is a crisis of "social capital." In that view, what has bottomed out is "trust" and delayed gratification. What has replaced those is distrust and a "me first, right now" mood.

Psychological issues and passing unjustified anxieties can be calmed by the media - although the voice from the box seems to be crying "panic now!" Financial systems might be improved with more "regulation", or possibly by letting American ones fail and relying more on global ones with less credulity that are still strong.

But the issue of a sudden realization that we have no social capital left remains. To the extent this is the root cause, we have a much different problem here, calling for different solutions.

This seems to me to be the case, as each year's Federal Budget takes longer and longer to get passed, with bickering and paralysis replacing negotiation and reasoned discussion and even horse trading.

Negotiation and deals require trusting the other party to keep their promises, and that seems to be gone.

If that is the problem it is a huge one, and the wrong parties are at the table. All those social scientists and all those subjects we've been throwing out of the curriculum because they were not "math" or "science" are more relevant than high finance. We need cultural anthropologists. We need to understand the role of religion and morality in building trust in the future, and, for that matter, a thought for the future in present decisions.

The bailout bill will not address this latter problem. It's the wrong frame.

Before solving the problem in one frame, let's be sure it's the right frame, and that we're solving root causes, not symptoms, because there's not much ammo left in the box. There's only so many more trillion dollar rescue plans before we are, sadly, broke.

Political Grace

this from the Wall Street Journal: (Peggy Noonan):
=======================

Veer

Where is America?

America is on line at the airport. America has its shoes off, is carrying a rubberized bin, is going through a magnetometer. America is worried there is fungus on the floor after a million stockinged feet have walked on it. But America knows not to ask. America is guilty until proven innocent, and no one wants to draw undue attention.

America left its ticket and passport in the jacket in the bin in the X-ray machine, and is admonished. America is embarrassed to have put one one-ounce moisturizer too many in the see-through bag. America is irritated that the TSA agent removed its mascara, opened it, put it to her nose, and smelled it. Why don't you put it up your nose and see if it explodes? America thinks, but does not say.

And, as always America thinks: Why do we do this when you know I am not a terrorist, and you know I know you know I am not a terrorist? Why this costly and embarrassing kabuki when we both know the facts, and would even admit privately that all this harassment is only the government's way of showing that it is "fair," of demonstrating that it will equally humiliate anyone in order to show its high-mindedness and sense of justice? Our politicians congratulate themselves on this as we stand in line.

All the frisking, beeping, and patting down is demoralizing to our society. It breeds resentment, encourages a sense that the normal are not in control, that politics has lessened everything, including human dignity. Another thing: It reduces the status of that ancestral arbiter and leader of society, the middle-aged woman. In the new fairness, she is treated like everyone else, without respect, like the loud ruffian and the vulgar girl on the cellphone. The middle-aged woman is the one spread-eagled over there in the delicate silk blouse beneath the removed jacket, praying that nothing on her body goes beep and makes people look.

Getty Images

Hail to the Candidates

The 2008 presidential campaign has generated a range of original songs.

• Read more about the tributes and listen to clips from some of the numbers.

America makes it through security, gets to the gate, waits. The TV monitor is on. It is Wolf Blitzer. He is telling us with a voice of urgency about the latest polls. But no one looks up. We are a nation of Willy Lomans, dragging our wheelies through acres of airport, walking through life with a suitcase and a slack jaw, trying to get home after a long day of meetings, of moving product.

No one in crowded Gate 14 looks up to see what happened with the poll. No one. Wolf talks to the air.

Gate 14 is small-town America, a mix, a group of people of all classes and races and ages, brought together and living in close proximity until the plane is called. Our town appears, the plane is boarded, the town disappears. An hour passes, a new town begins. This is the way of modern life. We live in magic and are curiously unillusioned.

Gate 14 doesn't think any of the candidates is going to make their lives better. But Gate 14 will vote anyway, because they know they are the grown-ups of America and must play the role and do the job.

But here's something they notice, we notice. Our leaders are now removed from all this, removed from life as we live it each day.

There is as I write broad resentment toward President Bush, and here is one reason: a fine and bitter sense that he has never had to stand in his stockinged feet at the airport holding the bin, being harassed. He has never had to live in the world he helped make, the one where Grandma's hip replacement is setting off the beeper over here and the child is crying over there. And of course as a former president, with the entourage and the private jets, he never will.

Nor will Bill Clinton, nor the senators and leaders who fly by private jet.

I bet a lot of Americans, most Americans, don't like it. I'm certain Gate 14 doesn't.

Giacomo Marchesi

All this is part of the mood of the moment. It is marked in part by a sense that our great institutions are faltering, that they've forgotten the mission; that the old America in which we were raised is receding, and something new and quite unknown is taking its place; that our leaders have gone astray. There is even a feeling, a faint sense sometimes that we have been relegated to the role of walk-on in someone else's drama, that as citizens we are crucial and yet somehow...extraneous.

But we are Americans, and mean to make it better. We long to put the past few years behind us, move on, and write something good on the page we sense turning.

In all this I am not saying, as Rodney King did, Why can't we all just get along? We can't because we're human: something's wrong with us. But we can do better.

I don't mean "we must outlaw politics," or "splitting the difference is always best." Politics is a great fight and must be a fight; that is its purpose. We are a great democratic republic, and we struggle with great questions. But we can approach things in a new way, see in a new way, speak in a new way. We can fight honorably and in good faith, while -- and this is the hard one -- both summoning and assuming good faith on the other side.

To me it is not quite a matter of "rising above partisanship," though that can be a very good thing. It's more a matter of remembering our responsibilities and reaffirming what it is to be an American.

If nothing else, this means we must now have our fights over big issues, issues of real consequence that are pertinent to the moment we're in. We shouldn't be fighting and hitting each other over the head over little things, stupid things, needlessly chafing ones. When I would think of this the past few years I'd always return to one thing, a prime example of the old way of doing politics. This was the movement, now quiescent, to alter the Constitution of the United States to outlaw...flag burning. Imagine changing that great document for such a stupid thing. As if it meant anything if an idiot burned a flag; as if a lot of idiots were even burning flags -- which they weren't, and aren't. I called it a movement, but of course it wasn't: it was a political game played by one team in order to embarrass the other. "He doesn't love our flag -- he won't even protect it!" Boo! goes the crowd.

And yet the oddest thing is...the crowd knows it's being played. They know their buttons are being pushed. And this doesn't leave them feeling more inspired by, more trusting in, the system. So much of our silliness is, in the end, destructive.

And so I came to think this: What we need most right now, at this moment, is a kind of patriotic grace -- a grace that takes the long view, apprehends the moment we're in, comes up with ways of dealing with it, and eschews the politically cheap and manipulative. That admits affection and respect. That encourages them. That acknowledges that the small things that divide us are not worthy of the moment; that agrees that the things that can be done to ease the stresses we feel as a nation should be encouraged, while those that encourage our cohesion as a nation should be supported.

So where are we now? I yank this into the present to look at the landscape on which a rise to the challenge is possible, but not, I'm afraid, very likely.

Veer

It is autumn, and America is picking a president. It has been exciting. The whole year was confounding, putting the professional political class in its place, leaving the experts scratching their heads, and giving us all the feeling -- so precious, so rare -- that the people are in charge. They make the decisions, not pollsters. And you never knew what they'd do next. John McCain was over and done a year ago, out of money and out of luck. And then: he wins the nomination. Barack Obama was unknown and outmatched a year ago, sure to be a victim of someone else's inevitability. Well. Nothing is inevitable. And he wins the nomination.

A year of marvels. And now two men, McCain and Obama, each worthy in his way of admiration, battle it out. Neither seems by nature inclined toward brute, gut-player politics. One, McCain, had been hurt by it in the past, his presidential prospects in part done in by it in the Republican primaries of 2000. He has a temper, and at some point he'll have shown it, but the ugly road, I think, embarrasses his pride. The other, Obama, seems temperamentally not inclined to be a killer, to encourage the dark side of politics. It's not his history: he took down a machine without raising his voice.

However.

Something tells me that the election will show itself to be rough indeed, if not because of the candidates themselves then very much because of their surrogates or would-be surrogates -- a million freelancers and operatives, YouTube Fellinis, and political action committees.

Two huge teams are in a massive public brawl in an era in which the Internet has liberated everyone in the country from the old restrictions, the old establishment, the old, encrusted media monopoly.

YouTube has yielded, this year, the most moving and wittiest advertisements about each of the candidates. Professional political consultants with their piece of the buy didn't produce them, artists did. For Obama, it was the video by will.i.am, with the Obama speech and the snatches of song made from his words. More than anything else this year, it captured the feeling behind his movement. The McCain video, alas, was anti-McCain, and keyed off the will.i.am video. It featured young people and artists taking snatches of McCain speeches, turning them into song, and then starting to...freak out as they listened to the words. It made you laugh out loud. Anyway, one of the untold stories of the year is the failure of the political professionals to compete with the art and brightness of the nonprofessionals.

All of this will be part of the background music of the 2008 campaign. So: it's probably gotten mean out there.

And of course it is not only the result of technology, and partisanship, and human mischief. Some of it has been the result of the past seven years, that trying time with which we have not fully come to grips. Some of the personalities and circumstances that shaped the era are about to ease off the stage. In some way we're about to turn the page. Maybe John McCain or Barack Obama can help us write something good on it.

Yet the economic crisis brings a new question, only recently being articulated, and I know because when I mention it, people go off like rockets. It is: Do you worry that neither candidate is up to it? Up to the job in general? Is either McCain or Obama actually up to getting us through this and other challenges? I haven't heard a single person say, "Yes, my guy is the answer." A lot of shrugging is going on out there. The big shrug is a read not only on the men but on the moment.

The overarching political question: In a time of heightened anxiety, will people inevitably lean toward the older congressional vet, the guy who's been around forever? Why take a chance on the new, young man at a time of crisis? Wouldn't that be akin to injecting an unstable element into an unstable environment? There's a lot at stake.

Or will people have the opposite reaction? I've had it, the system has been allowed to corrode and collapse under seven years of Republican stewardship. Throw the bums out. We need change. Obama may not be experienced, but that may help him cut through. He's not compromised.

The election, still close, still unknowable, may well hinge on whether people conclude A or B.

—Adapted from "Patriotic Grace: What It Is and Why We Need It Now," by Peggy Noonan. Copyright 2008 by Peggy Noonan. Published by Collins, an imprint of HarperCollins Publishers.Peggy Noonan is the author of seven books. This is adapted from her next book, "Patriotic Grace," which will be pu

Clueless, says NY Times Op Ed

My Comment on NYTimes op-ed piece.
==========================================
Desired comment:
==========================================
Curious logic, both of you. Let's separate economics from politics and problem from solution and fall back on basic principles.

To paraphrase Bertand Russell, when experts disagree, you cannot be sure any
position presented is correct. We don't even have recognized and trusted experts. The activity proposed is unorthodox, if not unprecedented in this country, so even experts admit we are in uncharted territory.

What are we sure of? Enough, it turns out, to reach a conclusion.

Is there a crisis? Yes.

Does anyone comprehend all of the national and international aspects of the crisis, its full scope and scale and character, and all the players involved? No.

What are the odds that complex, interconnected systems with huge stakes are capable of behaving unexpectedly, even paradoxically, as well as generating unintended and unanticipated "side-effects"? 100 percent.

So, how many people in the world, after extensive study and modeling, could reliably predict all the significan teffects of any of the proposed interventions? None.

Then, how many people in the world, after incomplete study, little discussion with experts, and no simulation or modeling, could reliably predict all the significant effects of the proposed solutions? None.

So is it possible ANY proposed solution would actually make things worse, not better? Yes.
Is our intuition a good guide to behavior of complex adaptive systems with feedback? Demonstrably no. John Sterman at MIT and others have demonstrated that even simple feedback baffles most people and their predictions, while confident, are well off the mark.

If we cannot reliably predict the outcome, then how good a track record do we have in quickly realizing and admitting that a course set out upon is not looking good, or in fact, should be rejected after all? Sadly, history suggests continuation of even blatantly failed policies is human nature.

If it turns out to be the right direction, are we sure we are going far enough? No.
Is it possible the true final cost might be well larger than initial predictions? Yes.,

if this turns out to be the wrong direction, is it relatively easy to undo? No.
Is it possible to undo at any cost? Not clear.

Would an attempt to undo it result in yet another case where we are spending most of our effort trying to undo the impact of prior, ill-conceived "solutions"? Yes.

Are well all very good at recognizing when our help is only making things worse? No.

If someone else was doing this in a parallel economy, say on Mars, that we had no stake in, what would we think the odds are that their first intuitive guess as to an obvious solution is, in fact the solution? I think, very low.

Does having a strong vested interest, and a sense of panic, improve human judgment and decision making? Not generally, no.

All of this comes together to say that the a priori odds that any solution proposed will solve the crisis are very low, close to zero. It may be the same odds that you could fix a broken television by reaching inside and cutting the obvious wire, and we're arguing over which wire is the obvious one.

If we take this action, and it doesn't work out, how many more such tries do we have? Not many, at that price tag. A failed attempt not only fails to solve the problem, it uses up limited ammunition andt time.

Now, this is hard but try. Aside from political considerations, and group psychology, are we more likely to improve things or to cause yet more damage by any such large-scale action? I have to conclude from the above that carefully-considered inaction is more defensible, safer, and stabler than (re)action, politics aside.


======================= actual comment ======================

• 
  
• 72.
  September 26th,
  2008
  8:23 pm

  A drama in one act:

  * Pilot?! The wing is on fire!
  Yep, seems to be.
  * Should we dump fuel?
  Well, it might be the exact wrong time to do that.
  * Don’t we need to do something?
  Yes.
  * So we dump fuel?
  No, that would just catch fire from the wing and cause the airplane to explode.
  * But it’s the only suggestion we’ve come up with and we need to DO something NOW!
  OK, then I’ll put the airplane into a dive and go so fast that the wind blows out the fire, as it says in the manual.
  * NO, we want to stay UP!

  The crowd of passengers forcibly removes the pilot and pushes the fuel-dump button.

  The end.

  — Posted by Wade

=========================================================

OK, now bring politics back into this picture. Do the American people tend to support carefully-considered inaction? No. Do we care what the American people think? Both journalists say "No." That's a story in itself, but for another day.


Wade

Yes, yes! A Bailout Plan at Last!

All this talk and no one has addressed how they intend to value junk, if we don't use a market.

So I will offer a plan. Then we can look for any better plans.

Here's my plan = "The Plan version 1.0" :

How about they start by offering to buy at 1 cent on the dollar any existing mortgage backed debt anyone, individual or corpation wants to sell?

When no one offers to sell any more, raise that to 2 cents on the dollar.

Keep going, adding 1 cent per dollar a day to the offer, till the $700 Billion is invested.

Advantages:

* Comprehensible plan of action.
* No questionable computations.
* No charges of favoritism.
* Easy to audit
* And, I think, most subtly but most importantly, is that this would have an immediate calming effect on the market, and one that improved gradually over time.

After the first day, you may not know how much that junk in the vault is "worth" but you and everyone else knows that you think it is at least 1 cent per dollar. Each day its effective worth gets both larger and stabler, in a gradual fashion.

The advantage, to anyone who grasps complex adaptive systems, is that no abrupt "step-function" change is put into the market, which would reveal and trigger all manner of new instabilities and demons. The firm hand gets slowly firmer, the ones most in panic get resolved the soonest, and things simply get better over time.

* Oh, and it probably is defensibly prudent - the investing public gets the most face amount of junk assets it possibly can for each dollar invested.

* In fact, there could be a market in this pool of dubious assets being collected, which could bring in more cash and make the entire plan become self-funding after some point.

* Probably, just issue each American Citizen 2,500 shares of stock in this junk-asset holding agency, in exchange for the non-optional investment of $2,500 of their money being taken on as US debt. If people want to hold the shares they can, or they can sell them to anyone else who wants to buy them up. If this thing makes money, all US citizens make money. If it loses, hey, that was in the cards regardless, then.

===
OK. Next? Who has a better plan than that?

No No, a Thousand Times No!

To address the problem we need to grasp the nature of the problem, a task that seems to have been largely overlooked.

Let's look at the whole question known as "stability" and "health" of the financial sector, and reason from solid underlying basic principles that govern all complex adaptive systems, caring as little as does gravity about politics and winners and losers.

As I have stated numerous times in the past, there is expertise in the world regarding what is involved in stabilizing a system, any system. There are universally applicable principles. This field is called "Control System Engineering". The principles are the same whether the system is a jet aircraft in flight or an economy in motion.

Probably the first thing that needs to be said is that "intuition" as to what to do is uniformly wrong. Our intuition is based on very simple systems, almost uniformly lacking feedback, or having consequences we have carefully built a narrative allowing us to ignore.

This sin is equivalent to designing a car so complex no human can drive it, and then blaming the drivers for the subsequent crashes, instead of blaming our own design.

So, doing the "obvious thing" is almost always the wrong answer. This does not depend on how stridently one asserts that it is "obvious" or what caliber gun one can point at the head of those who disagree with one's "obvious" brilliant insight into a system no one else can fathom. It is, after all, "obvious" only if you ignore all the parts that don't work, and focus on the few parts that
do.

There is an entire science of "stability" and a whole field of designing "controllers", electronics that can provide such stability to a given engine or system. Even to those with PhD's and a lifetime experience, the solutions that the computers reveal are seldom "obvious".

We need now to make an extremely important distinction and disentangle two concepts that are generally incorrectly mushed together.

One is the concept of "being under control" and the other is the concept of "controlling".

It is desirable that systems we rely on, drive in, fly in, or put our offices within are "stable" and "under control." The alternative is bridges, planes, or economies crashing down with significant loss of life and treasure.

That said, how the "controlling" occurs, and what the agent is of such controlling, turns out to be a more complicated issue that we are used to.

Let's consider some alternatives. There is the "great man" or "king" or "Czar" approach, in which a single human, possibly with or without advice, uses his great wisdom to decree each step in turn in order to bring about stability. If there is no stability, the solution is either "more wisdom" (seldom mentioned) or "more authority" (a far more popular request.)

On the far side, there is a more complex type of agent, spread more diffusely, hard to see on a small scale, but easy to see on a large scale. One example, and mind you this is only one, is the "Invisible hand of Adam Smith", or the functioning of a "free market."

This is just one example of millions of possible "emergent agents" that brings about stability, often in a way baffling to humans, or incomprehensibly difficult for humans to fathom. One example often cited is the set of decisions involved in feeding New York City on a daily basis.

The conservatives have it right, that some kind of emergent agent can be far more powerful at setting things right and repairing instability than can any single local human with their local perspective. What they have wrong is that there is only one such solution, so they don't put in the time and effort to find one BETTER than Adam Smith, but still not in the hands of any small clique of people, regardless how sincere, who as all humans do, will lose all sense of perspective once they gain power, and who will therefore spend all their assets attempting to acquire more power, which they incorrectly think will finally solve things. It is so "obvious" to them that the solution is close, if only they had complete control.

The problem with this logic is that other people are only part of the obstacle. Another obstacle is that complex systems have a mind of their own and do not behave in a manner comprehensible to a human, or predictable by a human, any human, regardless who they are. the only reason it seems that it is close to such a Nirvana is that all of the things not understood have been diminished and discarded. So, all the points I have kept on this graph form a straight line, see? (of course, I had to discard all those that didn't fit my preconceived notion that there is in fact a line here, not a sine curve or something more complicated.)

Ok, so, say for a moment you had 100% of the world budget, 100% of the world in worshipful obedience, and total authority. Then what?

It's not like the world has a steering wheel and only needs to be brought back onto the road, now that we've decided who's driving. The world is more like a 747, and we are more like 6 year olds, and having total authority to push buttons does not a pilot make.

The only solution remaining for us is to find a type of distributed emergent agent, like Adam Smith's hand only better, that can be created using simple decision rules, such as "be greedy", and that collectively form a stabilizing field.

My perception is that "be greedy" as a generative rule is not a very good solution and "be nice" is a better one. Before concluding such a solution is impossible, we need to study the role of context in making behaviors occur and sustaining them in the face of apparent results.

That is the task that we should be putting 700 billion dollars into, not fighting over WHICH human should make 'the decisions",

Wade

We need an improved "invisible hand", Adam

David Brooks wrote a piece in the NY Times this morning on regulation of the financial industry.

Incidentally, there is essentially no engine today in any product that does not have a "controller" as part of the design, to increase stability, response time, etc. No elevator would stop at the floor without an abrupt "jerk" without a controller. The design of such controllers is in the field called "Control System Engineering."

A sample text book is this one: Feedback Control of Dynamic Systems, by Franklin, Powell, and Emami-Naeini. These are the concepts we need for a "governance" or "regulatory" system that actually works as advertised.

Control system engineering is to complex systems what "civil engineering" is to automobile bridges across rivers -- it is completely general and non-political, it won't tell you where to build or what to build with, but it WILL tell you the required properties of the materials and that some things will simply not work. You can't build the Brooklyn Bridge out of plastic, for example, regardless how cheap it is. You can't design a regulatory system that depends on feedback, for another example, and then blind the sensors that are supposed to determine the feedback.

The advantage of such engineering is that it focuses on issues such as "stability" (a big one right now) and gives power to insight, such as that blinding the eyes of a system will make it drive off the road for sure.\

Search "feedback" or "system thinking" in this weblog for other posts on such matters!
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One obstacle to a good solution is the incorrect assumption that a process "under control" equates to a small group of people doing "the controlling." Let's keep those separate.
The question of whether we need more "governance" should be distinct from who, or what, should be the active agent. For much of the US History, many have favored Adam Smith's "invisible hand" of the marketplace to do this controlling.
The classic debate over more or less "government" desperately needs this distinction.
The question should be whether there is an improvement on the class of "invisible controllers" that (a) do a better job and (b) are even less corruptable by those who would hijack the process.
There is no question that we have very complex processes running out of control, and that this is not the preferred state. Fine.
The question is how to achieve the "under control" part. The institution called "government" has typically decayed to "a few people" who, regardless of wisdom and intent, have been unable to grasp the com
plexity of the beast or improve on its operation and results.

The deep cynicism resulting from such failure seems related to the abandonment of a goal of prosperity for all and replacement with a goal of "prosperity for me and my friends at everyone else's expense" which turns out to be a short-term illusion, given how interconnected everything is.
These are problems in the area of "control system engineering" and "complex adaptive systems" and the necessary insights are probably in those fields.

Why more math and science are NOT what we need

I had a post recently, the link I'll add here soon, in which I protest the emphasis on math and science education in our schools, because, I believe, that is not where things are breaking.

For example, I really don't believe that if every Senator had more math and science, or even, say, twin PhDs in math and science, that they would be any better at reaching consensus than Oxford University professors are at deciding what e-mail system to purchase.

The reason is that all this "math" and "science" takes place in a social context that can magnify or neutralize or reverse essentially anything.

The following piece from today's New York Times makes it clear that having computers and "quants" doesn't really solve much. As I continue to repeat T. S. Eliot, they continue "dreaming of systems so perfect that no one needs to be good." It won't ever happen.

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September 18, 2008, 7:52 am — Updated: 5:00 pm -->

How Wall Street Lied to Its Computers
By Saul Hansell
CORRECTED 5 p.m.: Spelling of Leslie Rahl.

So where were the quants?

That’s what has been running through my head as I watch some of the oldest and seemingly best-run firms on Wall Street implode because of what turned out to be really bad bets on mortgage securities.

... I got to know bunch of quantitative analysts (”quants”): mathematicians, computer scientists and economists who were working on Wall Street to develop the art and science of risk management.

They were developing systems that would comb through all of a firm’s positions, analyze everything that might go wrong and estimate how much it might lose on a really bad day.
We’ve had some bad days lately, and it turns out Bear Stearns, Lehman Brothers and maybe some others bet far too much. Their quants didn’t save them.

I called some old timers in the risk-management world to see what went wrong.

I fully expected them to tell me that the problem was that the alarms were blaring and red lights were flashing on the risk machines and greedy Wall Street bosses ignored the warnings to keep the profits flowing.

Ultimately, the people who ran the firms must take responsibility, but it wasn’t quite that simple.

In fact, most Wall Street computer models radically underestimated the risk of the complex mortgage securities, they said. That is partly because the level of financial distress is “the equivalent of the 100-year flood,” ...

But she and others say there is more to it: The people who ran the financial firms chose to program their risk-management systems with overly optimistic assumptions and to feed them oversimplified data. This kept them from sounding the alarm early enough.

Top bankers couldn’t simply ignore the computer models, because after the last round of big financial losses, regulators now require them to monitor their risk positions. Indeed, if the models say a firm’s risk has increased, the firm must either reduce its bets or set aside more capital as a cushion in case things go wrong.

.... Wall Street executives had lots of incentives to make sure their risk systems didn’t see much risk.

“There was a willful designing of the systems to measure the risks in a certain way that would not necessarily pick up all the right risks,” said Gregg Berman...
...

But since the markets were placid for several years (as mortgage bankers busily lent money to anyone with a pulse), the computers were slow to say that risk had increased as defaults started to rise.

It was like a weather forecaster in Houston last weekend talking about the onset of Hurricane Ike by giving the average wind speed for the previous month.

But many on Wall Street did even worse, as Mr. Berman describes it. They continued to trade very complex securities concocted by their most creative bankers even though their risk management systems weren’t able to understand the details of what they owned.
...

So some trading desks took the most arcane security, made of slices of mortgages, and entered it into the computer if it were a simple bond with a set interest rate and duration. This seemed only like a tiny bit of corner-cutting because the credit-rating agencies declared that some of these securities were triple-A. (20/20 hindsight: not!) But once the mortgage market started to deteriorate, the computers were not able to identify all the parts of the portfolio that might be hurt.

Lying to your risk-management computer is like lying to your doctor. You just aren’t going to get the help you really need.

They would have gotten things right if only they were fed the most accurate information. Ms. Rahl said that it was now clear that the computers needed to assume extra risk in owning a newfangled security that had never been seen before.

“New products, by definition, carry more risk,” she said. The models should penalize investments that are complex, hard to understand and infrequently traded, she said. They didn’t.

“One of the things that has caused great pain is complex products,” Ms. Rahl said.

....And, ultimately, the most important risk-management systems are the ones that have gray hair. “It’s not just the Ph.D.’s who must run risk management,” Ms. Rahl said. “It is the people who know the markets and have lifelong perspective.” And at too many firms it is those people who failed to make sure the quants really did their jobs.

(c) 2008 the New York Times Company