Groupthink is a term coined by social psychologist Irving Janis (1972),
occurs when a group or individual makes faulty decisions because group pressures lead to a deterioration of “mental
efficiency, reality testing, and moral judgment” (p. 9). There
several similar terms with the most popular alternative term being "political
correctness", conformism, “herd mentality” and, satirically,
“Freedom Fries” mentality.
This is essentially a natural mechanism related to a spontaneous
consensus-seeking tendency in groups. When this tendency overshoot and not
balanced by existing group factions (which often happens in case of presence of
strong leader) the results for the group can be quite devastating.
Groupthink is a side effect of cohesiveness in groups, already discussed by
Lewin in the 1930s. It is an important factor to consider in decision processes,
such as workshops, meetings, conferences, committees, etc.
Janis listed eight symptoms that show that concurrence seeking has led the
group astray. The first two stem from overconfidence in the group’s powers. The
next pair reflect the tunnel vision members use to view the problem. The final
four are signs of strong conformity pressure within the group.
Groupthink is the phenomenon which occurs when group members become so
focused on achieving concurrence that the search for consensus overrides any
realistic assessment of deviant or unpopular views. It represents a
deterioration in an individual's mental efficiency and reality testing as a
result of group pressures.
Groups affected by groupthink ignore alternatives and tend to take irrational
actions. A group is especially vulnerable to groupthink when the group is
insulated from outside opinions. Highly cohesive groups are much more likely to
engage in groupthink
Confirmation bias intersects and interacts with groupthink is several ways,
for example in phenomenon known as "Persistence of discredited beliefs"
This is pretty common phenomenon is cults especially in high demand cults; see
also Failed end of the
world predictions from 30 to 1920 CE
In a way certain level of groupthing isinevitable in social groups.
Acctording to ideas of symbolic interactionalism ( when I was young I was
greatly influenced by Tamotsu Shibutani’s ideas and concepts such as "social
world", "attitude", "social climate", "delinquent behavior" popularised in his
groundbreaking book "Social Psychology". ) There are three basic premises
of groupthink:
Individual actors on social scheme adjust their actions based on both
pressures and contributions of others and the way they view the social scene.
The latter is connected with the important concept of reference group.
In the great consensus of the past twenty years, government regulation
was unnecessary because the free market provided better tools for
constraining private companies. One force was the market, idealized by Alan
Greenspan, who believed that counterparties could even police effectively
against fraud. The other force was shareholders, who would punish managers
for acting contrary to their interests. The market would prevent companies
from abusing their customers, while corporate governance would prevent them
from abusing their shareholders.
For those who still believe in the latter, McClatchy has a good (though infuriating) article on what
went wrong on Moody’s, the bond rating agency that, we previously learned, responded to warnings about the toxic
assets it was rating by . . . firing the people making the warnings. In the
words of an executive on a Moody’s risk committee:
“My question the whole time has been, ‘Where the hell has the board
been?’ I would have expected, sitting where I was, that I would have got a
lot more calls from the board. I got none of that.”
Another Moody’s executive added, “There was no (corporate) governance at
the firm whatsoever. I met the board, I presented to them, and it was just
baffling that these guys were there. They were just so out of touch.”
The story that Kevin Hall tells about Moody’s has been told many times
before. Board members often serve at the pleasure of the CEO, who controls
who receives the perks of board membership. The result is often, but not
always, boards that rubber-stamp the decisions of the CEO and his or her
inner circle. Court precedents make it difficult to hold board members
personally liable for anything, and companies buy liability insurance for
their board members just in case. As Lynn Turner, former chief accountant of
the SEC, said to McClatchy, “I personally think until law enforcement
agencies start holding these boards accountable, . . . you’re probably not
going to get a lot of change.”
This is why I am skeptical of proposals to, for example, increase the
number of independent board members. There’s nothing wrong with it, but I
think it betrays a certain amount of naivete over what independent board
members actually do.
Selected Comments
JerryJ:
If you spent your life in the corporate world, the first observation about Boards’s of Directors is
that directors are there only because they subscribe to the groupthink of
the corporate culture. Even if that is not true from time
to time, new boards over time inculcate their groupthink into the
corporation. This is particularly the case when the Chairman is a powerful
dominating leader. He wants ” yes people”. Congressional factions hire
people in their bailiwick that are ” yes people”. The phenomenon is
natural. What better comparatives than the Board of GM dominated by Alfred
Sloane and forever afterwards in a decadent manner. The same is
demonstrably true of the FBI under Hoover with decadence ever after.
Another major example was the supply and logistics arm of the US Army
before and during WWII. Look at AIG under Greenberg and the aftermath.
Look at the angst at the GM board when Ross Perot was a director. Had
Perot been able to dictate the GM Board to his desires we would now be
talking about the GM of Perot and decline ever afterwards. The great
leader exhausts and groups without great leaders are exhausted.
At some point, the groupthink malaise must turn very active , as with
political coups and such, to energize a group to be dominant enough to
have other groups join the pecking order at lower level. There seems to be
times when their are too many challengers lower down to disturb the
dominant group. So the group either capitulates and joins or is defeated .
The defeated then wither away.
bmeisen:
Groupthink doesn’t handicap an otherwise effective system. Corporate governance is groupthink, if not worse,
in the US. It’s possible to do CG differently – through
regulation. German law dictates the composition of many AG oversight
boards: in some cases capital and labor split the seats evenly, in others
an impartial member is included.
Management is typically not present in threatening numbers. CEOs
cultivate relationships with labor because they need the support of labor
representatives on the oversight board. The Betriebsrat, or workers’
council, is another matter.
The Chair of the Betriebsrat is often one of the representatives of
labor in the oversight board.
Obama has been repeatedly praised for his soaring rhetoric, and
I simply do not get it. It’s pretty easy to sound grand if you aren’t
dispensing ideas that challenge the status quo. We are supposed to take his
way-too-little-too-late finger shaking at the banksters seriously. By
contrast, consider this section of FDR’s first inaugural
address:
….the rulers of the exchange of mankind’s goods have failed, through
their own stubbornness and their own incompetence, have admitted their
failure, and abdicated. Practices of the unscrupulous money changers stand
indicted in the court of public opinion, rejected by the hearts and minds
of men.
True they have tried, but their efforts have been cast in the pattern
of an outworn tradition. Faced by failure of credit they have proposed
only the lending of more money. Stripped of the lure of profit by which to
induce our people to follow their false leadership, they have resorted to
exhortations, pleading tearfully for restored confidence. They know only
the rules of a generation of self-seekers. They have no vision, and when
there is no vision the people perish.
The money changers have fled from their high seats in the temple of our
civilization. We may now restore that temple to the ancient truths. The
measure of the restoration lies in the extent to which we apply social
values more noble than mere monetary profit.
Happiness lies not in the mere possession of money; it lies in the joy
of achievement, in the thrill of creative effort. The joy and moral
stimulation of work no longer must be forgotten in the mad chase of
evanescent profits. These dark days will be worth all they cost us if they
teach us that our true destiny is not to be ministered unto but to
minister to ourselves and to our fellow men.
Recognition of the falsity of material wealth as the standard of
success goes hand in hand with the abandonment of the false belief that
public office and high political position are to be valued only by the
standards of pride of place and personal profit; and there must be an end
to a conduct in banking and in business which too often has given to a
sacred trust the likeness of callous and selfish wrongdoing.
sherparick1:
Ah the internet! It allows me to discover so many folks who have
obtained the ability to read minds.
Yves and so many here claim that Obama has “betrayed” the platform he
ran on. Again, go back and read that platform. He was the right on to
Clinton and the other Democrats on health care and economic policy, as
Paul Krugman points out. He comes from Hyde Park and is an adjunct law
professor on the same faculty and Law and Economics gurus, Judges Richard
Posner and Frank Easterbrook. Yes, he at time used some populist rhetoric,
but nothing about Obama was populist, in fact anti-populist. He won
because used his anti-Iraq war from the beginning stance as his creed with
the long time anti-war wing of the Democratic party which was
anti-Clinton; he captured the New Democratic/Neoliberal faction of upper
middle and upper class Democrats who, while very pro-choice and socially
liberal, had internalized neo-classical economics (market good/government
bad aka as New Deal bad & archaic/tax cuts and deregulation good) a
faction that had been pioneered as reliable core vote by Gary Hart, Paul
Tsongas, and Phil Bradley in earlier Democratic primary contests, and
added to that the alleigance of Black voters intoxicated at the idea of a
Black nominee, or mirable dictu, a Black American President. And it is and
was a miracle that I for one will always regard as one of the great
achievements in American history, no matter his other failures.
Is Obama still captured by the Rubin clique? Yes, but of course so
would almost any Democrat. Even Paul Krugman was speaking highly of the
achievements of Bill Clinton’s economic team as late as December 2007.
Also, Obama in a sense has took over at a earlier stage than FDR did.
Again, I would recommend reading Schlesinger’s “The Crisis of the Old
Order,” the first volume of his “The Age of Roosevelt” to see how FDR’s
views changed from 1930 through 1933 as the Depression deepened. The FDR
who came to power in March 1933 held very different views than the man had
in March of 1931. Further, the great reforms, such as the SEC and
Glass-Stegall, did not occur until 1934 and 1935.
Finally, you all seem to have an idea of Presidential omnipotence on
domestic policy that does not exist. One needs 218 votes to pass a law in
the House and with the way Senate is currently run, at least for liberal
proposals, 60 votes in the Senate. 41 senators from states representing
just 12% of the population can block legislation. Please tell me gentle
souls how you would get your 218 House votes and 60 Senate votes for all
your reform proposals.
Geithner, Summers, and Bernanke are not so much corrupt as they are
prisoners of the groupthink of the last 30 years. As the young graduate
student who signs himself “Thorstein Veblen” and runs the
FireLarrySummersNow.com, Larry, probably because of family dynamics
(uncles Ken Arrow and Paul Samuelson being the greatest liberal, Keynsian
economists of the post WWII prosperity), essentially shares the same views as Greg Mankiw, as
taught to them both by Martin Feldstein. Feldstein was
Chairman of Reagan’s counsel of economic advisors and Mankiw held the same
position for George Bush (and was followed by Ben Bernanke after he left –
I think we have a theme here). I once had hopes that Summers had
discovered the errors of his way back in 2008, but that hope is now
crushed.
Why did Obama choose them? Well, because he himself is a Harvard man
and a member of the elite, he shares a lot of the groupthink of the
last 30 years. He has not (”yet”) disenthralled himself from the
tired dogmas of the past, particularly the dogmas of “freshwater”
economics. If his Presidency is still going to succeed, he will have to
disenthrall himself. Ultimately, I think he is a smart enough politician
that he will.
Manshu from OneMint has written
this intriguing guest post about an aspect of social psychology called
“groupthink”. Sounds like another term for “herd mentality”. While there are
many applications of this concept, it appears to have some interesting
implications for the world of investing.
What Your Investment Club Should Watch Out For
If you’re in an investment club or are involved in group investing of
some sort, you may want to be aware of this phenomenon called “groupthink”.
Irving Janis coined the term – groupthink, which is a concept referring
to how smart and intelligent people, when formed into groups, sometimes make
horrendous decisions. Here’s how Irving Janis describes this concept:
“I use the term groupthink as a quick and easy way to refer to the mode
of thinking that persons engage in when concurrence seeking becomes so
dominant in a cohesive group that it tends to override the realistic
appraisal of alternative courses of action. Groupthink is a term of the
same order as the words in the newspeak vocabulary George Orwell used in
his dismaying world of 1984. In that context groupthink takes on an
invidious connotation. Exactly such a connotation is intended, since the
term refers to the deterioration in mental efficiency, reality testing and
moral judgments as a result of group pressures.”
While groupthink is a concept that was used to describe closed groups
headed by a leader, I believe there’s some peer pressure involved here; I
see it also applying to people who aren’t necessarily in a closed group, but
who share the same income group, job profile, and so forth.
Don’t Let Groupthink Cramp Your Investment Style
Irving laid out 8 symptoms of groupthink. They seem to
account for the behavior of people during wild market swings and business
cycles, don’t you think?
Image by Design G Productions.
1. Invulnerability
Illusions of invulnerability
create excessive optimism and encourage risk taking. Group members may
believe that nothing can go wrong and may therefore ignore dangers that
stare them in the face. A friend who bought real estate funds at the peak,
only to see their value go down by over 80%, told me that during the
euphoria of the real estate boom, no one ever spoke or thought about things
that could go wrong. Nobody seemed concerned about investment
risk; there was much less concern about having to manage
risk. So, in a situation where no one ever talks about anything
negative, it is easy to get into a cocoon and feel that good times will
continue to roll forever.
2. Rationalization
Collective rationalization and
consensus seeking are hallmarks of groupthink. Again, during the boom,
there were countless occasions when I heard about how things were different
this time: that home values could never decline so dramatically, or that the
dot
com bubble is really an exception to how market
cycles work. Well, we now know that things are no different this
time.
3. Morality
Unquestioned belief in the morality
of the group causes members to ignore the consequences of their
actions. According to Irving, victims of groupthink ignore the moral or
ethical consequences of their decisions. They often don’t talk about the
consequences, or they may actually ignore the consequences, especially when
everyone else around them does the same thing. I watched a show about the subprime
mortgage crisis the other day. It depicted and interviewed lenders who
knowingly participated in subprime lending practices, and who allowed their
offices to conduct behaviors that were clearly detrimental to consumers who
went to them for assistance. These lenders enabled unqualified
homebuyers to purchase homes they could not afford. While some felt
morally conflicted about these policies, they still felt that it was easier
to ignore the problem and to go with their company’s position on the
situation rather than to question what was going on (well, their jobs were
at stake).
4. Stereotypes
Stereotyping those who are opposed
to the group as weak, evil, biased, spiteful, disfigured, impotent, or
stupid. Victims of groupthink hold stereotyped views of the people of
the opposing camp. Certain situations can foster an “Us vs Them” mentality.
Think about those investors who turned more aggressive as the boom
escalated. Day traders, highly leveraged investors or anyone who went on
margin were at one point making tons of money during the market peak.
Everyone else envied their position. Of course, these days we can only be
thankful that we’ve missed those “opportunities” and have somehow avoided
the dicey predicament many of these “gutsy” investors find themselves in
today. But check out some of the stereotyping that goes on among stock
market investors: Are market timers foolish or crazy? Are buy and holders
patsies for staying put even while their retirement funds evaporated?
5. Pressure
Direct pressure to conform is applied
to any “disloyal” member who questions the group. Pressure is one of
those contrarian indicators I use to get a feel for the market. When
everyone — and I mean everyone, including your neighbors, family, friends,
coworkers or random people you meet on the street — are encouraging you to
engage in the same activity (e.g. buy certain investments), it’s an
indication that something will probably go wrong very soon. During
the peak I received a lot of advice on buying stocks and houses — advice
that I felt I didn’t need at the time. I found it very difficult to
explain to people why I wasn’t in a buying mood: I’d say “the market is
peaking, I’m not buying”. And they’d counter: “it can still go higher”. Or
they’d tell me “what, are you nuts?”
6. Self Censorship
There’s a self censorship of
ideas that deviate from the apparent group consensus. A system may
become vulnerable to losing its checks and balances once it begins working a
little too well. Sometimes things are progressing so well that people begin
ignoring the flaws in the set up or process; eventually, people
block any misgivings, questions and concerns they have and decide to “join
in” and become part of the process. They jump on the bandwagon and
think to themselves “if you can’t beat them, join them”.
7. Unanimity
Illusions of unanimity exist among
group members, when silence is viewed as agreement. As market bubbles
grow, there were experts in the private and public sectors who kept silent
about how things were unfolding. Hardly an objection was heard, and those
who dared counter the majority were scoffed at. Does this mean that those
“in the know” who said nothing about the elephant in the room could be
construed as unanimous in supporting the shenanigans occurring in the real
estate and credit industries?
8. Mindguards
Mindguards are self-appointed
members who shield the group from dissenting information. Irving wrote
about committees headed by a leader, but also referred to mindguards as
people who prevented opposing points of view from reaching the leader. Can
you think of real life mindguards who’ve played big roles in orchestrating
certain events in our history?
These symptoms serve as good pointers the next time we find ourselves in
extraordinary market
cycles and situations. When everyone is in a hurry to buy or sell
houses, stocks or gold, there could be ample reason to be skeptical.
Thanks again to Manshu for this insightful article. Please consider
visiting One Mint and subscribing to
One Mint’s RSS feed here.
The crowd mentality is maybe not rational.
Well, let's put
that differently. It's not optimal. It's what it is. You have to cope with
people. Now, if all the people had gone to the Wharton School and become
very sophisticated that doesn't mean the society in which they lived and
operated would be incapable of having a business cycle or bubbles. They're
self generating.
Are animal spirits kind of mass groupthink ?
TO UNDERSTAND HOW economies work and how we can manage them and prosper,
we must pay attention to the thought patterns that animate people’s ideas
and feelings, their animal spirits. We will never really understand
important economic events unless we confront the fact that their causes are
largely mental in nature.
It is unfortunate that most economists and business writers apparently do
not seem to appreciate this and thus often fall back on the most tortured
and artificial interpretations of economic events. They assume that
variations in individual feelings, impressions, and passions do not matter
in the aggregate and that economic events are driven by inscrutable
technical factors or erratic government action. In fact, as we shall
discover in this book, the origins of these events are quite familiar and
are found in our own everyday thinking. We started work on this book in the
spring of 2003. In the intervening years the world economy has moved in
directions that can be understood only in terms of animal spirits. It has
taken a rollercoaster ride. First there was the ascent. And then, about a
year ago, the fall began. But oddly, unlike a trip at a normal amusement
park, it was not until the economy began to fall that the passengers
realized that they had embarked on a wild ride. And, abetted by this
obliviousness, the management of this amusement park paid no heed to setting
limits on how high the passengers should go. Nor did it provide for safety
equipment to limit the speed, or the extent, of the subsequent fall.
What had people been thinking? Why did they not notice until real
events—the collapse of banks, the loss of jobs, mortgage foreclosures— were
already upon us? There is a simple answer. The public, the government, and
most economists had been reassured by an economic theory that said that we
were safe. It was all OK. Nothing dangerous could happen. But that theory
was deficient. It had ignored the importance of ideas in the conduct of the
economy. It had ignored the role of animal spirits. And it had also
ignored the fact that people could be unaware of having boarded a
rollercoaster.
What Have People Been Thinking?
Traditional economics teaches the benefits of free markets. This belief
has taken hold not just in the bastions of capitalism, such as the United
States and Great Britain, but throughout the world, even in countries with
more established socialist traditions, such as China, India, and Russia.
According to traditional economics, free market capitalism will be
essentially perfect and stable. There is little, if any, need for government
interference. On the contrary, the only risk of major depression today, or
in the future, comes from government intervention.
This line of reasoning goes back to Adam Smith. The basis for the idea
that the economy is essentially stable lies in a thought experiment which
asks: What do free, perfect markets imply? The answer: If people rationally
pursue their own economic interests in such markets, they will exhaust all
mutually beneficial opportunities to produce goods and exchange with one
another. Such exhaustion of opportunities for mutually beneficial trade
results in full employment. Workers who are reasonable in their wage
demands—those who will accept a wage that is less than what they add to
production—will be employed. Why? If such a worker were unemployed, a
mutually beneficial trade could be arranged. An employer could hire this
worker at the wage she requires and still have some spare extra output for a
larger profit. Of course some workers will be unemployed. But they will be
unable to find work only because they are engaged in a temporary search for
a job or because they insist on pay that is unreasonably high—greater than
what they add to production. Such unemployment is voluntary.
There is a sense in which this theory about the economy’s stability is
remarkably successful. For example, it explains why most people who seek
work are employed most of the time—even in the troughs of severe
depressions. It may not explain, for example, why 25% of the U.S. labor
force was unemployed in 1933 at the height of the Great Depression, but it
does explain why, even then, 75% of the workers who sought jobs were
employed. They were engaging in the mutually beneficial production and trade
predicted by Adam Smith.
So, even at its worst, this theory deserves high marks—at least by the
criterion of a schoolboy we once overheard at a restaurant. He was
complaining about the C he had received on a spelling test—despite the fact
that 70% of his answers were correct. Furthermore the theory does so well
even in its worst prediction in two hundred years. Most of the time—as now,
when the U.S. unemployment rate is still 6.7% (although rising)—it predicts
remarkably accurately.
Consider yet again the Great Depression. Few people ask why employment
was as high as 75% in 1933. Instead the common question is why
25% of the labor force was unemployed. To our mind macroeconomics
concerns departures from full employment. Failure to be at such full
employment must then result from a departure from the classical model
of Adam Smith.
We do believe, like most of our colleagues, that Adam Smith was basically
right regarding why so many people are employed. We are also willing to
believe, with some qualifications, that he was essentially correct about the
economic advantages of capitalism. But we think that his theory fails to
describe why there is so much variation in the economy. It does not explain
why the economy takes rollercoaster rides. And the takeaway message from
Adam Smith—that there is little, or no, need for government intervention—is
also unwarranted.1
Animal Spirits
The thought experiment of Adam Smith correctly takes into account the
fact that people rationally pursue their economic interests. Of course they
do. But this thought experiment fails to take into account the extent to
which people are also guided by noneconomic motivations. And it fails to
take into account the extent to which they are irrational or misguided. It
ignores the animal spirits.
In contrast, John Maynard Keynes sought to explain departures from full
employment, and he emphasized the importance of animal spirits. He stressed
their fundamental role in businessmen’s calculations. “Our basis of
knowledge for estimating the yield ten years hence of a railway, a copper
mine, a textile factory, the goodwill of a patent medicine, an Atlantic
liner, a building in the City of London amounts to little and sometimes to
nothing,” he wrote. If people are so uncertain, how are decisions
made? They “can only be taken as a result of animal spirits.” They are the result of “a spontaneous urge to action.”
They are not, as rational economic theory would dictate, “the outcome of a
weighted average of quantitative benefits multiplied by quantitative
probabilities.”2
In the original use of the term, in its ancient and medieval Latin form
spiritus animalis, the word animal means “of the mind” or
“animating.” It refers to a basic mental energy and life force.3
But in modern economics animal spirits has acquired a somewhat
different meaning; it is now an economic term, referring to a restless and
inconsistent element in the economy. It refers to our peculiar relationship
with ambiguity or uncertainty. Sometimes we are paralyzed by it. Yet at
other times it refreshes and energizes us, overcoming our fears and
indecisions.
Just as families sometimes cohere and at other times argue, are sometimes
happy and at other times depressed, are sometimes successful and at other
times in disarray, so too do whole economies go through good and bad times.
The social fabric changes. Our level of trust in one another varies. And our
willingness to undertake effort and engage in self-sacrifice is by no means
constant.
The idea that economic crises, like the current financial and housing
crisis, are mainly caused by changing thought patterns goes against standard
economic thinking. But the current crisis bears witness to the role of such
changes in thinking. It was caused precisely by our changing confidence,
temptations, envy, resentment, and illusions—and especially by changing
stories about the nature of the economy. These intangibles were the reason
why people paid small fortunes for houses in cornfields; why others financed
those purchases; why the Dow Jones average peaked above 14,000 and a little
more than a year later fell below 7,500; why the U.S. unemployment rate has
risen by 2.5 percentage points in the past twenty-four months, with the end
of this rise not yet in sight; why Bear Stearns, one of the world’s leading
investment banks, was only (and barely) saved by a Federal Reserve bailout,
and why later in the year Lehman Brothers collapsed outright; why a large
fraction of the world’s banks are underfunded; and why, as we write, some of
them are still tottering on the brink, even after a bailout, and may yet be
the next to go. And we know not what is yet to come.
Macroeconomics with and without Animal Spirits
Of course there is a rich body of macroeconomics that explains why there
are fluctuations in the economy. Indeed that is what the macroeconomics
textbooks are all about. We will give just two examples. In the post–World
War II period, economists felt that they could explain deviations from full
employment by a single type of animal spirit: that workers dislike money
wage cuts, and that employers are therefore reluctant to make them.4
This tradition then morphed into a slightly more sophisticated
explanation for why wages are slow to change. It explains fluctuations in
employment arising from shifts in demand as due to the fact that wages and
prices are not all set simultaneously. This concept in macroeconomics is
known as “staggered contracts.”5 The macro textbooks are full of
many other departures from the simple thought experiment of Adam Smith, in
which there is always a meeting of minds and contracts are negotiated
between rational people motivated purely by economic interests.6
And that leads us to the philosophical difference between this book and
standard economics texts. This book is derived from a different view of how
economics should be described. The economics of the textbooks seeks to
minimize as much as possible departures from pure economic motivation and
from rationality. There is a good reason for doing so—and each of us has
spent a good portion of his life writing in this tradition. The economics of
Adam Smith is well understood. Explanations in terms of small deviations
from Smith’s ideal system are thus clear, because they are posed within a
framework that is already very well understood. But that does not
mean that these small deviations from Smith’s system describe how the
economy really works.
Our book marks a break with this tradition. In our view economic theory
should be derived not from the minimal deviations from the system of Adam
Smith but rather from the deviations that actually do occur and that can be
observed. Insofar as animal spirits exist in the everyday economy, a
description of how the economy really works must consider those animal
spirits. That is the aim of this book.
In producing such a description, we think that we can explain how the
economy works. This is a subject of permanent interest. But, writing as we
are in the winter of 2008–9, this book also describes how we got into the
current mess—and what we need to do to get out of it.
How the Economy Really Works and the Role of Animal Spirits
Part One of this book will describe five different aspects of animal
spirits and how they affect economic decisions—confidence, fairness,
corruption and antisocial behavior, money illusion, and stories:
- The cornerstone of our theory is confidence and the feedback
mechanisms between it and the economy that amplify disturbances.
- The setting of wages and prices depends largely on concerns about
fairness.
- We acknowledge the temptation toward corrupt and antisocial
behavior and their role in the economy.
- Money illusion is another cornerstone of our theory. The public
is confused by inflation or deflation and does not reason through its
effects.
- Finally, our sense of reality, of who we are and what we are doing, is
intertwined with the story of our lives and of the lives of others. The
aggregate of such stories is a national or international story,
which itself plays an important role in the economy.
Part Two of this book describes how these five animal spirits affect
economic decisions, demonstrating how they play a crucial role in answering
eight questions:
- Why do economies fall into depression?
- Why do central bankers have power over the economy, insofar as they
do?
- Why are there people who can’t find a job?
- Why is there a tradeoff between inflation and unemployment in the long
run?
- Why is saving for the future so arbitrary?
- Why are financial prices and corporate investments so volatile?
- Why do real estate markets go through cycles?
- Why does poverty persist for generations among disadvantaged
minorities?
We see that animal spirits provide an easy answer to each of these
questions. We also see that, correspondingly, none of these questions can be
answered if people are viewed as having only economic motivations which they
pursue rationally—that is, if the economy is seen as operating according to
the invisible hand of Adam Smith.
Each of these eight questions is fundamental. They would occur to anyone
with a natural curiosity regarding the economy. In providing natural,
satisfactory answers to all of them, our theory of animal spirits describes
how the economy works.
In answering these questions, in telling how the economy really works, we
accomplish what existing economic theory has not. We provide a theory that
explains fully and naturally how the U.S. economy, and indeed the world
economy, has fallen into the current crisis. And— of perhaps even greater
interest—such a theory then allows us to understand what needs to be done to
extricate ourselves from the crisis. (We present our analysis and
recommendations in the postscript to Chapter 7, the chapter dealing with the
powers of the Federal Reserve.)
Groupthink ad a curse of the presidency... "George W. Bush lived in a bubble,
partly of his own making, that walled off creative dissent or even, in some
cases, common sense."
Smart decisions don't grow in a vacuum. The most successful presidents
recognize the fact and encourage debate—and even rivalry—between their
advisers. They do their best to consider the options fully. All the same,
it's harder than many people might imagine for our national leaders to keep
the field of opinions from turning into a monoculture.
It's the curse of the modern presidency. Our chief executives need to
make an active, aggressive effort to reach beyond their immediate circle of
advisers, to demand fresh thinking and avoid the sycophancy that comes with
the Oval
Office. Otherwise, they'll only hear what they want to hear—or what
their aides tell them. To judge from "War of Necessity, War of Choice,"
Richard N. Haass's new book on presidential decision-making with regard to
Iraq, George W. Bush lived in a
bubble, partly of his own making, that walled off creative dissent or even,
in some cases, common sense.
Mindful of his predecessor, Barack
Obama seems to be trying harder to make sure he hears all sides. On the
night of April 27, for instance, the president invited to the White House
some of his administration's sharpest critics on the economy, including New
York Times columnist Paul Krugman and Columbia University economist Joseph
Stiglitz. Over a roast-beef dinner, Obama listened and questioned while
Krugman and Stiglitz, both Nobel Prize winners, pushed for more aggressive
government intervention in the banking system.
That sort of
outreach is admirable—but it would be a mistake to make too much of it. A
couple of hours of conversation is no substitute for methodical inquiry and
debate. At present, Obama's economic advice is closely
controlled by his chief economic adviser, Larry Summers, who acts as a kind
of gatekeeper, determining what Obama sees and hears—and what he does not.
Paul Volcker, the wise old hand who ran the Federal Reserve in the 1980s and
whipped inflation, chairs an advisory panel that does not appear to do much
advising. "Our ruling intelligentsia in economics runs the spectrum from A
to A-minus," says a member of the Congressional Oversight Panel on the
banking bailout, who requested anonymity when speaking about the
administration. "These guys all talk to each other, and they all say the
same thing."
The most successful presidents encourage debate
and even rivalry between their advisers. FDR played his aides
against each other. This produced some chaotic results in dealing with the
Depression but worked reasonably well during World War II. Some presidents
only pretend to encourage dissent. During Vietnam, LBJ used State Department
adviser George Ball as his in-house dove—more to placate critics than to
listen to his advice.
... all paper flows to him through an elaborate
staffing process. He, like all presidents, is the captive of a system that
has been designed for efficiency but is inevitably isolating. It will take more than a few dinner parties to avoid the
fate of presidents who lost touch with reality.
EDY
COLBERT 1,446,000
CNNHN GRACE 1,336,000
CNN KING 1,292,000
MSNBC
MADDOW 1,149,000
CNN COOPER 1,021,000
Leadership is first and foremost is the ability to identify and neutralize
or confront misguided groupthink...
Webb's commitment to this unpopular project demonstrates how false that
excuse-making is -- just as it was proven false by Russ Feingold's
singular, lonely, October, 2001 vote against the Patriot Act and Feingold's
subsequent, early opposition to the then-popular Bush's assault on civil
liberties, despite his representing the purple state of Wisconsin.
Political leaders have the ability to change public opinion
by engaging in leadership and persuasive advocacy. Any cowardly politician can take only those positions
that reside safely within the majoritiarian consensus. Actual leaders,
by definition, confront majoritarian views when they are misguided and seek
to change them, and politicians have far more ability to affect and change
public opinion than they want the public to believe they have.
The political class wants people to see them as helpless captives to
immutable political realities so that they have a permanent, all-purpose
excuse for whatever they do, so that they are always able to justify their
position by appealing to so-called "political realities." But that
excuse is grounded in a fundamentally false view of what political leaders
are actually capable of doing in terms of shifting public opinion, as NYU
Journalism Professor Jay
Rosen explained when I interviewed him about his theories of how
political consensus is maintained and manipulated:
GG: One of the points you make is that it's not
just journalists who define what these spheres [of consensus, legitimate
debate and deviance] encompass. You argue that politicians,
political actors can change what's included in these spheres based on the
positions that they take. And in some sense, you could even say
that that's kind of what leadership is -- not just articulating what
already is within the realm of consensus, which anyone can do, but taking
ideas that are marginalized or within the sphere of deviance and bringing
them into the sphere of legitimacy. How does that process work? How
do political actors change those spheres?
JR: Well, that's exactly what leadership
is. And I think it's crippling sometimes to our own sense of
efficacy in politics and media, if we assume that the media has all of the
power to frame the debate and decide what consensus is, and consign things
to deviant status. That's not really true. That's true under conditions of
political immobilization, leadership default, a rage for normalcy, but in
ordinary political life, leaders, by talking about things, make
them legitimate. Parties, by pushing for things, make them part of the
sphere of debate. Important and visible people can question consensus, and
all of a sudden expand it. These spheres are malleable; if
the conversation of democracy is alive and if you make your
leaders talk about things, it becomes valid to talk about
them.
And I really do think there's a self-victimization that sometimes goes
on, but to go back to the beginning of your question, there's something
else going on, which is the ability to infect us with notions of what's
realistic is one of the most potent powers press and political elites
have. Whenever we make that kind of decision -- "well it's
pragmatic, let's be realistic" -- what we're really doing is we're
speculating about other Americans, our fellow citizens, and what they're
likely to accept or what works on them or what stimuli they respond to.
And that way of seeing other Americans, fellow citizens, is in fact
something the media has taught us; that is one of the deepest lessons
we've learned from the media even if we are skeptics of the
MSM.
And one of the things I see on the left that really bothers me is the
ease with which people skeptical of the media will talk about what the
masses believe and how the masses will be led and moved in this way that
shows me that the mass media tutors them on how to see their
fellow citizens. And here the Internet again has at least some
potential, because we don't have to guess what those other Americans
think. We can encounter them ourselves, and thereby reshape our sense of
what they think. I think every time people make that judgment
about what's realistic, what they're really doing is they're imagining
what the rest of the country would accept, and how other people think, and
they get those ideas from the media.
We've been trained how we talk about our political leaders primarily by a
media that worships political cynicism and can only understand the world
through political game-playing. Thus, so many Americans have been
taught to believe not only that politicians shouldn't have the obligation of
leadership imposed on them -- i.e., to persuade the public of what is
right -- but that it's actually smart and wise of them to
avoid positions they believe in when doing so is politically risky.
People love now to assume the role of super-sophisticated political
consultant rather than a citizen demanding actions from their
representatives. Due to the prism of gamesmanship through which
political pundits understand and discuss politics, many citizens have
learned to talk about their political leaders as though they're political
strategists advising their clients as to the politically shrewd steps that
should be taken ("this law is awful and unjust and he was being craven by
voting for it, but he was absolutely right to vote for it because the public
wouldn't understand if he opposed it"), rather than as citizens demanding
that their public servants do the right thing ("this law is awful and unjust
and, for that reason alone, he should oppose it and show
leadership by making the case to the public as to why it's awful and
unjust").
It may be unrealistic to expect most politicians in most circumstances to
do what Jim Webb is doing here (or what Russ Feingold did during Bush's
first term). My guess is that Webb, having
succeeded in numerous other endeavors outside of politics, is not desperate
to cling to his political office, and he has thus calculated that he'd
rather have six years in the Senate doing things he thinks are meaningful
than stay there forever on the condition that he cowardly renounce any
actual beliefs. It's probably true that most career politicians,
possessed of few other talents or interests, are highly unlikely to think
that way.
But the fact that cowardly actions from political leaders are inevitable
is no reason to excuse or, worse, justify and even advocate that
cowardice. In fact, the more citizens are willing to excuse and even
urge political cowardice in the name of "realism" or "pragmatism" ("he was
smart to take this bad, unjust position because Americans are too stupid or
primitive for him to do otherwise and he needs to be re-elected"), the more
common that behavior will be. Politicians and their various advisers,
consultants and enablers will make all the excuses they can for why
politicians do what they do and insist that public opinion constrains them
to do otherwise. That excuse-making is their role, not the role of
citizens. What ought to be demanded of political officials by citizens
is precisely the type of leadership Webb is exhibiting here.
Economic groupthink is the most dangerous groupthink. "In sum, Tim
Geithner is a gigantic fool, the IMF the gun that can't shoot straight, Alan
Greenspan a bungler. The big US banks were run by the greedy and the hopeless,
the Australian banks by counterhopping clerks. It's a world of many villains.
And only one hero."
When Barack Obama announced his champion to rescue the world from
economic ruin, it was the first time most Americans had ever heard the name
Tim Geithner.
The initial impression was good. The stockmarket surged and the pundits
swooned. "Exactly a decade ago, he was Uncle Sam's golden-boy emissary sent
into the stormy centre of what was then the world's worst financial crisis
[the Asian crisis]," reported The New York Post.
The paper gushed: "Just 36 at the time, he'd been raised in Asia and knew
the culture so intimately he scored successes and won confidences that other
diplomats couldn't match. Geithner earned widespread plaudits for pulling
together quarrelling Asian finance ministers into a $US200 billion rescue of
their economies."
"A fantastic choice," said a Bank of Tokyo-Mitsubishi analyst, Chris
Rupkey, as the Dow rose by nearly 6 per cent. Even one of Obama's political
rivals, the hard-bitten Republican senator Richard Shelby, agreed Geithner
was "up to the challenge".
If anyone in the US media had thought to ask a former Australian prime
minister for his assessment, they would have heard a different view. And
they would not have been so surprised at Geithner's performance since.
In a speech to a closed gathering at the Lowy Institute in Sydney on
Thursday, Paul Keating gave a starkly different account of Geithner's record
in handling the Asian crisis: "Tim Geithner was the Treasury line officer
who wrote the IMF [International Monetary Fund] program for Indonesia in
1997-98, which was to apply current account solutions to a capital account
crisis."
In other words, Geithner fundamentally misdiagnosed the problem. And his
misdiagnosis led to a dreadfully wrong prescription.
Geithner thought Asia's problem was the same as the ones that had
shattered Latin America in the 1980s and Mexico in 1994, a classic current
account crisis. In this kind of crisis, the central cause is that the
government has run impossibly big debts.
The solution? The IMF, the Washington-based emergency lender of last
resort, will make loans to keep the country solvent, but on condition the
government hacks back its spending. The cure addresses the ailment.
But the Asian crisis was completely different. The Asian governments that
went to the IMF for emergency loans - Thailand, South Korea and Indonesia -
all had sound public finances.
The problem was not government debt. It was great tsunamis of hot money
in the private capital markets. When the wave rushed out, it left a credit
drought behind.
But Geithner, through his influence on the IMF, imposed the same cure the
IMF had imposed on Latin America and Mexico. It was the wrong cure. Indeed,
it only aggravated the problem.
Keating continued: "Soeharto's government delivered 21 years of 7 per
cent compound growth. It takes a gigantic fool to mess that up. But the IMF
messed it up. The end result was the biggest fall in GDP in the 20th
century. That dubious distinction went to Indonesia. And, of course,
Soeharto lost power."
Exactly who was the "gigantic fool"? It was, obviously, the man who wrote
the program, Geithner, although Keating is prepared to put the then managing
director of the IMF, the Frenchman Michel Camdessus, in the same
category.
Worse, Keating argued, Geithner's misjudgment had done terminal damage to
the credibility of the IMF, with seismic geoeconomic consequences: "The IMF
is the gun that can't shoot straight. They've been making a mess of things
for the last 20-odd years, and the greatest mess they made was in east Asia
in 1997-98, so much so that no east Asian state will put its head in the IMF
noose."
China, in particular, drew hard conclusions from the IMF's mishandling of
the Asian crisis. It decided that it would never allow itself to be
dependent on the IMF, or the US, or the West generally, for its
international solvency. Instead, it would build the biggest war chest the
world had ever seen.
Keating continued: "This has all been noted inside the State Council of
China and by the Politburo. And it's one of the reasons, perhaps the
principal reason, why convertibility of the renminbi remains off the agenda
for China, and it's why through a series of exchange-rate interventions each
day that they've built these massive reserves.
"These reserves are so large at $US2 trillion as to equal $US2000 for
every Chinese person, and when your consider that the average income of
Chinese people is $US4000 to $US5000, it's 50 per cent of their annual
income. It's a huge thing for a developing country to not spend its wealth
on its own development."
Is this some flight of Keatingesque fancy? The former deputy governor of
the Reserve Bank of Australia, Stephen Grenville, doesn't think so: "After
the Asian crisis, the countries of east Asia decided that they would never
go to the IMF again. The IMF is taboo in east Asia. Look at the evidence.
The revealed preference of the region is that no one has gone to the IMF
since, even when they needed the money."
And Asian capitals know that they have no real influence over the IMF -
while European governments enjoy 40 per cent of the voting power on the IMF,
Japan, China and the rest of east Asia put together have only about 16 per
cent. This is an artefact of the immediate postwar power structure, when the
IMF was set up.
Keating urges that the fund should be decapitated, with control passing
to the governments of the Group of 20 countries whose leaders are to meet in
London on April 2. The summit, which is to include China, India and
Indonesia as well as Australia, is meeting to consider solutions to the
global crisis.
As for The New York Post's claim that Geithner was the hero who
cajoled those quarrelsome Asians into agreeing to a $US200 billion rescue,
the key fact burned into the minds of Asian elites is that the US was deaf
to requests for funds. Washington did not contribute a cent of its own money
to any of the emergency packages. Japan and Australia were the only nations
that made loans to all three of the stricken Asian countries.
Keating went on to argue that, by frightening
the Chinese into building their vast $US2 trillion foreign reserves,
Geithner was responsible for the build-up of tremendous imbalance in the
world financial system. This imbalance, in turn, according to Keating,
contributed to the global financial crisis which has since devastated the
world economy.
China invested most of its reserves in US debt markets. Keating again:
"So we have this massive recycling of funds into the system by [the former
US Federal Reserve chairman Alan] Greenspan's monetary policy so even if you
are greedy Dick Fuld [the former head of the collapsed investment bank
Lehman Brothers] or you are hopeless Charles Prince at Citibank, you're
being told there's an endless supply of money at a low interest rate and no
inflation. So of course the system geared up to spend it.
"That is the fundamental cause of the problem - the imbalance is the
fundamental cause."
If Keating's opinion of Geithner had circulated in the US, the Americans
would not have been so surprised and disappointed with their new Treasury
Secretary. They quickly learned that he had failed to pay $43,000 in taxes
owing.
Then, when he announced his much-anticipated plan to rescue the US
banking system, share prices slumped by 4 per cent immediately and a new
round of weakness in the financial sector began. The pundits turned savagely
against him: "So much for the saviour-based economy," wrote Maureen Dowd of
The New York Times. Senator Shelby changed his mind: "Aggravating
economic problems by contributing to marketplace uncertainty about what
steps the Government will take - is that what this is?" he fumed.
US bank stocks weakened so much that nationalisation seems to be the only
remaining option to put them quickly out of their misery.
Australia's banks, by contrast, are strong, said Keating, because of his
decision as Treasurer to create the "Four Pillars" policy. This requires
that the four big banks remain separate, barred from taking each other over.
This prevented them "cannibalising each other", in Keating's words. As
protected species, they had no need to mount risky takeovers to bulk
themselves up defensively.
Their strength certainly wasn't due to the brilliance of their managers,
whom Keating described as "counterhopping clerks" who had managed to work
their way up the bank hierarchies. A further source of the soundness of the
Australian banks, he said, was that they had learned well the lessons of
risky speculative lending as a result of "the recession we truly did have to
have".
In sum, Tim Geithner is a gigantic fool, the IMF the gun that can't shoot
straight, Alan Greenspan a bungler. The big US banks were run by the greedy
and the hopeless, the Australian banks by counterhopping clerks. It's a
world of many villains. And only one hero.
Interesting interrelation of groupthink and idealization, kind of group
idealization...
Putting The Culture On The Couch: ‘The Savior Projection’ Onto
Politicians Running For High Office
We all do it when we are first in love: idealize ‘the
other,’ seeing them as both ‘the I and the Thou’… not keeping much of a
personal self, but somehow merging with an over-idealized vision of beauty
and perfection we project onto this other soul…
That flush of enormous feeling, in actually, upon investigation, appears
to be an unrealistic image, as though from a slide projector…an image
projected over the loved one, an image that contains all of one’s hopes and
dreams, and yes, one’s own unrealized gifts… all this projected you might
say, onto the wall, hoping someone will walk by who fits its outlines
exactly….
Thus, the loved one not only shines with their own gifts, but takes on
double, triple, quadruple sheen…. for they are carrying an odd optical
illusion that comes from a projection of magnitude…
all this can be caused by us unconsciously dreaming ‘Wondrous Perfection’
aloud, and draping it over another person… and then,
expecting them to live up to the unlivable (for humans) divine
projection.
Many a politician, by virtue of righteously appealing to our
dearest just dreams during a campaign for election, rouses the sleeping
dreamer, the somnambulistic idealist in many of us. This is good in one way,
bringing people back to life. But also, by so doing, such a politician also
has to be prepared to suddenly find him or herself engulfed by the huge
archetypes of Supreme Helper, Savior, or Hope of the World.
The man becomes Mountain, thereby. The woman becomes Wonder, thereby… Or
else, Demon personified, because a wholly negative projection works
similarly … negative projection can be filled with the bent iron nails and
broken glass of our own foibles and errors that we resist admitting…. to
ourselves about ourselves… and so instead, we aim them outwardly, finding in
others grave omissions, grievous commissions, and so on.
But, most often, at first, before overly-negative projections occur, come
overly-positive ones. The politicians (and sometimes those who are their
side-men and side-women) reach beyond simple persona into the heart of
dreams people have been carrying for a long time.
This is one way politicians, thereby, inadvertently, create many portals
for projection of the Divine onto themselves. It is usually not solicited,
but is a side effect of rousing people’s hopes and ambitions. Yet the
politician is a mere mortal. No mortal can fulfill the projection of
Divinity without in some way being reduced to scrap by the trying.
To remain innately kind and steady in the midst of such flurries of
projected mirror shine, can be tough… the ego can become unbalanced by being
overly thrilled by the adulation, but the soul is not…. the soul insists on
holding its own shape, holding steady to one’s own greater mind, despite all
the shimmy-shiny that is waved before it.
In the creative life which shares at least two walls with spirit, there
are challenges to hold to the soul and not sell out to ego alone or/and to
what everyone else wants us to be … for them.
It’s a feat to remain compassionate and visionary when one cannot give
everything that every person desires, cannot fix everything in the world
that is in dire need, but one hopes to, dreams it, wants it, is dedicated
lifelong to mending the world.
It’s a feat to remain visionary when everyday somewhere in the world, no
matter what the best persons do to mediate, grave losses continue to pile
up, even as gains are made elsewhere. It’s a feat to hold to one’s own
mortal shape and do the ordinary most often and the extraordinary as often
as possible, to be fair and honest about oneself, one’s view of the world…
while under continual duress to transform all things.
Projection of the Savior, or Great Hope of the World, is powerful. We
have seen its deleterious effects in both the great leaders and also the
great dictators of the world. We can see how, in the inexperienced and
naive, that all can throw a politician off their heart game… and instead,
dump them into a flashy, showy inflation that is about ego alone, about
‘looking and sounding good in order to win only,’ in order to shock . shake.
transmute the world in a way that will make ‘the world’ take notice.
But then, one’s life is no longer about following the difficult
directives of spirit and soul… and the politician often falters then, more
scornful, even rageful, irritable then, and thus more prone to not watching
over the process, the acolytes, the employees, the adulants, and more prone
to errors of judgment and speech.
A politician resisting profound public projection and the undertows that
go with it, knows when he or she is speaking according to the vision he or
she dedicatedly carries, versus allowing themselves to lose their shape and
try to fit the empty but golden carapace some overly-adorational groups have
fashioned for them to inhabit… again, via a stunning projection the
politician can never live up to.
The odd thing is, projection of the Divine is often incremental, and the
politicians who receive this glossy projection are often not aware they are
trying on its gilded clothing more and more as time goes on. That is until,
as it was said in ancient Greece, ‘Whom the Gods once loved, they now seek
to destroy.’
Hero-making projections in our presidential elections are bound to unwind
and fall into an entropy, as all ‘too shiny’ projections must.
Remember, when we are first in love and think the other has no
weaknesses, no icky habits, no part of themselves that is not just love
personified? But, as time goes on, we see the person full and whole… and
imperfect. Maybe we are disappointed and move on, ever wanting to project
‘perfect person-hood’ onto someone, anyone… but most often that perfect
someone will never be found… for it’s an archetype one is enamored with, not
a flesh and blood real human being who scratches and sneezes and sings
sweetly sometimes.
But, maybe instead, we say, the true gold is so valuable in this person
we care for, that even though there is an appreciable amount of
untransformed lead in them–and us– too, that we will still care deeply, and
we will remain close, joining our quests in life to theirs.
That’s when, as they say in our culture, ‘the honeymoon is over.’ But,
what is left once the projection is shattered, is what is truly real. The
real gold, as well as the real ‘not-yet-golden.’ The real deal.
Then, one might say, a durable love begins, a finely tuned love of not
only of delight, but also of intense devotion. Based on what is real, rather
than on what has suddenly jumped up out of thin air via a fantasmagoric
projection.
The more shiny a projection was to begin with, the more unrealistically
divine, the more it will begin to eventually lose its luster. And we are
now, I believe, seeing the webbed feet rather than the shiny-shine of
various candidates as time goes on in this election cycle.
The idea is not to scorn what/ who one once was madly in projective love
with, but rather to face the touching reality about all of us: There is no
perfect swan. There is no soul on earth who is not human at every level.
Each has bodily functions to take care of every day. Each has urges and
drives and instincts and oddities, weirdnesses and wildness.
Perhaps the real wonder, given all those ticks and tocks we all carry, is
that we all do as well as we do on earth. That’s the real miracle, I
think.
Yet, in this home stretch of the elections, we are in the denouement at
the moment, I think, given all the ankle-biting and slam-booking going on on
all sides by some…. the projections are being dismantled left and right….but
whatever is left after all politicians running for office are finally at
rest, in private, with those they trust, those who are conscious of these
matters, will throw the too tall golden crowns in the corner, only taking
them out for ceremonial occasions, perhaps…
for there is hardly anything more destructive that will or can ruin a
potentially great leader than nurturing a hubris within oneself, one that
rises higher and higher to match the more and more unrealistic projections
he or she is receiving.
To allow hubris to rise to meet projection, is doom.
But also, to continue to project Hope of the World and Savior over every
potential leader, is also doom. A leader cannot fit themselves to Divine
projection without destroying others…. as well as, ultimately, themselves.
All suffer then. All.
In any case, whatever was golden in a politician to begin with, will not
tarnish as time goes on. That remains treasure. The question however, will
ever be, how inhibitory or obstructive will what is still dead gray lead in
the politician’s insight, mapping abilities, endurance, and strategic
chess-like thinking, continue to be an issue, when/if he or she wins control
and leadership of this beautiful America and her people?
photo by Manu
Was not Reaganomics/"Bush ownership society" the greatest experiment in
groupthink ever ?
February 19th, 2009 | The Big Picture
There is a surprisingly interesting article at Money Magazine on why so
many so-called experts utterly missed the market crash, credit crisis, and
housing collapse.
Its an interview with Philip Tetlock who is (with no small amount of
irony), an expert on experts. He is a professor of organizational behavior
at the University of California-Berkeley’s Haas Business School, and has
been studying experts for 25 years.
“But you shouldn’t simply write all gurus off. Tetlock’s research found
that one kind of expert turns out consistently more accurate forecasts
than others. Understanding what makes them better can help you make more
reliable predictions in your own life. Tetlock explained it all to Money’s
former managing editor, Eric Schurenberg, in a recent interview. . . .
What makes some forecasters better than others?
The most important factor was not how much education or experience the
experts had but how they thought. You know the famous line that
[philosopher] Isaiah Berlin borrowed from a Greek poet, “The fox knows
many things, but the hedgehog knows one big thing”? The better forecasters were like Berlin’s foxes:
self-critical, eclectic thinkers who were willing to update their beliefs
when faced with contrary evidence, were doubtful of grand schemes and were
rather modest about their predictive ability. The less
successful forecasters were like hedgehogs: They tended to have one big,
beautiful idea that they loved to stretch, sometimes to the breaking
point. They tended to be articulate and very persuasive as to why their
idea explained everything. The media often love hedgehogs.
How do you know whether a talking head is a fox or a
hedgehog?
Count how often they press the brakes on trains of thought. Foxes often
qualify their arguments with “however” and “perhaps,” while hedgehogs
build up momentum with “moreover” and “all the more so.” Foxes are not as
entertaining as hedgehogs. But enduring a little tedium is worth it if you
want realistic odds on possible futures.
Fascinating stuff.
My own thesis as to their problematic prognostications places a healthy
amount of blame on the conspiracy of optimism.
And on a related note, Dean Baker and I are interviewed in Editor &
Publisher magazine on what Journalists can do when interviewing these
experts: What to ask, how to dig beneath the data, how to not get rolled by
the spinmeisters:
Wish list for reporters covering this and future financial crises
Be more skeptical of sources. “You have to play
lawyer, ask what is this person’s motivation for saying what they’re
saying.” The best reporting on the automobile industry’s true financial
predicament was at an upstart Detroit Web site that supplies unvarnished
automotive reviews and editorials about the industry, The Truth About
Cars. “They understood the business and its challenges; they were railing
for several years against the unsustainable nature of the capital
structure of the Big 3,” he says.
Question data, constantly. Last March, for example,
The Wall Street Journal ran a story saying the vast inventory of
foreclosed homes was starting to bring people back into the housing
market, and cited figures from the National Association of Realtors
showing a jump in sales in February of 2.9% from the month before. But he
points out that in every year home sales are lowest in January, so changes
from January to February are measuring seasonal differences, not actual
improvements in house sales. The tendency to overemphasize the most recent
data point in a monthly series is called the “recency” effect. “It is a
foolish way to ignore the trend and give greater emphasis to today,” he
notes.
Give good context. The struggle to control the
narrative of how the housing crisis and ensuing financial meltdown
occurred is in full swing, exemplified by Karl Rove’s op-ed in the Wall
Street Journal in January that fingered Fannie Mae and Freddie Mac as
among “the principal culprits of the housing crisis.” But he and others
point out that the two government-sponsored enterprises, though they
became too large and overleveraged, had nothing to do with the explosion
of high-risk lending that took place between 2002 and 2007.
Both articles are thought provoking and worth exploring . . .
Sources:
Why the experts missed the crash
Eric
Schurenberg
Money Magazine, February 18, 2009: 4:10 PM
ET
http://money.cnn.com/2009/02/17/pf/experts_Tetlock.moneymag/index.htm
Expert Tips on Covering the Financial Crisis
Barbara
Bedway
Editor & Publisher, February 18, 2009 12:01 AM ET
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003942139
Comments
- Transor Z Says:
How to spot a fox:
1. They probably aren’t on TV, and if they are
2. The glib a-hole talking head interviewer is impatient and dismissive
because the fox is taking too long/not following the standard TV interview
formulas/not charismatic/too thoughtful and nuanced for the glib a-hole to
understand. IMO most TV personalities are
“hedgehogs” that attack foxes. “The medium is the
message.”
There’s actually a term for this phenomenon: Sociology of Knowledge.
See http://en.wikipedia.org/wiki/Sociology_of_knowledge
It’s a study of how society prioritizes which “experts” to listen to
and arrives at consensus reality.
- ottovbvs Says:
Most “experts” missed the signs because they
had a vested interest in missing them. Now of course all
the “experts” including the ones here are swinging too far in the other
direction.
Yes we’ve got a rough year, profits will be in the tank, a big bank or
two could get nationalized, unemployment will go to around 9%, negative
growth probably for this and the next two or three quarters, but reports
of the death of the US economy are being somewhat overstated.
Basically we’re faced with a couple of year when the US economy is
going to be operating below optimum (not overheated) capacity. I accepted
that long ago and adjusted accordingly.
All this running around forecasting jumps in protectionism, massive
deflation, massive inflation (I’ve heard both predictions here) etc etc is
somewhat overwrought.
This is the attitude of people like Doug Kass and Uncle Warren and it’s
mine.
- danm Says:
The less successful forecasters were like hedgehogs: They tended to
have one big, beautiful idea that they loved to stretch, sometimes to the
breaking point. They tended to be articulate and very persuasive as to why
their idea explained everything. The media often love
hedgehogs.
—–
It’s much easier to be articulate when explaining a
single big idea than when trying to explain the effects of multiple
non-linear ideas.
I’ve often been told that to convince the masses you’ve got to stick to
MAX three ideas. With the multitude of signs popping up to warn us but the
expert rehashing the same 2 or 3 positive ones, it’s no wonder most did
not see this coming!
Dori said it best: “Just keep swimming, just keep swimming, just keep
swimming…”
Groupthink correlated with arrogance ?! Humility might have a value for
fighting groupthink...
And the risk of lack of knowledge is real. Summers is
close-minded. That trait was part of his undoing as Harvard president. From
the Financial Times, "Out
of His League":
“He himself is not widely educated,” said Judith Ryan, a
professor of German literature. I met Ryan, a 63-year-old Australian who
speaks with a mid-Atlantic drawl, in her office near Harvard Square. On
her walls were pictures of Rilke and Kafka, watching as Ryan ate a late,
rushed lunch of yoghurt and Starbucks coffee. She attended the faculty
meeting in University Hall on February 7 and was one of the academics who
stepped up to the microphone to criticise Summers.
“He is a
brilliant economist but not really very curious about how other
disciplines function and what is at stake today in those disciplines,” she
said. Ryan regularly sat in on tenure meetings with Summers. “He really
tends to translate things into economic models and he would start to talk
about his impressions of the field. Our visitors were astonished. He would
ask the meaning of words that I thought were part of most people’s
vocabulary.” “Syntax” was one example, she said....
Ryan also
expressed misgivings shared by some of the other professors I spoke to
about the pro-science direction Summers was taking the university. “He had
a very present-day notion of the aims of education,” she said with a
shrug. “He didn’t see the point of studying ancient Greece.”
I
have long believed that one of the most valuable traits for people in
general, and leaders in particular, is to understand the limits of their
knowledge, and to seek out sources and individuals who can help fill those
gaps. Summers (and perhaps Geithner, if the Summers imprinting has taken) is
of the reverse inclination: he thinks that what he knows has universal
relevance. Scary.
Comments
Yves,
Your simple phrase:
"I have long
believed that one of the most valuable traits for people in general, and
leaders in particular, is to understand the limits of their
knowledge"
strikingly points to what is wrong in the world today.
Good leaders can always tell when they are dealing with someone who exceeds
their own knowledge on a particular subject, and this is indeed a very
valuable trait. The problem with Western society today is that people are
generally promoted exactly to their level of incompetence, which Geithner
for some reason overshot by several levels.
The problem with this commonality is that we
now see many people in positions of power throughout the corporate and
political world that fail to see their own limitations and thus make
decisions based on some combination of ignorance, arrogance, or a need to
satisfy others.
Humility throughout the course of human civilization
has been considered one of the greatest virtues, yet sadly modern day Wall
St. and Washington have construed this noble characteristic as a weakness.
UNIVERSITY OF AMSTERDAM
This essay explores the theoretical implications of Freud's
notion of `the narcissism of minor differences' - the idea that
it is precisely the minor differences between people who are
otherwise alike that form the basis of feelings of strangeness
and hostility between them. A comparative survey shows that
minor differences underlie a wide range of conflicts: from
relatively benign forms of campanilismo to bloody civil
wars. Freud's tentative statements link up with the insights of
Simmel, Durkheim, Lévi-Strauss, Dumont, Elias, and Girard.
Especially helpful is what Bourdieu writes in
Distinction: social identity lies in difference, and
difference is asserted against what is closest, which represents
the greatest threat. An outline of a general theory of power
and violence should include consideration of the narcissism
of minor differences, also because its counterpart - hierarchy
and great differences - makes for relative stability and peace.
Whatever false god you decide to worship, no less money, it will
ultimately destroy you. We worship the god of money at the altar of the
federal reserve discount window :-).
Yes, another Fed slot is soon to be filled, with another Goldman
Sachs alum.
I never bought into the conspiracy that Goldman
is taking over the financial world, but the lack of diversity of thought and
the risk of groupthink is increasingly becoming a concern
. . .
The
American Prospect
Matt Yglesias notes that left-of-center commentary has been notably more
pessimistic on the state of the economy than right-of-center commentary. He
offers three hypotheses (left-wing positions are psychologically correlated
to pessimism, pessimism was correct, lefties wanted Bush to fail), all of
which played a part. If you're interested in this subject, though, I'd
recommend reading Larry Bartels' paper "It Feels Like We're
Thinking: The Rationalizing Voter and Electoral Democracy."
In it, Bartels and coauthor Christopher Achens examine simple factual
questions for evidence of partisan interpretation bias. Their first example
comes from the 1996 National Election Survey, which asked whether the budget
deficit had increased or decreased during Clinton's first term. The correct
answer what that it had decreased. By 90 percent. But they found that only
one-third of the public recognized that the deficit had decreased at all.
Republicans found the question especially tricky: More than half thought the
deficit had increased.
The next question asked whether the economy had improved or worsened
during Clinton's term. During this period, GDP grew quickly, unemployment
dropped, and wages rose. By any measure, the economy had improved. But only
one-third of Republicans agreed with that statement. And Republicans,
unsurprisingly, were twice as likely as Democrats to say that it had
worsened.
Bartels and Achen go further, however, and break their results out by the
voters' political information level. What they found was startling: The more
an individual voter knew, the more they self-deceived. "Among the least
well-informed respondents, neither objective reality nor partisan bias seems
to have provided much structure to perceptions of the budget deficit," they
dryly note. "Uninformed Republicans and Democrats were slightly, and about
equally, more likely to say that the deficit had increased than that it had
decreased." But travel up the information scale, and the situation dims.
Partisan bias exerts its pull. Objective reality does not.
The thing to notice there isn't even how accurate the perceptions are.
It's how different they are. The economy had improved. Democrats, who had no
trouble aligning the economic improvement with their favored candidate, saw
that easily. Republicans, who felt tension between the candidate they
loathed and the economic news, tended to be much more tepid. Indeed, at the
top of the information scale, Republican perceptions of the economy
nosedive, presumably because they had enough information to construct a
mental model of how the economy was actually doing badly (trade deficit,
China, etc). And this is not a partisan point: If if George W. Bush had been
in office during that period, the lines almost certainly would have
reversed, but the distance between them would not. This is part of what
makes political persuasion so difficult. Partisans don't simply disagree on
the merits of candidates. They disagree on the shape of the underlying
reality. And more information, because we tend to sort our information to
strengthen our biases, aids our personal deceptions rather than correcting
them.
Posted by Ezra Klein on January 7, 2009 12:26 PM | Permalink
COMMENTS
Having read the "Authoritarians" pdf book, and seen some other work along
related lines, I'd guess that this phenomenon is much more heavily a
Republican phenomenon than a Democrat phenomenon, although certainly members
of both parties are subject to it to some extent.
Note both these examples are ones where reality has a liberal bias.
Posted by: john | January 7, 2009 1:11 PM
Failure of the US 9and not only US) economists to see the signs of coming
credit crunch is probably the top example of groupthink in recent history. It
looks like society can lose large part of its self-preservation capability dur
tothis mechanism... This question echoes similar questions about the
run-up to the Iraq war, and the errors of the “foreign policy
establishment”.
January 5th, 2009 | The Big Picture
Why did Economists, as a group, miss the warning signs of housing, credit
and market crisis?
I don’t mean individuals — several professional Economists got it right;
Academics like Nouriel Roubini of NYU and Robert Shiller of Yale, as well as
a few Wall Streeters, such as David Rosenberg of Merrill Lynch and Paul
Kasriel of Northern Trust. Too many bloggers to name also got it right.
Meanwhile, the vast majority of professional economists, strategists and
analysts — the “Herd” — totally missed it.
One explanation comes from Dean Baker, who channels Keynes, and says “incentives in the economics profession, just as in
finance, strongly encourage a lack of original thinking.”
(That’s a variation of Keynes: “Worldly wisdom teaches that it is better
for reputation to fail conventionally than to succeed
unconventionally“). Paul Krugman wondered if it was a fear of going “against
bubble denier Alan Greenspan.”
I find all these explanations wanting — and quite frankly, too generous
by half.
My explanation is there were systemic failures
in economics as a discipline, at least as it is employed in the real world.
Note that these are not theoretical critiques (i.e.,
Keynesians versus Monetarists), but rather, these are
broader inquiries as to why so many working economists were so utterly
clueless about all of the red flags for so long. The inherent biases of
working on Wall Street go along to explain why those economists
were so awful — but I have less of an explanation as to why so many academic
economists were so blind. Perhaps it is the profession itself.
As far as Central Bankers were concerned, they too missed the warning
signs — but there were several notable exceptions to this to, including the Bank of England’s concerns about a credit crunch and a
collapse in asset prices.
Ideas? I have a few. Here are my top 10 indictments as to why
professional economists missed the crises until it was too late:
1. An inherent upward bias is built into ALL Wall Street
research — including economic research;
2. Ideological rigidity prevented creative thinking;
3. Non-critical acceptance of official data from BEA, BLS, Commerce led
to only a passing familiarity with reality;
4. Institutional rejection of negative analyses remains endemic;
5. Traditional (non-behavioral) economic analysis seems to have
difficulty with human irrationality;
6. Political Bias; (Right wing during GOP Presidencies; Left Wing
during DEM Presidencies);
7. Corporate bias — Stock option compensation — skewed views too
optimistic;
8. “Timing” is very different from Analysis;
9. Factoring in excessive leverage and liquidity is exceedingly
difficult from a traditional economic perspective (Derivatives
especially);
10. Herding instinct is powerful;
Economics as a discipline does not seem to be particularly introspective.
In my opinion, the sooner the profession develops some self doubt,
recognizes its own failings and shortcomings, the faster they will be able
to recognize the failing constructs of the profession and fix them. The
Efficient Market Hypothesis, homo economicus, the deification of
markets, all need an open public review and a good thrashing.
There were many professions that did not distinguish themselves in the
lead up to the housing boom and bust, financial bust, the credit crisis, and
the recession. Economics is near the very top of that list.
Previously:
The
Mystery of the Awful Economists
Barry Ritholtz
RealMoney.com,
3/2/2005 3:42 PM
EST
http://www.thestreet.com/p/_rms/rmoney/barryritholtz/10211333.html
(Free
version at Investors
Insight)
Sources:
Bubble blindness
NYT December 23, 2008, 5:16
PM
http://krugman.blogs.nytimes.com/2008/12/23/bubble-blindness/
APPLY ECONOMICS TO ECONOMISTS
Ezra Klein
The
American Prospect, December 23, 2008 11:26
AM
http://www.prospect.org/csnc/blogs/ezraklein_archive?month=12&year=2008&base_name=apply_economics_to_economists
Previously:
Mystery
of the Awful Economists, part II (April 8th,
2005)
http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-2/
Mystery
of the Awful Economists (Part III) (April 13th,
2005)
http://www.ritholtz.com/blog/2005/04/mystery-of-the-awful-economists-part-iii/
More Sources:
‘City faces meltdown if debt crisis hits’
Edmund
Conway, Economics Editor
UK Telegraph, 12 Jul
2006
http://www.telegraph.co.uk/finance/2943149/’City-faces-meltdown-if-debt-crisis-hits’.html
Merrill’s Rosenberg Inspired by Farrell in Foreseeing
Crash
Carlos Torres
Bloomberg, Dec. 30
2008
http://www.bloomberg.com/apps/news?pid=20601109&sid=a8KK_pGpxqL4&
The Doomsayers Who Got It Right
More Bad News in
Store for 2009? Last Year’s Cassandras Are Still Gloomy
JEFF D.
OPDYKE
WSJ, JANUARY 2,
2009
http://online.wsj.com/article/SB123086035502948067.html
PERMALINK
finance.yahoo.com
In his book of the same name, status anxiety is defined by
author Alain de Botton as a worry "that we are in danger of failing to
conform to the ideals of success laid down by our society and that we may as
a result be stripped of dignity and respect."
Status anxiety loomed large in the housing boom for people who did
sensible things. They looked askance at their used Hondas, humble dwellings,
conservative fixed-rate mortgages, and budget hotels at Disneyworld, and,
finding them deficient amid the neighbors' BMWs, McMansions, and forays to
France, tried in vain to suppress a creeping apprehension that they had gotten something
terribly wrong.
(Now they realize the neighbors did it by surfing a tsunami of debt, but
it brings them little comfort, since their jobs and home values are in
jeopardy thanks to the follies of the foolish and greedy.)
Beware of Schemers
In addition, it was status anxiety that propelled smart people to hand
over enormous sums of money to Bernard Madoff without paying adequate
attention to what he was doing with it.
"What strikes one about the investors in the Ponzi scheme is desperation
-- and not necessarily desperation to become rich, but to earn status,
honor, and esteem," Botton wrote me in an email. "If our position on the
ladder is a matter of such concern, it is because how we feel about
ourselves depends to an unfortunate degree on what others think of us.
"Except in societies where status is fixed at birth, our position on the
ladder hangs upon what we achieve -- and success is uncertain," he
continues. "And from failure will flow humiliation: a corroding awareness
that we have failed to convince the world of our value and are henceforth
condemned to consider the successful with bitterness and ourselves with
shame. That's where Madoff came in: he promised an instant and painless
release from these status anxieties."
Wired for Stature
Our appetite for status derives from a physiological drive that played a
useful role in survival, according to evolutionary biologists. The higher
the status, the larger the share of pie an animal got in competitive
situations. Thus it survived better, lived longer, and left more living
offspring, preserving its genes in the population. Our biology evolved to
make us keenly attuned to status.
"Animals higher up in the hierarchy have less stress -- lower cortisol
and adrenaline levels -- and higher levels of hormones associated with
feeling good, like serotonin," says Denise Cummins, an author who studies
the evolution of cognition and teaches psychology at the University of
Illinois in Urbana-Champaign. "This has been shown among humans as well.
You're wired for status -- your whole neurology and endocrine system are
tuned to what your relative status is.
"Even small changes in status -- someone snubs you -- will cause a
response in the endocrine system," she adds. "High-status individuals have
priority of access to resources, and in a market-based economy that means
money. You have a lot of money, you have power."
Bad for Your Health
Thus when one experiences a sudden, Madoffian-sized loss of status, the
upshot is neurological and hormonal fireworks.
"Large, precipitous changes in status can have massive effects," says
Cummins, including cardiovascular stress, immune system dysfunction, and a
shift in the way the body metabolizes sugar and stores fat. "What your body
is saying, ‘My God, I'm never going to reproduce, I'm not going to be alive
and leave living offspring' -- because that's what status means in a truly
Darwinian world."
But that primal sense of alarm lingers in the modern world -- exacerbated
by our belief in meritocracy, suggests Botton.
Meritocracies Have Their Downside
Since the mid-18th century, Western governments have sought "to create a
hierarchy based on actual ability, replacing posh, chinless halfwits with
the meritorious," Botton wrote in an email. "This meritocratic ideal has
brought opportunity to millions. Gifted and intelligent individuals who for
centuries were held down within an immobile, caste-like hierarchy are now
free to express their talents on a more or less level playing field."
Alas, the dark side of meritocracy is that if
we believe individuals are exclusively responsible for their triumphs (and
we hold financial success at the pinnacle of esteem), then individuals are
ineluctably accountable for their failures -- and economic collapse (with
its corresponding plummet in status) is equally deserved.
"Financial failure has become associated with a sense of shame that the
peasant of old, denied all chances in life, had also thankfully been
spared," Botton notes.
The Company You Keep
Is there any hope of defeating status anxiety in a species biologically
primed to chase rank?
Start by changing your reference group, advises Cummins: "It's relative
status that hits you the hardest. If you are the hedge fund manager and your
business went under and all the buddies you meet at cocktail parties are
doing OK, that's going to hit you a lot harder than if go to a cocktail
party and everyone is in the same boat."
Another possibility: Unemployed hedge fund managers and investment
bankers, among others, are turning to evangelical churches for relief. Botton thinks
that's not such a bad idea.
"Christian moralists have long understood that to reassure the anxious it
may be best to emphasize we will die, everyone we love will vanish, and all
our achievements and even our names will be stamped into the ground," he
wrote in an email. "To consider our petty status-worries from the
perspective of a thousand years hence is to be granted a rare,
tranquillizing glimpse of our own insignificance."
The Biggest Monkey Doesn't Always Win
Another escape from status anxiety might be found in taking bold risks
based on your passions, rather than continue to pursue a
job in which you display expertise but no joy.
"The paradox of success is that all those who have done well have tended
to ignore questions of status for many years in order to pursue a passion,"
Botton argues. "In other words, seeking status directly is as futile as
seeking happiness directly. Status should be the byproduct of a job well
done rather than a goal in itself."
Or rather than avoid status anxiety, one might simply pursue new routes
to the top of the hierarchy. One proven strategy: Network like crazy. "In a
lot species, neither size nor aggression correlates with status -- it's more
about social intelligence," Cummins says.
When two primates fight, each side will call for help, and the monkey
with the biggest posse wins, she explains. "The literature shows quite
clearly the individuals who come to help in situations like that are
individuals that you groomed in the past, shared food with in the past, or
engaged in some kind of helping behavior with in the past," Cummins says.
"This forms strong coalitions, then reciprocation happens. If you do that
enough, what happens is you can secure a nice, strong, stable position in
the hierarchy."
Comfort in the Dark
Finally, if someone calls you, wretched with status anxiety, don't try to
cheer them up with rosy bromides.
"One of the most consoling things one can hear anyone say is that
everything is absolutely dreadful," explains Botton. "Something like this
sentence from the Roman philosopher Seneca: ‘What need is there to weep over
parts of life? The whole of it calls for tears.' Or else this from the 19th
century German Arthur Schopenhauer: ‘Today it is bad and daily it will get
worse -- until the worst of all happens.' Or this from the French 18th
century thinker Chamfort: ‘A man must swallow a toad every morning if he's
to be sure of not meeting with anything more disgusting in the day ahead.'
"These thoughts make us feel better because they perform that most
valuable of all services: they tell us we're not alone with our darkest
feelings."
Comments
larster Says:
One of the big contributors that led to this
bull market in incompetence is the concept of “team building”. All major
orgs in the ’80s emphasized team building which resulted in managers
surrounding themselves with an echo chamber.
One need only look to the White House for an example of this. How many
people on Wall St knew we were headed for disaster but did not speak up for
being branded as “not a team player”. On the top mgt side a large bonus
structure put the golden handcuffs on the disidents.
Look at the Army and the Shinseki incident. Does anyone think that he was
the only general to understand the need for more troops to maintain order
after the war? Everyone sat on their hands dreaming of that cushy job w/ a
defense contractor, as we bumbled and stumbled into a mess.
We need to develop some game changers but the “system” does not breed
them.
Can some prejudices and phobia be considered as examples of groupthink ?
One of the most pervasive findings in social science, although it is
seldom codified this way, is how suggestible
people are. Numerous studies in behavioral economics have
found that the same underlying bet elicits very different take-up rates when
framed as a wager versus as insurance. Even worse, humans are susceptible to
obviously exogenous influence.
One oft-repeated test that yields
consistent results is to ask a group in a classroom setting to (among other
things) to write their best estimate of the number of countries in the
world. To show how to fill out the form, the leader spins a wheel of
fortune, and takes the chosen number, (say 550) and uses it to illustrate
how to record the estimate. Invariably, high results on the wheel of
fortune, clearly an arbitrary figure, lead to markedly higher average
estimates on the form.
The question du jour is why does the US have
such a phobia regarding nationalization. Per the lead-in, I suspect it has a
great deal more to do with social conditioning than a case-by-case
assessment of possible gains and losses.
While the initial (correct)
reflex is that undue government interference in a well-functioning private
sector is not a good idea, the industries in question (financial services
and automobiles) have top players that are now abject failures on taxpayer
life support. These companies have been exempted from market discipline (aka
bankruptcy) thanks to state intervention.
The very fact that they
operated with minimal government oversight, drove themselves to the verge of
bankruptcy, and managed to make themselves so essential that they cannot be
permitted to collapse says they cannot be left in their former hands
(incumbent management is either colossal incompetent, amazingly corrupt and
scheming, or both).
But unlike the UK, and Sweden during its early
1990s crisis (widely touted as best practice) which were both ready to
assume control of banks that wrecked themselves, the US continues to
rationalize, nay, promote, the worst of all possible worlds: socialization
of losses, the bozo management teams still largely (often entirely, as in
the case of Citigroup) intact, inadequate to no supervision (where are the
board seats?) and no upside participation, not even much explanation of what
they intend to do with the dough (well, now great theater is being made of
the auto industry, because it is easy to pick on guys from the grubby
Midwest, but the banking crowd, which did far more damage and has gotten
much bigger handouts and no unpleasant questions).
I saw a
simpleminded but compelling explanation for this phenomenon: Europeans
consume more government services than Americans do, and are pretty happy
with it (they think we are barbarians for having private health care and,
among other things, little state support of the arts). Why? They are
reported to be better at it than we are. They deliver government services
efficiently (relatively speaking, and healthcare provides some proof) and
because they do a good job, the citizenry is willing to deploy tax dollars
to these ends.
That is a long-winded way of saying that government
inefficiency and incompetence is not a given, as is often depicted in the
US. The demonization of government service has probably discouraged able
people from seeking public sector jobs. Even so, some areas still get high
marks (the FDIC). And the continued disparagement of government serves as
cover for those who want subsidies and rescues but hope to avoid the demands
that should properly go with them.
This New York Times article deals
with the Obama team's reluctance †o be seen as "nationalizing". I see. So we
would rather pander to the bankrupt ideology that helped create this mess,
let the perps continue to get undeserved princely pay, and stick the hapless
sop taxpayer with the guaranteed-to-be-rotten fruit of this exercise rather
than demonstrate leadership and reframe the issues. The hesitation to demand
even modest quid pro quos is beyond belief. No private sector negotiator
would ever accept such a deal.
Is this "Change We Can Believe In?"
Looks like the same old crap to me, with better salesmen in charge.
The golden rule is that he who provides the gold, makes the rules.
Time to get over prostrating before the private sector when it has abjectly
screwed up.
It looks like so called "war on terror" is a mirage and might be a potent
example of groupthink. Simon Jenkins apparently thinks so...
As the sociologist Ulrich Beck has written, "properly exploited, a novel risk is always an elixir to
an ailing leader". By declaring a threat so awful as to be
intolerable, a politician can limit the liberties of a free society in the
name of risk-aversion. Musharraf utters hardly a sentence that does not
contain the word terror. Pivotally close to the base from which 9/11 was
apparently launched, his dictatorship has been indulged by London and
Washington for a full seven years. This week Gordon Brown hailed him as a
"key ally on terrorism", enabling him to take comfort in sacking his
judiciary and curbing his media.
Had the war on terror been used only as a
metaphor for better policing, like rhetorical "wars" on drugs, poverty and
street crime, it might have passed muster. Bush and Musharraf
have found the military metaphor too potent to resist and duly carried it
into literal effect. The result has been a disaster for their countries, and
incidentally for themselves.
The west's Afghan adventure is now devoid of coherent strategy. Soldiers
are dying, the opium trade is booming and aid lies undistributed. Command
and control of the war against the Taliban is slipping from the most bizarre
western occupying force since the fourth Crusade to a tight cabal around the
Afghan ruler, Hamid Karzai, who is fighting to retain a remnant of authority
in his own capital.
Karzai's exasperation with the west has led him to refuse the services as
"coordinator" of the former Liberal Democrat leader, Paddy Ashdown. The
latter may have cut a dash in the subsidy swamp of Sarajevo, but in
Afghanistan he would have been a boy on a man's errand. Karzai knows well
that his fate lies not with the patronising platitudes of western proconsuls
but in the hard graft of provincial warlords, drug gangsters and Taliban
go-betweens.
These go-betweens have had their status massively boosted by the war on
terror. Bush's demand in 2001 that Musharraf "join the war" sent Pakistani
forces into the border territories, breaking old treaties and driving the
Pashtun tribes into the eager arms of Taliban leaders. This undoubtedly
saved Osama bin Laden's skin from the fury of the northern Tajiks, committed
to avenge his murder of their leader, Ahmed Shah Massoud.
Musharraf, at America's bidding and with $10bn of American money, has
done what even his craziest predecessors avoided, and recklessly set the
Pashtun on the warpath - increasingly in thrall to a revived al-Qaida. The
result is a plague of suicide bombings and killings in the heartland of his
benighted state. From the law courts of America to the mosques of west
London and the mountains of the Hindu Kush, the war on terror has been
lethally and predictably counter-productive. It embodies the new stupidity
in international affairs.
Nobody disputes that there are killer cells at large in the world, most
of them proclaiming various Islamist creeds. It is the job of intelligence
agencies and the police to catch as many as they can. After a hesitant
start, they appear to be quite good at it. Some bombs will get through but
they will not be deterred by draconian laws, any more than by machine
gun-toting policemen in Downing Street and Heathrow. Robust societies can
handle this admittedly intermittent threat. Only weak ones will capitulate
to it.
The menace of these killers lies not in their firepower but in their
capacity to distort the judgment and commitment to freedom of politicians
too cowardly to bear on their shoulders the burden of risk. In two weeks'
time, the fragile democracy of Pakistan will defy the bombers and hold an
election prior, it is hoped, to some version of democratic rule. Such
communities will defy a probable burst of terror bombs only if their leaders
stop setting "terrorists" on a pedestal and using language that exaggerates
their capacity, as Bush puts it, "to oppose the advance of freedom".
It is leaders, not bombers, who have the power to balk the advance of
freedom. Already those leaders have used the war on terror to introduce the
Patriot Act, Guantánamo Bay and a $1.5 trillion war in Iraq. In Pakistan
they have used it as an excuse for emergency rule, the imprisonment of
senior judges, and the provocation of unprecedented insurgency in the
north-west frontier territories. In Britain leaders have used the war as an
excuse for 42-day detention without trial, the world's most intrusive
surveillance state, and not one but two contested military occupations of
foreign soil.
This so-called war on terror has filled the pockets of those profiting
from it. It has killed thousands, immiserated millions and infringed the
liberty of hundreds of millions. The only rough justice it has delivered is
to ruin the careers of those who propagated it. Tony Blair was driven to
early resignation. Bush has been humiliated and Musharraf's wretched rule
brought close to an overdue end. It may be an ill wind that blows no good,
but it is hardly enough.
In other words, the problem is that the personal risks were entirely
asymmetric. Raising concerns about the bubble could jeopardize one's career,
while ignoring the bubble carried no such risk.
The American
Prospect
Robert Shiller has an interesting
discussion of how Alan Greenspan and almost the whole economics
profession managed to overlook the $8 trillion housing bubble. Shiller
attributed the failure in large part to "groupthink," the fact that no one
wants to be standing out from the consensus within the group. According to
Shiller, this sort of social pressure forced many of those who had concerns
about the dangers of a bubble to tone down their concerns or to just keep
them to themselves.
While there is undoubtedly some truth to this assessment, it only
presents part of the picture. Challenging the consensus by raising concerns
about the housing bubble would have posed serious risks to the careers of
those within institutions like the Fed or in the economics profession more
generally. On the other hand, completely missing the largest housing bubble
in the history of the world carries no consequences for those whose job it
was to recognize such risks to the economy.
In other words, the problem is that the
personal risks were entirely asymmetric. Raising concerns about the bubble
could jeopardize one's career, while ignoring the bubble carried no such
risk. Under such circumstances, economists would expect that
economists would opt to ignore the bubble.
The remedy that economists would recommend for
other workers is to fire those who failed at their job. This would make the
risks more symmetric. That way, in the future economists
would have incentive to seriously consider arguments about financial bubbles
and other dangers to the economy and not just unquestioningly accept the
views of their bosses.
Unfortunately, it is unlikely that any economists in government,
business, or academia will suffer any serious career consequences for
failing to have done their job and warned of the bubble. Economists have
enough political power so that they are not held accountable for their
performance in the same way as dishwashers or custodians.
--Dean Baker
Posted at 10:32
PM | Comments
(4)
[subdivisions][1]
[1]:http://www.youtube.com/watch?v=2aH3qoQIqig
==
If Dean had been in a position of major responsibility such as head of
the Fed in 1996 or in 2002, and had taken action to burst the stock-market
or real-estate bubbles or forstall the excessive expansion, he would
probably have been fired (or at least not reappointed in the case of Fed
Chairman). The general opinion would have been that he killed prosperity by
ill-considered action. This may have been good for the economy, but people
like Dean are in short supply and would soon be shut out from public office
(as in fact they already are).
As I have argued before, discretionary action
by authorities to puncture bubbles is not likely to happen.
It seems that the only way to break out of the cycle is to rein in by
legislation those aspects of financial industries, etc. that lead to
overexpansion. The New Deal actually attempted to do this and was successful
in many respects, but instead of carrying on this work, economists and
politicians were seduced by the false promises of "new" free-market
economics. Deregulation and reliance on the Fed to fix the system go
hand-in-hand in the paradigm which has failed.
But Dean, you yourself just wrote that challenging the consensus would
have posed serious risks to most economists' careers. And that's because
most of them work within institutions controlled by people in whose
interests it was to create the bubble, and who will not suffer from the
debacle that has been the result. Economists are
held accountable for their performance -- their performance in supporting
the status quo.
If the housing bubble had been stopped in its tracks by economists
warning of its effects, huge bonus and commission losses would have resulted
in the banking world. Loathsome regulations would have been imposed on the
financial system. The people adversely affected would have shown their
displeasure with reduced contributions to the universities and think tanks
employing those economists. Had they failed to
fire or discipline those rogue economists, the presidents and board members
of those institutions would have felt the wrath of the
thwarted.
And they'd have been criticized even from the left, which would have been
incensed that they were discouraging a mortgage lending system that was
allowing so many people to become home-owners -- and, since we know that
real estate only goes up, we'd be denying those people the chance to partake
in the only surefire investment, veritably dooming them to a life of
penury.
And since all the losses will be covered by various forms of government
insurance, financed by government borrowing, no one will lose money in the
end, right?
Economic
View
ALAN
GREENSPAN, the former Federal
Reserve chairman, acknowledged in a Congressional hearing last month
that he had made an “error” in assuming that the markets would properly
regulate themselves, and added that he had no idea a financial disaster was
in the making. What’s more, he said the Fed’s own computer models and
economic experts simply “did not forecast” the current financial
crisis.
Mr. Greenspan’s comments may have left the impression that no one in the
world could have predicted the crisis. Yet it is clear that well before home
prices started falling in 2006, lots of people were worried about the
housing boom and its potential for creating economic disaster. It’s just
that the Fed did not take them very seriously.
For example, I clearly remember a taxi driver
in Miami explaining to me years ago that the housing bubble there was
getting crazy. With all the construction under way, which he pointed out as
we drove along, he said that there would surely be a glut in the market and,
eventually, a disaster.
But why weren’t the experts at the Fed saying such things? And why didn’t
a consensus of economists at universities and other institutions warn that a
crisis was on the way?
The field of social psychology provides a possible answer. In his classic
1972 book, “Groupthink,” Irving L. Janis, the Yale psychologist, explained
how panels of experts could make colossal mistakes. People on these panels,
he said, are forever worrying about their personal relevance and
effectiveness, and feel that if they deviate too far from the consensus,
they will not be given a serious role. They self-censor personal doubts
about the emerging group consensus if they cannot express these doubts in a
formal way that conforms with apparent assumptions held by the group.
Members of the Fed staff were issuing some warnings. But Mr. Greenspan
was right: the warnings were not predictions. They tended to be technical in
nature, did not offer a scenario of crashing home prices and economic
confidence, and tended to come late in the housing boom.
A search of the Federal Reserve Board’s working paper series reveals a
few papers that touch on the bubble. For example, a 2004
paper by Joshua Gallin, a Fed economist, concluded: “Indeed, one might
be tempted to cite the currently low level of the rent-price ratio as a sign
that we are in a house-price ‘bubble.’” But the paper did not endorse this
view, saying that “several important caveats argue against such a strong
conclusion and in favor of further research.”
One of Mr. Greenspan’s fellow board members, Edward M. Gramlich, urgently
warned about the inadequate regulation of subprime
mortgages. But judging at least from his 2007 book, “Subprime
Mortgages,” he did not warn about a housing bubble, let alone that its
bursting would have any systemic consequences.
From my own experience on expert panels, I know
firsthand the pressures that people — might I say mavericks? — may feel when
questioning the group consensus.
I was connected with the Federal Reserve System as a member the economic
advisory panel of the Federal
Reserve Bank of New York from 1990 until 2004, when the New York bank’s
new president, Timothy
F. Geithner, arrived. That panel advises the president of the New York
bank, who, in turn, is vice chairman of the Federal Open Market Committee,
which sets interest rates. In my position on the panel, I felt the need to
use restraint. While I warned about the bubbles I believed were developing
in the stock and housing markets, I did so very
gently, and felt vulnerable expressing such quirky views. Deviating too far
from consensus leaves one feeling potentially ostracized from the group,
with the risk that one may be terminated.
Reading some of Mr. Geithner’s speeches from around that time shows that
he was concerned about systemic risks but concluded that the financial
system was getting “stronger” and more “resilient.” He was worried about the
unsustainability of a low savings rate, government deficit and current
account deficit, none of which caused our current crisis.
In 2005, in the second edition of my book “Irrational Exuberance,” I
stated clearly that a catastrophic collapse of the housing and stock markets
could be on its way. I wrote that “significant further rises in these
markets could lead, eventually, to even more significant declines,” and that
this might “result in a substantial increase in the rate of personal
bankruptcies, which could lead to a secondary string of bankruptcies of
financial institutions as well,” and said that this could result in
“another, possibly worldwide, recession.”
I distinctly remember that, while writing this,
I feared criticism for gratuitous alarmism. And indeed, such criticism
came.
I gave talks in 2005 at both the Office of the Comptroller
of the Currency and at the Federal
Deposit Insurance Corporation, in which I argued that we were in the
middle of a dangerous housing bubble. I urged these mortgage regulators to
impose suitability requirements on mortgage lenders, to assure that the
loans were appropriate for the people taking them.
The reaction to this suggestion was roughly this: yes, some staff members
had expressed such concerns, and yes, officials knew about the possibility
that there was a bubble, but they weren’t taking
any of us seriously.
I BASED my predictions largely on the recently developed field of
behavioral economics, which posits that psychology matters for economic
events. Behavioral economists are still regarded as a fringe group by many
mainstream economists. Support from fellow behavioral economists was
important in my daring to talk about speculative bubbles.
Speculative bubbles are caused by contagious
excitement about investment prospects. I find that in casual
conversation, many of my mainstream economist friends tell me that they are
aware of such excitement, too. But very few will talk about it
professionally.
Why do professional economists always seem to
find that concerns with bubbles are overblown or
unsubstantiated? I have wondered about this for years, and
still do not quite have an answer. It must have something to do with the
tool kit given to economists (as opposed to psychologists) and perhaps even
with the self-selection of those attracted to the technical, mathematical
field of economics. Economists aren’t generally trained in psychology, and
so want to divert the subject of discussion to things they understand well.
They pride themselves on being rational. The notion that people are making
huge errors in judgment is not appealing.
In addition, it seems that concerns about professional stature may blind
us to the possibility that we are witnessing a market bubble. We all want to
associate ourselves with dignified people and dignified ideas. Speculative
bubbles, and those who study them, have been deemed undignified.
In short, Mr. Janis’s insights seem right on
the mark. People compete for stature, and the ideas often just tag
along. Presidential campaigns are no different. Candidates
cannot try interesting and controversial new ideas during a campaign whose
main purpose is to establish that the candidate has the stature to be
president. Unless Mr. Greenspan was exceptionally insightful about social
psychology, he may not have perceived that experts around him could have
been subject to the same traps.
Robert J. Shiller is professor of
economics and finance at Yale and co-founder and chief economist of
MacroMarkets LLC.
Was it Groupthink?:
Challenging
the Crowd in Whispers, Not Shouts, by Robert Shiller, Economic View, NY
Times: Alan Greenspan ... acknowledged in a Congressional hearing last
month that he had ... no idea a financial disaster was in the making.
What’s more, he said the Fed’s own computer models and economic experts
simply “did not forecast” the current financial crisis.
Mr. Greenspan’s comments may have left the impression that no one in
the world could have predicted the crisis. Yet it is clear that well
before home prices started falling in 2006, lots of people were worried...
It’s just that the Fed did not take them very seriously.
For example, I clearly remember a taxi driver in Miami explaining to me
years ago that the housing bubble there was getting crazy..., he said that
there would surely be a glut in the market and, eventually, a disaster.
But why weren’t the experts at the Fed saying such things? And why
didn’t a consensus of economists at universities and other institutions
warn that a crisis was on the way?
The field of social psychology provides a possible answer. In his
classic 1972 book, “Groupthink,” Irving L. Janis, the Yale psychologist,
explained how ... experts ... on ... panels ... are forever worrying about
their personal relevance and effectiveness, and feel that if they deviate
too far from the consensus, they will not be given a serious role. They
self-censor personal doubts about the emerging group consensus...
From my own experience on expert panels, I know firsthand the pressures
that people — might I say mavericks? — may feel when questioning the group
consensus.
I was ... a member the economic advisory panel of the Federal Reserve
Bank of New York from 1990 until 2004... While I warned about the bubbles
I believed were developing in the stock and housing markets, I did so very
gently, and felt vulnerable expressing such quirky views. Deviating too
far from consensus leaves one feeling potentially ostracized from the
group, with the risk that one may be terminated. ...
In 2005, in the second edition of my book “Irrational Exuberance,” I
stated clearly that a catastrophic collapse of the housing and stock
markets could be on its way. ... I distinctly remember that, while writing
this, I feared criticism for gratuitous alarmism. And indeed, such
criticism came.
I gave talks in 2005 at both the Office of the Comptroller of the
Currency and at the Federal Deposit Insurance Corporation, in which I
argued that we were in the middle of a dangerous housing bubble. I urged
these mortgage regulators to impose suitability requirements on mortgage
lenders... The reaction ... was roughly this: yes, some staff members had
expressed such concerns, and yes, officials knew about the possibility
that there was a bubble, but they weren’t taking any of us seriously.
...
Why do professional economists always seem to find that concerns with
bubbles are overblown or unsubstantiated? I have wondered about this for
years... It must have something to do with the tool kit given to
economists (as opposed to psychologists) and perhaps even with the
self-selection of those attracted to the technical, mathematical field of
economics. Economists aren’t generally trained in psychology... They pride
themselves on being rational. The notion that people are making huge
errors in judgment is not appealing.
In addition, it seems that concerns about professional stature may
blind us... We all want to associate ourselves with dignified people and
dignified ideas. Speculative bubbles, and those who study them, have been
deemed undignified. In short, Mr. Janis’s insights seem right on the mark.
People compete for stature, and the ideas often just tag along. ...
I think there's some truth to this.
R.S.: Flogged? What does that word
mean?
L.G.: I guess flogged is what
happens in Singapore if you spit on the sidewalk. So, okay, go ahead and
scoop your book some more.
R.S.: I have a
publicity manager, and he said I shouldn't talk too much about
it.
L.G.: Okay, but why don't you tell me that
story at least.
R.S.: Well, that story was
that Frank Nothaft claimed that they had considered price declines as much
as 13.5 percent. And I said, "What if it was worse than that?" And he said,
"It's never been worse than that." And then he corrected himself. "Except
for the Depression." I don't remember exactly what I said to that, but
plausibly it was something like, "Well, that could happen again too." So
again, I started to sound at that point too academic-something like this
isn't real anymore.
L.G.: Why do you think
people just have trouble listening to these
things?
R.S.: Well, I can talk as a
sociologist—which I'm not trained to do—but
there's a social construction of reality that happens. This is a basic
principle of sociology. We have a "collective consciousness," to quote
sociologist Maurice Halbwachs. As far as I know, he coined the
term. And the point is, we talk so much. The human species is
incessantly talking, and this incessant talk reinforces certain memories and
facts. And other facts are not reinforced because no one's talking about
them. So they elude our consciousness, and then we can't remember them. We
can't act on them anymore, and so a certain sort of reality-construct forms.
It's also informed by some kind of intuitive thinking. In the case of real
estate, people think that the growing population is inevitable, and that
means home-price increases are inevitable. And these are not economists
thinking clearly about what that means. An economist who thinks about that
would say, "Yes, but that doesn't make them a good investment." If
everything is priced at the present value of the cash flow with the same
interest rate, then it doesn't matter whether the cash flow is growing or
not, and then everything is equally good as an investment. That's not
something that the general public
understands.
L.G.: The people who were getting
into subprime mortgage-backed securities presumably understood all this.
They're very sophisticated people. So what was driving
them?
R.S.: Some of them were very
sophisticated people [laughs], and there was a failure to
communicate and a failure to put all this information together and act on it
in a systematic way. There's a famous book written
by Irving Janis, who's a psychologist, about 30 years ago, called
Groupthink. He's a social psychologist, and he points out how even expert
groups can make very colossal errors. He did a number of case
studies in the book, and what tends to happen—suppose you imagine yourself
and a group of experts who seem to have converged on an enlightened opinion
which has arguments to support it, and it has prominent influential people
saying that. It can be difficult for someone to
stand up in that room and air what seem to be half-baked or half-formed
doubts about it. It can be kind of damaging to your
reputation. And you imagine that they have a reason to
dismiss these doubts. But you don't want to be responsible for bringing it
up—especially when they're reaching a decision. Sometimes they're trying to
make an important decision. And at that time, you
would think that people who have doubts should stand up and thrust them to
the fore. But, in fact, they often retreat at that point, because they may
just have a sense that they're being annoying, that they will lose status in
the group. If we're close to a decision on something, and I'd
raise doubts, and they're going to go ahead anyway and do it, you might
think that's good—because it could be a disaster, and they'll remember that
you had doubts. But the likelihood is to focus on, instead, "Now I'm kind of
the party pooper," you know. "When they're going to implement this plan,
they're not going to turn to me because I was the guy who doubted." Things
like that went through peoples' minds, and they don't air doubts. And when Janis interviewed people afterward and asked
them their memories of the discussion, they would say things like, "I think
we had a very open and fair discussion, and everyone raised their views."
That was their memory of what happened, but they couldn't remember the other
arguments. So it wasn't happening—there was somebody who was expressing
doubts, but not effectively. And so I think that's the kind of thing that
happens when there's just a general presumption which becomes repeated
everywhere.
L.G.: And do you think
that's the sort of dynamic that might've been operating, not only in
quasi-government agencies like Fannie Mae and Freddie Mac, but also in the
banks on Wall Street?
R.S.: Yeah, I mean, it
became the idea that risk was just not there.
I'm intrigued when a commentator gives high praise to a work by someone
who comes from a political vantage different from his own. I get even more
interested when another take on the same piece seems straight out of
Rashomon, a radically different account with only a few facts in common.
The opus in question is a new book, Network
Power: The Social Dynamics of Globalization, by David Singh Grewal. It
caught the attention of Christopher Caldwell of the Weekly Standard (who
also writes regularly for the Financial Times), who gave it high marks, and
Tyler Cowen, who was singularly unimpressed.
I have to say that
although I have never mentioned him in this blog, I very much like Caldwell,
and therefore am prejudiced in his favor. He often has a fresh perspective
(which is hard in and of itself to pull off), is fair minded and well
reasoned, and even when I don't agree with him, I have to give him credit
for making a good case.
We'll get to the balance of Caldwell's
article on the book in due course, but I want to give his description of
what it's about versus Cowen's so you can see how they come from parallel
universes. First, Caldwell
in the Financial Times:
At the heart of globalisation is a basic, and politically
explosive, mystery; globalisation proceeds through the breaking down of
boundaries, the unfolding of diversity and freedom of choice – so why is
it experienced by so many people as a constriction, an oppression and a
loss of freedom? In a brilliant and subtle book*, a Harvard graduate
student has solved this mystery – even if he has not solved the problem.
David Singh Grewal believes the answer lies in something called “network
power”. Networks are the means by which globalisation proceeds. All
networks have standards embedded in them. In theory we can choose among
the standards and become more free. In practice, Mr Grewal shows, our
choices tend to narrow over time, so that standards are imposed on
us.
Here is how it works. Networks tend to grow. As time passes,
one of the most attractive things about a network will be simply that a
large number of people have already chosen it. This is network power. Once
a network reaches “critical mass”, Mr Grewal says, the incentives to join
it can become irresistible. Certainly some standards are intrinsically
better than others. “But as the network power of a standard grows,” Mr
Grewal writes, “the intrinsic reasons why it should be adopted become less
important relative to the extrinsic benefits of co-ordination that the
standard can provide.” People defect from alternative networks. Eventually
those alternatives disappear altogether. The choice of networks becomes a
Hobson’s choice. You remain free to choose your network, but the
distinction between choosing to join a network and being forced to join
one is less evident.
Mr Grewal sees such a “merger of reason and
force” in many areas, economic and non-economic – from the Windows
operating system to the ISO 9000 standard of industrial control to
Britain’s adoption of the metric system. Since English has become the
first global lingua franca, many non-native speakers have freely chosen to
speak it. But, for someone who wants to participate in the global economy
– which is to say, the economy – to what extent is this really a
choice?
Cowen is guardedly positive about the book. Yet (if you
believe Caldwell's account), Cowen
picked up on what appears to be a secondary thread as the focus of his
comments:
Indeed, while this convergence in
ways of thinking and living may extend to influence cultural forms like
music or food, it need not necessarily do so. It is striking that in
this moment of global integration producing massive convergence in
economic, linguistic, and institutional standards, we should be so
worried about restaurant chains and pop music, neglecting much more
significant issues. Famously, Sigmund Freud argued that nationalist
rivalries between neighboring countries reflected the "narcissism of
minor differences," a pathological focus on relatively trivial
distinctions driven by the desire to keep at bay an anxiety-provoking
recognition of fundamental sameness.
That is from David Singh
Grewal's Network Power: The Social Dynamics of Globalization, one of the
most interesting books on cultural globalization in recent years. He uses
the ideas of social networks and peer effects to argue that widespread
cultural convergence is occurring, most of all in ways of life. Here is
the book's home page.
There is much wrong in the central thesis.
"Ways of thinking" may be less diverse across countries (France is more
like Germany than it used to be) but ways of thinking are now much more
diverse within countries and in fact within the world as a whole. What's
so special about having diversity distributed according to geographic or
political criteria? ...
Nor is he capable of simply coming out and
saying that lots of countries in the world *ought* to be doing more to
emulate Anglo-American ways of thinking.
The following claim is
also questionable:
To reshape or reduce the power that
the social structures we create have over us, we can only summon the
organized power of politics. The large-scale voluntarism of sociability,
by contrast, has always delivered the most varied and elaborate forms of
individual subjugation.
Cranky Tyler is about to come out
of his shell, so maybe it is time to end this post. It's still a book
worth reading and thinking about.
These may not be bad
observations, but it appears that Cowen has mischaracterized what Grewal's
main thrust is. Cowen appears to have been set off by the mention of
socio-cultural issues, which seems a comparatively minor aspect of
Caldwell's reading (as in, having to conduct business in English, a second
language for most of the world's population, requires years of effort to
attain reasonable competence and is a bloody nuisance, but given our world's
Tower of Babel, any lingua franca will inconvenience many. But I don't see
American cultural influence stemming from that but from the fact that the
film industry was born in Hollywood and still has a considerable scale
advantage).
Guess this means we all have to read the book to see who
got it right.
Grewal indirectly gives support to one of Dani
Rodrik's notions, that globalization presents a trilemma. You can have
any two of democracy, national sovereignty and global economic integration,
but you cannot have all three at once. The notion of network power is a
detailed working through of how networks, which are both a force for and an
element of international economic integration, are at odds with
local/national power structures (e.g., the EU's
ongoing battles to get Microsoft to comply with its anti-trust
rules).
From the balance of Caldwell's article:
Networks, Mr Grewal believes, can
impinge on our political autonomy, channelling it into situations where
dissent is possible but pointless. Although people enter them freely,
networks, like political systems, can bias outcomes. A new order can be
camouflaged as a broadening of options. Networks vary along three
dimensions, Mr Grewal thinks: “compatibility” (with other networks);
“availability” (openness); and “malleability”. They tend to be open and
compatible in the early stages, and open and incompatible in the later
ones.
The transition from the General Agreement on Tariffs and
Trade to the World Trade Organisation in the mid-1990s demonstrates this
process, Mr Grewal believes. The logic of the WTO’s core principle of
non-discrimination among trade partners gives the body and authority that
goes far beyond regulating trade, into areas of domestic policy that were
protected by sovereignty under Gatt. Mr Grewal does not deny that there
are intrinsic efficiencies to a transparent and uniform trading standard.
But he believes that most countries join the WTO for the extrinsic
benefits of participating in the network, and find the standard the
network upholds intrinsically undesirable.
Mr Grewal nails his own
anti-capitalist colours firmly to the mast. But his political engagements
never outrun his diagnoses. Network Power leans on Marx, Keynes and the
Canadian philosopher, Charles Taylor, to examine the more general problem
of “power structures” – how power can be
exercised over people even when no one is visibly giving
orders. But he avoids attributing network power to “false
consciousness” – the Marxian idea that people are easily fooled out of
knowing their own interest. Indeed, he grants that most standards are the
product of consent, although of a funny kind. “One of the interesting
things about globalisation is the extent to which people consent to
structures that are consciously and explicitly viewed as
undesirable.”
This is a patient and powerful argument. The book’s
concepts are presented with such extreme theoretical clarity that all
readers, even those who do not share Grewal’s commitment to trammelling
global capitalism, will be able to deploy his insights to other ends. What
network-power effects explain the sudden spread of anti-smoking activism?
How was the US institution of the Social
Security number transformed into a financial tracking system?
Is “political correctness” just old-fashioned cant or does
it draw a sinister new force from network power?
Mr Grewal calls
for a reassertion of democratic sovereignty to counter the unintended (and
undesired) consequences of network choices. But he admits that the
political solutions to network power are not yet obvious. Networks are
transnational, while politics remains national, and Mr Grewal does not
consider global government either feasible or (as far as one can tell)
desirable. What is valuable about this book is its diagnosis, not its
prescriptions. It may be the richest and most hard-headed explanation yet
of the relationship between globalisation and diversity. Clearly the two
are closely related. Since there seems to be more variety right in front
of our noses than there was in the world of our parents, we are tempted to
think globalisation has fostered diversity. But this is an optical
illusion. Globalisation merely reveals diversity that was already there.
It flushes diversity out from the places it was hidden, much as a hunter
flushes his quarry out of a thicket, and to similar
effect.
"Too nice" people serve as a natural feeding ground for corporate
sociopaths.
- Paperback: 288 pages
- Publisher: Grand Central Publishing; Reprint edition (November 1,
2000)
- Language: English
- ISBN-13: 978-0446673860
- Product Dimensions: 7.9 x 5.1 x 0.8 inches
Niceness Mistakes-For Good!, June 11,
2003 By Ilaxi S. Patel "Editor,
kidsfreesouls.com & A... (India) - See
all my reviews
How oft we create a wave to spell trouble with our own perfections being
true and honest with good faith and intentions? We take on too much not
saying what we want and that's exactly what the book reveals - the niceness
mistakes that 'Damage' us! Unconsciously, we have planted strong messages in
the back of our minds and with good intentions by our mentors, follow the
moral code of conducts in life. Be good, be nice, be cool, share and care,
don't be selfish, be reasonable, don't hurt others, help friends, say yes
and so on. In real, trying to reach perfection and taking on too much lead
us to exhaustion and sooner or later the ship of our life start sinking. The
author gives an insight to the nine unconscious mistakes we often make daily
and helps us correct them and pulls a person out of frustration and
stress.
In not saying what you want and taking on too much, it leads to
suppressed anger. Robinson provides healthy tips to express anger to
orchestrate a balanced life. Life itself is like riding a bike up and down
roads that are bumpy, curvy, hilly while juggling bananas, balloons and
bowling balls says Robinson and so this is when you have a fall, life needs balancing back to pedal and steer with too
much/too little, too rational/too emotional, to fast/too slow, too
cautious/too reckless, too strong/too weak, etc. and remain upright
empowering to get what you need and deserve. Irony is,
sometimes our niceness betrays us and this book is a key to understanding
our mistakes and bring about a 'change' in us. Robinson makes us a nicer
person making one realise the mistakes, why we make and how to give up.
In doing so, Robinson guides in:
1. Liberating from the bondage of other's expectations
2. Saying no
and saving work overloads
3. Telling what we want and analyze what we
receive is worth or not
4. Express anger that heal and maintain
relationships too.
5. Face irrationality and criticism
6. Tell truth
to friends when they fail us
7. Care for others but do no burden own
trying to run their lives.
8. In pain and grief, feel competent enough
A change is always welcome even for the nice to be nicer and avoid the
mistakes that we keep making out of the blue. Our good intentions turn out
to be damn-in-way for others who often misunderstand or shrug off not
appreciating your worth as human being. This book is indeed a gem collection
for every person who has learned to live being 'Nice' and remain being so
without being emotionally hung up sometimes. Good Pick!
Former title was better., April 8, 2007
By Geoffrey J. Barnes "CyberBronco"
(Miami, FL United States)
The former title of this book was Good Intentions. From the
information I gathered in the first few pages it was first published in
1997. I am not sure if that refers to the first publication under the
current title or the previous one. I say that because the text feels more
dated than just 10 years old.
I bought this book at Borders. The
title caught my eye and a scan of the first few lines of each chapter
confirmed I would like this book. As someone who is always accused of being
too nice a guy and winding up burned more than once by relationships and
employers, I thought I was on to something! Unfortunately I feel burned
again by being naive enough to buy this book. There are those reading this
that will say I should have done my homework first before making a purchase.
Well, I'm sorry but I am not one of those jerks who sits in Barnes and Noble
all day, taking up space and breaking in the backs of books I never intend
to purchase. I wish those chairs would run a few megawatts of electricity
through them every 10 minutes to get those creepy people out of the stores.
They never buy anything and they smell bad! When my cell phone rings in the
store, they have the nerve to "Shush" me. Hey people! This is a retail
establishment! Buy something or move back into the library!
To give
an example of what I am referring to in this book go to page 201, Mistake
#8: Rescuing Others. The first page gives an example of a guy with a nephew
who is having trouble staying in school or keeping a job. This is actually
the chapter that made me buy the book. After getting a few pages into the
chapter you realize they are only referring to people who try to rescue
addicts and nothing else. My nephew is not an addict, but he otherwise fits
the description in the example. Too bad this book didn't stick to its
original title: Good Intentions. It is a better description of what is being
preached here.
Mistake #7 is called Giving Advice. It tells you to
never give advice, and lists several reasons why you should not. Ironically
advice is what this book is based upon. The author is giving all of us poor
"Nice" guys advice.
I believe the author had "good intentions" when
he wrote this book. I believe the publisher had a great money making idea
when he re-released this book under its new title.
What is
Mobbing? Workplace Mobbing in Academe (2004).
Budget Cuts Are Not the Only Way Workers Are Forced from Jobs:
Workplace Abuse
“The mobbing syndrome is a malicious
attempt to force a person out of the workplace through
unjustified accusations, humiliation, general harassment, emotional
abuse, and/or terror. “It is a ‘ganging up’ by the leader(s) -
organization, superior, co-worker, or subordinate - who rallies others
into systematic and frequent ‘mob-like’ behavior.
“Because the organization ignores, condones, or even instigates the
behavior, it can be said that the victim, seemingly helpless against
the powerful and many, is indeed ‘mobbed.’ The result is always injury -
physical or mental distress or illness and social misery and, most
often, expulsion from the workplace.”
-Mobbing: Emotional Abuse in the American Workplace, by
Davenport, Schwartz, and Elliott, 1999.
When a budget crisis hits
a large institution, certain workers often seem to be treated as though they
are“expendable,” and are often the first forced out. But this is not
the only manner in which workers are driven out of the workplace.
Mobbing has been recognized for many years in Europe, and it
is also beginning to be identified as a serious workplace problem in
the United States. The authors above go on to say, “Mobbing is
an emotional assault. Through innuendo, rumors, and public discrediting, a
hostile environment is created in which one individual gathers others
to willingly, or unwillingly participate in continuous malevolent actions to
force a person out of the workplace.”
“These actions escalate into abusive and terrorizing behavior. The victim
feels increasingly helpless when the organization does not put a stop
to the behavior or may even plan or condone it... Frequently productivity
is affected... Resignation, termination, or early retirement,
the negotiated voluntary or involuntary expulsion from the
workplace, follows. For the victim, death - through illness or
suicide - may be the final chapter in the mobbing story.”
-ibid
Much of the original research on mobbing was done by Swedish
researcher Heinz Leymann in the 1980’s. His findings have been slow
in making it to the United States. However a number of local statutes have
been enacted, and publications, conferences, and resources have
surfaced recently in the U.S. For example, Peralta Community College
District in Oakland recently established a regulation outlawing such
behavior.
Often mobbing activities are directed at whistleblowers. Brian
Martin, in Whistleblowing and Nonviolencen (Peace and Change,
Vol. 24, No. 3, January 1999) describes attacks on whistleblowers
this way:
Whistleblowing, in casual usage, means speaking out from within an
organization to expose a social problem or, more generally,
dissenting from dominant views or practices... The most common experience of
whistleblowers is that they are attacked. Instead of their messages
being evaluated, the full power of the organization is turned against
the whistleblower. This is commonly called the shoot-the-messanger
syndrome,... The means of suppression are impressive, nonetheless.
They include ostracism by colleagues, petty harassment (including snide
remarks, assignment to trivial tasks and invoking of regulations not
normally enforced), spreading of rumors, formal reprimands, transfer
to positions with no work (or too much work), demotion, referral to
psychiatrists, dismissal, and blacklisting.
Whistleblowers often discover that formal channels for complaint or
remedy are ineffective or easily blocked. As Martin explains, “Appeal
bodies are part of the wider system of power and usually seek or reach
accommodation with other powerful groups. Hence such bodies are
highly unlikely to support a single individual against elites from a major
organization, who usually have links with elites
elsewhere.”
Whistleblowers have other resources, according to Martin: “One strategy
is based on ‘mobilization,’ namely winning supporters by circulating
relevant documents, holding meetings and obtaining media coverage.” Howeve,
such attempts at mobilization are often met by more severe
mobbing and harassment.
Kenneth Westhues, has identified
academic institutions as a primary location for mobbing
attacks:
“Ordinarily, colleagues in positions of local power explain the situation
in terms of failings of the targeted professor: bad teaching, too few
publications or the wrong kind, ethical misconduct, shirking of duties,
failure to live up to legitimate expectations of the job...
Sometimes, however, the target's failings have little to do with why he or
she is in trouble. The evidence may point to a sharply contrasting
explanation: that colleagues and/or administrators have ganged up on
the targeted professor for no good reason, to the point that collectively
shunning, shaming, and tormenting the target bolsters the group's
solidarity, its esprit de corps.” - Workplace
Mobbing in Academe (2004)
Westhues also tracks the trajectory of mobbing, and its
consequences for victims and perpetrators. Here are more of his
comments:
“Mobbing ... is an impassioned, collective
campaign by co-workers to exclude, punish, and humiliate a targeted
worker. Initiated most often by a person in a position of power or
influence, mobbing is a desperate urge to crush and eliminate
the target. The urge travels through the workplace like a virus,
infecting one person after another. The target comes to be viewed as
absolutely abhorrent, with no redeeming qualities, outside the circle of
acceptance and respectability, deserving only of contempt. As the
campaign proceeds, a steadily larger range of hostile ploys and
communications comes to be seen as legitimate.”
“Not infrequently, mobbing spelled the end of the target’s career,
marriage, health, and livelihood. From a study of circumstances
surrounding suicides in Sweden, Leymann estimated that about twelve percent
of people who take their own lives have recently been mobbed at
work.... By Leymann’s and others' estimates, between two and five
percent of adults are mobbed sometime during their working lives. The
other 95 percent, involved in the process only as observers,
bystanders, or perpetrators (though occasionally also as rescuers or
guardians of the target), mostly deny, gloss over, and forget the
mobbing cases in which they took part. That is one reason it has
taken so long for the phenomenon to be identified and
researched.
“Workplace mobbing is normally carried out politely,
without any violence, and with ample written documentation. Yet
even without the blood, the bloodlust is essentially the same: contagion and
mimicking of unfriendly, hostile acts toward the target; relentless
undermining of the target’s self-confidence; group solidarity against one
whom all agree does not belong; and the euphoria of collective
attack.
“The worker most vulnerable to being mobbed is an average or high
achiever who is personally invested in a formally secure job, but who
nonetheless somehow threatens or puts to shame co-workers and/or
managers. “Ironically, it is in workplaces where workers’ rights are
formally protected that the complex and devious incursions on human
dignity that constitute mobbing most commonly occur. Union shops are
one example... University faculties are another, on account of the
special protections of tenure and academic freedom professors
have...Mobbing appears to be more common in the professional
service sector, where work is complex, goals ambiguous, best
practices debatable, and market discipline far away. Scapegoating is an
effective if temporary means of achieving group solidarity, when it
cannot be achieved in a more constructive way. It is a turning inward, a
diversion of energy away from serving nebulous external purposes
toward the deliciously clear, specific goal of ruining a disliked
co-worker's life. Less time, skill, and energy are required to
write off a persistent critic as a "difficult professor" than to rebut
the critic's arguments. Chalking up dissent to the dissenter's real
or imagined flaws of character relieves overworked administrators of
uncertainty and ambiguity. It lets them feel good about themselves.
Westhues (and others) point out that the best way to deal with
mobbing is to nip it in the bud. Organizations not able to do this
are at least as much at fault as the perpetrators of the attacks. To
stop it requires an open atmosphere at the very beginning: “The
basic priority for constructive resolution of workplace conflict,
namely to keep the conversation going, to let competing positions be
expressed and the evidence for them reviewed, to listen to what opponents
say, to respond honestly and respectfully, to try not to silence
anyone.”
Westhues lists three points for a strong academic institution which has
vaccinated itself against mobbing:
- Protect freedom of speech.
- Keep academic organization loose. A tight ship cannot be a university.
It has to be full of contradiction and brimming with debate in
order to fulfill its public purposes.
- Focus attention on these purposes, like educating youth, producing
useful knowledge, and above all seeking truth.
These quotes on mobbing were collected and prepared by Karl
Schaffer(schafferkarl@fhda.edu,
x8214), as a public service to the DeAnza College community.
In addition to the sources cited above, google “mobbing” or
“workplace abuse” for more info.
Posted by Soulskill on Wednesday April 23,
@03:39PM
from the competition-is-a-good-thing
dept.
An anonymous reader points out a Los Angeles Times report that
Sony is planning on making movies and TV shows available
for download through the PS3 "as early as this summer." Sony hopes to
make use of the roughly 4 million PS3s already sold in the US to compete
with similar services such as XBox Live, which began offering video
downloads over a
year ago.
"One of the service's greatest obstacles may be Sony's own culture.
Sony Chairman and Chief Executive Howard Stringer has been battling a
corporate silo mentality in which divisions within his company work in
isolation, undermining new initiatives. The PlayStation group in Foster
City, Calif., has been notoriously aloof. Once, a former executive said,
it scuttled plans for a movie subscription service for the PlayStation
Portable even though Sony Pictures had supported the initiative. What is
more, the company, looking to safeguard its film, television and music
holdings, has been an aggressive champion of copyright protection, often,
critics suggest, at the cost of technological innovation."
Very questionable arguments. Primitive lebertarian persepective and
corresponding bias. See also [PDF] The Myth of the Rational
Voter
The Myth of The Rational Economist, November
3, 2007
The problem with this book is its basic premise,
that our problems are caused by ignorant voters, is simply nonsense. Caplan
fails to notice that the policies that this nation is following are not
those that the voters want.
If it mattered what the voters thought,
Gore would be president, American boys would not be dieing in a pointless
war in Iraq, NAFTA would be be canceled, we would get out of the WTO, we
would control illegal immigration, our government would protect the
interests of American workers instead of the interests of multinational
corporations that outsource the best American jobs to slave labor countries,
and we would have free quality health care for all Americans. That is what
the voters in this country want.
The point
is that we are not in trouble because we are following the wishes of
irrational voters. We are in trouble because we are ignoring the wishes of
the voters and following the policies favored by irrational economists. like
him.
"Don't confuse us with the facts!", June 8,
2007 By Nicole
(Norwalk, CT USA) - See
all my reviews
Many people have noted that democracy seems not to work - policies are
implemented that often are not in the best interest of voters, and when
voters are surveyed they routinely lack even the most basic civic knowledge.
The way people have typically answered this problem is to say that voters
are uninformed, and that if they simply had more access to good information,
they would use that information to make better choices. But even so, the
tiny informed minority will sway elections because the uninformed majority
will vote at random.
Here, Caplan directly challenges that view by asserting that voters are
not simply ignorant but irrational, and that this is in fact predicted by
economic theory. Voting is not like shopping - it is more like making use of
a commons, because the costs of a "bad" vote are borne by the public at
large, and the chance of an individual casting the deciding vote is tiny.
Therefore, people will vote for what makes them feel good without bothering
to find out whether it really is good - it simply doesn't matter. Caplan
explores four systematic biases voters hold against good economic policy -
antimarket bias, antiforeign bias, make-work bias, and pessimistic bias. The
fact that systematic bias exists means that the irrational majority does not
in fact vote at random, so it's the irrational voters deciding who wins
elections rather than the small, informed, rational minority. Voters get
what they want, it's just that what they want is actually bad for them - and
they don't care!
Caplan makes a persuasive case for viewing the
average voter as irrational rather than simply ignorant, though admittedly I
am sympathetic to this idea to begin with. I wish he had been
able to include more recommendations in his conclusion, but this should be a
promising area for further research.
Economists know best?, July 25, 2007
This book is a very interesting read, describing a
utility-based model of why voters vote as they do. The author proposes that
voters are naturally biased against their own interests. The concept is that
the probability of any one voter changing the result of a vote is
vanishingly small, and therefore each voter votes for what makes them feel
better about themselves, even if the policies go against their own interest
and the interests of the economy. For example, voters vote for higher taxes,
large inefficient government programs, and protectionist policies.
For example, a voter might vote for a politician who promises to raise
the voter's taxes and give their money to the poor. The voter figures that the chances that their individual
vote would make the difference between the candidate winning or losing is
extremely small; making the cost of the vote effectively zero.
However, the psychic benefit of the vote is positive.
Where the author fails is in the chapter where he measures the policy
leanings of an artificial "enlightened voter". How he defines an
"enlightened voter" is an average voter with the statistical characteristics
of one having a graduate degree in Economics. Based on a sophisticated
multivariate-regression-based analysis, the author determines that an
"enlightened voter" would be predicted to view potential policies more
like... an economist! What a surprise!
Caplan asserts that the voting public would
support more reasonable policies if they all had graduate degrees in
economics. However, there are plenty of Econ PhD's who put too much faith in
government policies solving apparent market failures.
The book is well worth reading, and makes many good points regarding the
reasons why voters vote for policies that go against their own best
interests, and in aggregate against the health of the overall economy.
However, it does not make a convincing case that economists should be
running the show.
Nice humor or satire, if you wish... I especially like: "The chief
cause of PADD is the desire to avoid the very real pain of
cognitive dissonance"
According to a report not yet released, the Council on Science and Public
Health of the American
Medical Association has recommended that a chronic and widespread affliction
of Americans be officially declared a psychiatric disorder. It has been
named the Political Attention Deficit Disorder (PADD). It is recommended
that the disorder be included in a widely used mental illness manual created
and published by the American
Psychiatric Association. The current manual was published in 1994; the next
edition is to be completed in 2012. The benefit to people of an official
classification is coverage by health
insurance.
"The symptoms
of PADD are all around us and treating it professionally can do more for our
country than any election," said Dr. Mable Wank in the report's
introduction; she is chairwoman of the Council and a professor at
UCLA.
Here are the Council's main findings on PADD:
Nearly 80
percent of adult American
citizens are unable to pay sustained attention to issues and problems
associated with their government. They are unable to accept their
responsibility as citizens, including their obligation to vote, read
in-depth articles and books on
political issues, become active members of politically oriented groups, and
initiate discussions on current events
with friends
and family. "The decades-old decline in voter turnout is a direct result of
a national epidemic of PADD," said the report.
The chief cause of
PADD is the desire to avoid the very real pain of
cognitive dissonance, the difference between what Americans want to believe
about the greatness of their country and the disturbing reality
that their government and country are in terrible shape, which is a constant
reminder when there is normal, healthy
political attention. Such pain
suppression, however, is counterproductive and was found through careful
studies at several universities, including the Harvard Medical College, to
correlate with depression
and anxiety disorders, as well as a heightened level of cynicism and
despair. According to the report, many suicides and possibly many criminal
acts result from PADD.
"For the past 25 years, the so-called 'Washington Consensus' – comprising
measures aimed at expanding the role of markets and constraining the role of
the state – has dominated economic development policy."
Dear reader, even if your taste runs to the practical rather
than the theoretical, I strongly suggest you read this post from Thomas Palley.
Like it or not, most news reporting and just about all policy
discussions in the finance/economics realm are filtered through a particular
frame of reference, namely, neoclassical economics. Palley points out that
the illusion that there are two schools, namely the Chicago "free market"
cohort (which has become the "Washington consensus") versus the more
interventionist MIT camp, obscures the fact that they are subsets of
neoclassical thought and that there are other frameworks that have merit yet
have been shunted aside.
Put more simply: it's important to recognize
biases, otherwise you have no hope of correcting for them.
From Palley:
For the past 25
years, the so-called “Washington Consensus” – comprising measures aimed at
expanding the role of markets and constraining the role of the state – has
dominated economic development policy. As John Williamson,
who coined the term, put it in 2002, these measures “are motherhood and
apple pie, which is why they commanded a consensus.”
Not anymore.
Dani Rodrik, a renowned Harvard University economist, is the latest to
challenge the intellectual foundations of the Washington Consensus in a
powerful new book titled One Economics, Many Recipes: Globalization,
Institutions, and Economic Growth. Rodrik’s thesis is that though there is
only one economics, there are many recipes for development
success.
Rodrik has rendered a major service by stating so openly
the claim of “one economics.” A critic who made the same claim that
economics allows only one theoretical approach would be dismissed as
paranoid, whereas Rodrik’s standing creates an opportunity for a debate
that would not otherwise be possible.
The “many recipes” thesis is
that countries develop successfully by following eclectic policies
tailored to specific local conditions rather than by following generic
best-practice formulas designed by economic theorists. This challenges the
Washington Consensus, with its one-size-fits-all formula of privatization,
deregulated labor markets, financial liberalization, international
economic integration, and macroeconomic stability based on low
inflation.
But, while the many recipes thesis has strong appeal and
empirical support, and suggests a spirit of theoretical pluralism, the
claim of “one economics” is misguided, for it implies that mainstream
neoclassical economics is the only true economics.
Part of the
difficulty of exposing this narrowness is that there is a family split
among neo-classical economists between those who believe that real-world
market economies approximate perfect competition and those who don’t.
Believers are identified with the “Chicago School,” whose leading
exponents include Milton Friedman and George Stigler. Non-believers are
identified with the “MIT School” associated with Paul Samuelson. Rodrik is
of the MIT School, as are such household names as Paul Krugman, Joseph
Stiglitz, and Larry Summers. This split obscures the underlying uniformity
of thought.
The Chicago School claims that real-world market
economies produce roughly efficient (so-called “Pareto optimal”) outcomes
on which public policy cannot improve. Thus, any state intervention in the
economy must make someone worse off.
The MIT School, by contrast,
argues that real-world economies are afflicted by pervasive market
failures, including imperfect competition and monopoly, externalities
associated with problems like pollution, and an inability to supply public
goods such as street lighting or national defense. Consequently, policy
interventions that address market failures – as well as widespread
information imperfections and the non-existence of many needed markets –
can make everyone better off.
None of this is about fairness, which
is a separate issue. Indeed, neither the Chicago School nor the MIT School
say that market outcomes are fair, because actual market outcomes depend
on the initial distribution of resources. If that distribution was unfair,
current and future outcomes will be unfair, too.
However, Chicago
economists seem to believe that real-world outcomes are acceptably unfair
and, more importantly, that attempts to remedy unfairness are too costly,
because tampering with markets causes economic inefficiency. Moreover,
they believe that government intervention tends to generate its own costly
failures because of bureaucratic incompetence and rent-seeking, whereby
private interests try to steer policy to their own advantage.
MIT
economists tend to espouse the opposite: fairness is important, the real
world is unacceptably unfair, and government failure can be prevented by
good institutional design, including democracy.
These differences
reflect the intellectual richness of neo-classical economics, but they
provide no justification for the claim that there is one economics. On the contrary, heterodox economists like Thorsten
Veblen and Joseph Schumpeter long ago raised many of today’s cutting-edge
issues in neoclassical economics, including the role of social norms and
the relationship between technological innovation and business
cycles.
More importantly, heterodox economics
includes core theoretical concepts that are fundamentally incompatible
with neoclassical economics in either of its two contemporary forms. These
concepts result in significantly different explanations of the real world,
including income distribution and the determinants of economic activity
and growth. Moreover, they often result in different policy
prescriptions.
The late Robert Heilbronner – one of Schumpeter’s
most renowned students – viewed economics as “worldly philosophy.” Just as
philosophers are divided on the nature of truth and understanding,
economics is divided on the workings of the real world. Paradigms should
co-exist in economics, just as in other social sciences. Yet, in practice,
the dominance of the belief in “one economics,” particularly in North
America and Europe, has led increasingly to a narrow and exclusionary view
of the discipline.
This reality is difficult to convey. One reason
is that liberal neo-classical economists like Stiglitz and Krugman share
values with heterodox economists, and shared values are easily conflated
with shared analysis. Another reason is that heterodox and MIT School
economists also often agree on policy, even if their reasoning is
different. Finally, most people are incredulous that economists could be
so audacious as to enforce one view of economics.
The “many
recipes” thesis enriches neo-classical economics’ contribution to the
development debate, and many of its policy proposals will find support
from heterodox economists. However, it fails to engage the deep
intellectual divisions regarding economic development, trade, and
globalization, because it refuses to admit the legitimacy of such
disagreements.
By repeating the claim of
“one economics,” Rodrik inadvertently reveals the censorship embedded in
contemporary economics. The great challenge is not to admit
that there are many recipes, but rather to create space for other
perspectives on economic analysis and policy.
Copyright Thomas I.
Palley
Groupthink occurs when the pressure to conform within a group interferes
with that group's analysis of a problem and causes poor group decision
making. Individual creativity, uniqueness, and independent thinking are lost
in the pursuit of group cohesiveness, as are the advantages that can
sometimes be obtained by making a decision as a group—bringing different
sources of ideas, knowledge, and experience together to solve a problem.
Psychologist Irving Janis defines groupthink as: "a mode of thinking people
engage in when they are deeply involved in a cohesive in-group, when the
members' striving for unanimity override their motivation to realistically
appraise alternative courses of action. Groupthink refers to a deterioration
of mental efficiency, reality testing, and moral judgment that results from
in-group pressures." It can also refer to the tendency of groups to agree
with powerful, intimidating bosses.
The concept of groupthink provides a summary explanation of reasons
groups sometimes make poor decisions. Indeed, groups are supposed to be
better than individuals at making complex decisions, because, through the
membership, a variety of differing perspectives are brought to bear. Group
members not only serve to bring new ideas into the discussion but also act
as error-correcting mechanisms. Groups also provide social support, which is
especially critical for new ideas. But when new perspectives are rejected
(as in the "not invented here" syndrome), it is hard to correct errors. And
if the social support is geared toward supporting the group's "accepted
wisdom," the elements that can make groups better decision makers than
individuals become inverted, and instead make them worse. Just as groups can
work to promote effective thinking/decision making, the same processes which
enhance the group's operation can backfire and lead to disastrous
results.
(Hayes Brunswick &
Partners, LLC )
Ken Lay understandably is
among the least admired individuals in America today. Enron Corp.'s former
chief executive officer allegedly oversaw one of the biggest accounting
scams in corporate history, the full repercussions of which are still
unknown as each day seems to bring a new twist to the horrific
scandal.
Yet, it would be somewhat comforting if it turns out that
Lay conceived and executed the scandal knowing in advance the repercussions
of his actions, much like Frank Gruttadauria, the Cleveland stockbroker who
allegedly bilked old ladies and other clients out of millions of dollars by
doctoring their account statements. Gruttadauria reportedly displayed all
the signs of a classic sociopath, including beguiling charm and feigned
empathy for his victims. He apparently acted alone and mysteriously
disappeared before his scheme was discovered, the telltale signs of a
classic scam. How neat and simple it would be to similarly lay Enron's
demise at the feet of one person.
But Lay did not act alone -- and
that may very well be one of the most disturbing elements of the Enron
debacle. He had the enthusiastic support of a venerable cast of characters,
including some high-priced lawyers, accountants, investment bankers and
management consultants. Did Lay systematically entwine his advisers into a
preconceived web of deception? Highly unlikely. Indeed, it's becoming
increasingly clear that financial legerdemain was not unique to Enron;
several other companies disclosed this week that they are delaying or
reconsidering their earnings. In what may be another ominous sign, The Wall
Street Journal reported that Moody's Investor Service has quietly sent out
letters to more than 4,000 companies the agency rates asking for more
information on their "off-balance-sheet financial
arrangements."
Given the tragic fallout resulting from Enron's
collapse, the cacophony of voices clamoring to bring the scandal's alleged
masterminds to justice will no doubt grow louder still in the weeks ahead.
But it is naive to think that culpability rests entirely with Lay, his
lieutenants, and some wayward lawyers and auditors. The tragedy of Enron is
that it was caused by what is known as "groupthink." Truth be told, almost
everyone associated with the company contributed in some way to its
collapse. The concept of groupthink was identified and coined by Dr. Irving
Janis, a professor of psychology at the University of California-Berkeley
and at Yale University, to explain the faulty decisions that led to some of
our nation's biggest tragedies, including the Bay of Pigs invasion, the
escalation of the Vietnam War, the Watergate break-in and the explosion of
the Challenger space shuttle. Janis defines groupthink as "a mode of
thinking where pressure for unanimity overwhelms the members' motivation to
realistically appraise the alternative courses of action. Group
pressure leads to carelessness and poor decisions. This eventually results
in irrational thinking and action." In the case of the Challenger space
shuttle, for example, NASA engineers knew about the dangers of conducting a
launch in 36-degree weather but chose to minimize them. The pressures from
NASA's top brass not to further delay the historic mission were just too
great.
Enron was fertile ground for groupthink to take hold. The
company's macho ethos was to feed Wall Street's insatiable appetite for
spectacular earnings at all costs. This led to the creation of "killer
apps," "new paradigms" and a plethora of esoteric financial instruments that
few people even understood. But given Wall Street's unmitigated support for
(and vested interest in) the arcane products, it hardly mattered. The
regulators nodded. Investors cheered. And the media trumpeted the
innovations.
Lay and his management team eventually came to see
themselves as true masters of their universe, replete with the inevitable
illusion of invulnerability. The company proudly fostered a Darwinian
atmosphere, in which employees falling into the lower percentiles of
performance were summarily dismissed. In Enron's heyday, it was sheer folly
for an employee to question Enron's innovative management practices, and the
few that did either voluntarily resigned or were fired. Enron's accountants
and lawyers no doubt knew that if they didn't go along and bless the
company's activities, management could easily find some other high-priced
firms that would. Enron was a cult, and there were no shortage of
takers lining up for the company's sucrative Kool-Aid, oblivious that the
sweet drink would have a very bitter
aftertaste.
Groupthink is an enclosed system of
thought, a folie, where those engaged cross the boundary into unreality.
Clearly, it leads to defective decision-making, resulting in a low
probability of successful outcome. In the end, at Enron, there was a
massive failure to examine and appreciate the risks taken, along with a
failure of contingency planning. The results speak for themselves. In the
wake of Enron, responsible boards of directors should be aggressively
investigating whether groupthink is permeating the companies they oversee. A
healthy organization fosters a culture whereby employees are both empowered
and expected to debate and challenge each other and consider alternative
courses of action. A mechanism must be in place where employees can
report any perceived irregularities without fear of retribution. It is
incumbent on directors to ensure that the information on which they base
decisions comes from sources other than the CEO and advisors or consultants
that are beholden to the executive. It would be wise to occasionally bring
in outside parties to conduct a "reality check."
At the end
of the day, Lay was an inspired -- though highly flawed leader -- working in
a company that lost its way. The policies and actions that caused Enron's
downfall were years in the making. The "horse was out of the barn" and no
one, including Lay, could change the adverse course of events once their
world began to unravel. It appears that legions of normally thoughtful
people crossed the boundary into unreality; they all "drank the
Kool-Aid," reinforcing one another's view of reality and entered into a
world of their own design and creation. It's likely that the growing
pressures, as problems arose, drove Lay and his senior managers further
beyond the boundary of accountability, and then deluded themselves further
into believing that they could get away with their machinations and schemes.
Unfortunately, we all are victims of their delusion. It will
be up to the courts to decide an appropriate punishment for their misguided
ways.
"Our complex global economy is built upon millions of small, private acts
of psychological surrender, the willingness of people to acquiesce in
playing their assigned parts as cogs in the great social machine that
encompasses all other machines. They must shape themselves to the
prefabricated identities that make efficient coordination possible... that
capacity for self-enslavement must be broken.” (Theodore Roszak - The Voice
Of The Earth)
Heart Murmurs
Few tasks are more challenging than that of attending to our subtle,
internal responses to the world against the deafening roar of what is deemed
‘obviously true‘. Writing in the 1930s, the anarchist Rudolf Rocker made the
point that the state is not a disinterested spectator on the issue of
freedom of thought. In his classic work, Culture And Nationalism, Rocker
wrote:
"The state welcomes only those forms of cultural activity which help it
to maintain its power. It persecutes with implacable hatred any activity
which oversteps the limits set by it and calls its existence into
question. It is, therefore, as senseless as it is mendacious to speak of a
‘state culture‘; for it is precisely the state which lives in constant
warfare with all higher forms of intellectual culture and always tries to
avoid the creative will of culture." (Rocker, Culture and Nationalism,
Michael E. Coughlan, 1978, p.85)
The stakes, Rocker noted, are high:
"If the state does not succeed in guiding the cultural forces within
its sphere of power into courses favourable to its ends, and thus inhibit
the growth of higher forms, these very higher forms will sooner or later
destroy the political frame which they rightly regard as a hindrance."
(Rocker, p.83)
If this strikes us as implausible (as it should), it is for a very good
reason. It seems incredible to us that individuals working for the state -
in government, education, local government - could be eagerly working to
“reduce all human activity to a single pattern”. Are they not human beings
like us? Do they not seek freedom of thought, independence of mind, for
their own children?
It is a very reasonable argument and applies equally to the media.
Dissident analysts claim, and in fact demonstrate, that truth is filtered,
depleted to a dramatic degree by the corporate media. But surely the men and
women of the press - again, human beings like us - are not eagerly striving
to oppress humanity.
The answer is found in the way the performance of an organisation is
shaped by its primary, bottom line goals. As I have discussed elsewhere, the
process is similar to the mechanisms underlying crystal formation. The
near-perfect, symmetrical shapes of snowflakes and other crystalline
structures are no accident but flow from the founding conditions around
which the crystals form.
[Posted August 29, 2001]
You see it in daycare
centers, and you see it in the public schools, from kindergarten to high
school. Group projects abound, shoving together individuals who have no formal bonds, yet are banded together for the
purpose of collective decision-making.
Universities, both public and private, are not immune to
this affliction. In fact, if you attend a business college today, you’ll
think it’s the newest rage, but it’s been the rule for decades.
Most university programs may not use group projects, but
undergraduate and graduate programs in business are full of them. It is our
contention that group projects are criminal in themselves and should be
abolished on moral grounds, in that they function as collectivist
indoctrination. Like government schools, group projects homogenize
thought and neuter high achievers.
Individuality is forced out of our kids at an early age.
After all, group projects are often the standard for young children in
childcare situations, where the young ones are often taught that individuals
don't do things or go places, groups do. By college age,
the collective cast of mind has only gotten more oppressive. Groupthink is a
process of gradualism that seeks to gently merge the followers into a pack
with leaders, the hope being that the leaders will pull up those who
typically reside on the low end of the motivation and achievement
scale.
For example, a professor assigns an innocuous academic
exercise, such as a term paper, communications presentation, or marketing
proposal. It is turned into a group project by fiat—the professor segments
the class into groups. More often than not, these groups are not even
voluntary. When the students turn in their papers, the professor usually
assigns the same grade to everyone in the group.
Another common stratagem in this setting is to have group
members grade one another and develop useful constructive criticism for
fellow teammates. However, this commonly dovetails into grades by mutual
agreement. If one member doesn't go along with this forced "agreement" by
granting the agreed-upon concessions, he is usually excoriated by his fellow
groupthinkers for doing so. This is a pact where honest evaluations take a
back seat to easy A's and phony feel-goodism.
Shirking is the most immediate danger within group projects.
Usually, the group members with some semblance of a work ethic labor hard
and often to take up the slack from the free riders. There are other dangers
as well. In a case experienced by one of us, for example, a group
member simply cut and pasted text from the Web instead of writing up his
share of the research. Thus, the final version of the paper given to the
professor was 20 percent pure plagiarism, unbeknownst to the rest of the
group until it was too late. The slacker got a grade of 98 for the project,
as did the people who actually worked.
In other cases, the shirking of duties simply cannot be
overcome. High achievers are forced to relax their standards and accept
being reduced to the lowest common denominator in the group. This can have a
dreadful effect on work ethic and attitudes through the following insidious
lessons instilled by group projects:
Lesson 1: You will learn cooperation, not
competition.
Lesson 2: The achiever will be taxed: The
reward of his efforts will go to others, so the low achiever who exerts
little effort and contributes almost nothing will be taken care of by the
professor (serving as the government).
Lesson 3: Individualism will not be allowed.
The individual with the best ideas will do what the group decides. If you
have an original or daring thought, forget it. The group will write up a
bland sack of platitudes that represents the thinking of its lowest common
denominator.
Lesson 4: Conservatism and caution are the
name of the game. Whereas high achievers constantly strive to better
themselves and have the room to operate in a more daring realm, the low
achievers want things quickly and easily as they conform to less strict
standards for excellence. The result is likely to be one of mediocrity.
Lesson 5: Get used to the emotional feel of a
collectivist, totalitarian state. If you are an individualist with a work
ethic and a drive to excel, you will be pounded down until you adopt the
debilitating, depressing learned helplessness that socialism produces. If
you are a slacker, however, a free rider with no qualms about living on
the purloined toil of honest people, you can feel relieved, satisfied,
secure; if you are a thoroughgoing scumbag, you can even feel pride in any
good grade given you on the backs of your teammates.
Business programs, in forcing group settings upon
(previously) ambitious students, are responding to the demands of the
business community. This can be dangerous.
First, the business community isn’t always the only entity
to ask for the secrets of success. Successful businessmen such as Ted Turner
and Warren Buffett have proven they don’t understand well what makes success
possible. They know how to make money in ignorance of the economic
principles that make it possible. This is due in part to the fact that most
tycoons have navigated an ocean of government regulations in making their
fortunes, and they mistakenly conclude that the government therefore had
something to do with their success.
Second, and more ominous, business schools are usually the
only programs on campus employing any right-wing (if mildly so) professors.
Having the only campus department that makes extensive, mandatory use of
group projects, business programs subject and desensitize their hapless
students to the most realistically socialist experience available at most
universities. Administrators are probably comfortable in the knowledge that
the group project experience more than compensates for professors who
occasionally dare to admit publicly that market solutions are better than
government dictates. And students aren’t the only ones ruined: after enough
years of being commissars, professors may slowly convert to the leftist
mentality as well.
In truth, groupthink has become a chronic problem in
universities; it is a consensus-seeking process that does not allow for the
preservation of individuality. It stifles creativity for the purpose of
compromise and agreement. The university—through its group-project
mentality—has become a test lab for socialization skills. The fostering of
such rigid cooperation and coerced integration can be had only at the
expense of lesser accomplishment.
Ayn Rand had it right when she said that any collectivist
system is necessarily self-defeating no matter what its specific policies or
leaders. After all, if Johnny is in your group and he can't read or write
very well, you'll be getting Johnny's grades.
WASHINGTON - In a 1972 book, 'Victims of Groupthink: A Psychology Study of Foreign-Policy
Decisions and Fiascoes', Irving Janis identified the Vietnam War and the
Bay of Pigs invasion of Cuba as particularly compelling examples of
how very smart people can collectively make very stupid decisions.
In studying the Bay of Pigs, for example, Janis noted that the group
around President John Kennedy made a series of assumptions -- that Cubans
would welcome the invasion and rise up against Fidel Castro and that the
U.S. could credibly deny involvement in the invasion, if necessary -- that
were fundamentally deluded.
As in Iraq, many of those assumptions were based largely on the accounts
of exiles and defectors, but the group dynamics involved in decision-making
also played a key role in rallying the administration of the ''best and the
brightest'' behind an adventure that proved disastrous, according to Janis.
A great deal more is known about group dynamics within the Bush
administration foreign-policy apparatus today -- as a result of leaks,
memoirs, and books, such as Bob Woodward's 'Plan of Attack' and Jim Mann's 'Rise of the Vulcans' -- than was known at the time about
the Kennedy administration.
And what is known suggests the existence of two major groups -- an
''in-group'' of hawks whose captain is Vice President Dick Cheney and which
has had a decisive influence on Bush himself, and an ''out-group'' of
''realists'' headed by Secretary of State Colin Powell and his deputy,
Richard Armitage.
While the out-group, which ironically boasts men, including Powell,
Armitage, ret. Gens. Anthony Zinni and Brent Scowcroft, with real war
experience, the in-group is dominated by individuals, particularly Cheney
and virtually the entire civilian leadership of the Pentagon, who have none
at all.
Hence the moniker ''chickenhawks'', defined as individuals who
favor military solutions to political problems but who themselves avoided
military service during wartime. Cheney, who received five different
deferments from the military draft during the Vietnam War, famously told an
interviewer once that he ”had other priorities'' in the 1960s than military
service.
What also makes the in-group so remarkable is its very small size, the
long history it has shared together, and its close personal relationships.
Pentagon chief Donald Rumsfeld and Cheney, for example, worked together
under Richard Nixon and have been the very best of friends ever since. Their
neo-conservative aides and advisers, such as Deputy Defense Secretary Paul
Wolfowitz, former Defense Policy Board (DPB) chairman Richard Perle, and DPB
member Kenneth Adelman, likewise have been close for more than three decades
and have personally mentored other top aides and advisers, such as Cheney's
chief of staff, I. Lewis Libby, Defense Undersecretaries for Policy and
Intelligence, Douglas Feith and Stephen Cambone, respectively, and Weekly
Standard editor William Kristol, to name just a few.
The sense of kinship that unites the group is illustrated in part by a
dinner hosted by Cheney shortly after U.S. troops took Baghdad 13 months
ago. The guests included Wolfowitz, Libby, and Adelman; the atmosphere, warm
and celebratory as they recounted their defeat of the ''realists. ''Someone
mentioned Powell, and there were chuckles around the table'', Woodward
noted. And then ''They turned to Rumsfeld, the missing brother'', and told
affectionate stories about their past associations with the crusty Pentagon
chief.
When Adelman said he had been surprised U.S. troops had not yet found
weapons of mass destruction (WMD), he was assured by Wolfowitz, ''We'll find
them'', and by Cheney, ''It's only been four days really. We'll find them''.
Students of Groupthink list a number of symptoms of the phenomenon that
can lead the group into disaster, among them:
- believing in the group's inherent morality;
- sharing stereotypes, particularly of the enemy;
- examining few alternative or contingency plans for any action;
- being highly selective in gathering information;
- avoiding expert opinion;
- protecting the group from negative views or information that would
contradict their basic assumptions;
- and - having an illusion of invulnerability.
From what is now known about planning for Iraq, each of these factors
obviously played a role, and they continue to inform U.S. policy not only
against perceived enemies, but even against out-groups in the administration
or in Congress. And, because the in-group was so small, many of these
characteristics were unusually pronounced.
The notion that the chickenhawks were morally superior, not just to
Saddam Hussein or the ''terrorists'' or ''Ba'athist dead-enders'' whom
they've been fighting since the war ended, extended even to the
''realists'', who were denounced in internal battles as ''appeasers'' or
worse. As Cheney was recently quoted as declaring with regard to State
Department proposals to engage North Korea, ''We don't negotiate with evil;
we defeat it''.
Middle East experts at the State Department and the Central Intelligence
Agency (CIA) were likewise scorned and excluded from both planning and the
immediate aftermath of the invasion, while the creation in Feith's office of
ad hoc intelligence analysis groups that ''stovepiped'' evidence of Iraqi
WMD and ties to Al Qaeda was a classic illustration of selective
intelligence gathering that would confirm pre-existing stereotypes.
Similarly, the total failure to prepare contingency plans to deal with
looting, or even with the emergence of an insurgency against the occupation,
displayed a confidence that turned out to be completely unwarranted.
Likewise, former Army chief of staff Gen. Eric Shinseki's prediction that
more than 200,000 troops would be needed to occupy Iraq in order to ensure
security had not only to be rejected in order to protect the group from
negative views; it had to be publicly ridiculed by Wolfowitz as ''wildly off
the mark''.
In his latest expose on the prisoner-abuse scandal at Abu Ghraib, New
Yorker correspondent Seymour Hersh noted that Rumsfeld's penchant for
''secrecy and wishful thinking'' -- characteristics that also apply to
Groupthink -- resulted in the Pentagon's failure to do anything about it or
about the many other problems they have encountered.
And whenever Powell or Armitage tried to bring to the attention of the
highest levels in the administration the growing concern about prisoner
abuse, according to a source recently cited in the ''Nelson Report'', an
insider Washington newsletter, they were forced to endure from the
chickenhawks what an eyewitness source characterized as ''around-the-table,
coarse, vulgar, frat-boy bully remarks about what these tough guys would do
if THEY ever got their hands on prisoners...''
On July 8, Asia Times Online broke the story (Patriotic pride and fear) of how noted Canadian
psychologist Daniel Burston (two PhDs from Canada's York University and a
widely acclaimed author) perceived a broad retreat into "social fantasy
systems" and "socially patterned defects" as explaining much of the Bush
administration's decision-making. He observed for ATol that such flaws bring
those involved to "act in ways which - from an outsiders perspective - look
insane". On the following day, July 9, the US Senate Intelligence Committee
released its report on the United States' justification for the Iraq war,
claiming an erroneous "groupthink" was to blame, and coincidentally
highlighting the validity of Burston's observations.
Groupthink is
defined as "a mode of thinking that people engage in when they are deeply
involved in a cohesive group, when the members' strivings for unanimity
override their motivation to realistically appraise alternative courses of
action". In other words, retreat into a "social fantasy system" allowed
"socially patterned defects" to flourish within the group's members.
The Senate Intelligence Committee chairman, Republican Senator Pat
Roberts of Kansas, stated that "it is clear this groupthink also extended to
our allies and to the United Nations and several other nations as well". The
July 8 ATol piece provides parallel commentary on this, noting that "in most
cases, destructive impulses are rationalized, ensuring 'at least a few other
people or a whole social group share in the rationalization and thus make it
appear to be realistic to the members of such a group'. In effect, an
emotional-support network is formed, providing its individual members with a
mistaken sense of legitimacy."
In an October 2003 article titled
"Cheney's hawks hijacking policy", this journalist revealed that former
senior Pentagon staffer Lieutenant-Colonel Karen Kwiatkowski (retired)
described "a subversion of constitutional limits on executive power and a
co-optation through deceit of a large segment of the Congress", adding that
"in order to take that first step - Iraq - lies had to be told to Congress
to bring them on board". Planned and deliberate lies were told in order to
manipulate Congress and the American people purposefully, effectively, and
criminally, undercutting the very foundations of US democracy.
Not
to be misunderstood, the "groupthink" in question is far from innocent
error, and administration critics charge that the Senate Intelligence
Committee reports' attempts to couch blame as mere "fuzzy thinking"
highlight the propaganda efforts ongoing, the groupthink still dominating
policy. But this psychological phenomenon perhaps best translates to a broad
failure to appreciate the reality of circumstance, the nature or
implications of actions, the very difference between right and wrong. And
while a hard core of believers/leaders is typically central to such a
phenomenon's workings, their influence radiates broadly outward through
their immediate group(s) and those they interface with.
Coincident
with the Intelligence Committee's report, Senator Roberts defended the Iraq
war as justified for humanitarian reasons, though numerous human-rights
organizations have condemned the US record in Iraq, the war crimes that US
forces are alleged to have committed there.
Notably, before the Iraq
war began, numerous figures had publicly challenged the Bush
administration's prewar assertions. On September 9, 2002, CNN had headlined
"Former weapons inspector: Iraq not a threat", noting, "Former UN weapons
inspector Scott Ritter says US military action against Iraq would be a
mistake." And oil-war questions were abundant.
But highlighting the
dynamics of what was ongoing, Kwiatkowski had charged that "there was an
extra-governmental network operating outside normal structures and
practices, 'a network of political appointees in key positions who felt they
needed to take some action, to make things happen in a foreign affairs,
national security way'. She said Pentagon personnel and the DIA [Defense
Intelligence Agency] were pressured to favorably alter assessments and
reports", a hard core of misguided individuals within the administration of
US President George W Bush enjoying "a mistaken sense of legitimacy" in
their efforts, spreading this false and wrongful mindset to many of those
they encountered.
While groupthink is undoubtedly to blame for the
Iraq war's false premises, the full implications of the "groupthink" that
occurred, as well as that which is ongoing, appear to have yet to emerge.
Highlighting a disturbing reality, Burston had noted parallels
between the social psychology of the present and that of the 1930s.
In a further parallel to the 1930s, on July 9 the conservative
Chicago Sun-Times (one of the United States' top 50 papers) ran a
commentary on US fascism, stating that "fascism' is not an exaggeration",
and adding that anyone who doubted this "doesn't know what fascism
is". It went on to note: "Some liberals suggest that the
administration is capable of canceling the November election on the grounds
of national security if it looks like Bush would lose. I doubt this." But on
July 11 and 12, news of the administration seeking legal authority for just
such an election postponement - a delay in the November election for
national-security reasons - widely broke.
Burston had said he
believed the US could be poised "on the verge" of a corporate fascism, and
eminent political scientist Dr Michael Parenti (Yale PhD in political
science and author of 18 books) spoke similarly. And indeed, the slippery
slope of "groupthink" in effect provided the basis for the psycho-dynamics
dominating the rise of 1930s fascism, its proponents of a "new order"
perceiving endless lies, propaganda, repression, mass violence, and even
mass murder as legitimate means to what they perceived as their "noble"
ends, versus tragic and criminal delusions. Students of history will note
the "groupthink" evidenced in Germany's 1930s mass rallies at Nuremberg,
though the realization of what was then occurring didn't fully emerge until
the Nuremberg War Crimes Tribunals of the 1940s.
As discussed in
ATol's July 8 article, the process of groupthink then in effect spawns
"'socially patterned defects' that enabled large groups of people to adjust
themselves comfortably to a system that, humanly speaking, is 'fundamentally
at odds with our basic existential and human needs'". Burston then noted
that this resulted in "deficiencies, or traits, or attitudes which don't
generate internal conflict when, in fact, they should". He then cited "Nazi
mass-murderer Adolf Eichmann as representing the 'prototypical example' of
what the phenomenon of 'socially patterned defects' can engender",
emphasizing that "with one very questionable exception, Eichmann tested
normal on all psychological tests that were administered to him by
mental-health experts before his trial".
In discussing questions of
contemporary fascism with Asia Times Online, Dr Parenti said, "When fascism
came to power [in the 1930s], what it did was cut back on the public sector,
privatize a lot of state-owned industries, abolish inheritance taxes and
other taxes on the rich, abolish corporate taxes, cut wages, destroy labor
unions, and destroy or undermine opposition parties." He described
fascism as simply a tool employed by ruthless power-elites in
achieving their ambitions. He added: "There's a concern that we're
[the US] heading towards fascism, or that we're replicating fascism today."
Parenti saw citizenry being mobilized by "waving the flag in their
face, and wrapping the flag around the leader, and telling them that they're
being threatened by one menace or another, from abroad or within." In a
parallel, Bush critics have long charged his administration with precisely
this. Parenti cited Nazi Field Marshal Hermann Goering's similar explanation
of popular motivation, which emerged from the period of the Nuremberg
Tribunal.
In a purely American vein, Parenti recalled that former US
secretary of state John Foster Dulles had said: "To get the people to
support large military budgets and intervention, you've got to conjure up a
threat, and you've got to make this scenario of 'one nation is a hero,
another nation is a villain'. It's got to be hero versus villain." And the
Senate Intelligence report does aid parallels between Dulles' vision and the
Iraq war.
"You fool the people into thinking that you're protecting
them, you're watching out for their interests, and you get them to vote
against their own interests," Parenti charged.
Comparing today's
United States to the 1930s, Parenti addressed the recent US Supreme Court
decision allowing Vice President Dick Cheney and the Bush administration to
refuse public access to the documents of Cheney's so-called Energy Task
Force. Indications exist that oil-war questions were discussed within this
group, a September 2003 Inter Press Service article, "Oil war questions
surround Cheney energy group", addressing such concerns. Parenti strongly
emphasized the implications of the court decision.
"The Supreme
Court decision does, in effect, lift the executive power to an unaccountable
and undemocratic status. So you really have no way for Congress or the
public to hold these people accountable for what they're doing. You're, in
effect, setting up a cloak of impunity on their actions under the guise of
'executive privilege' ... so what we're getting here is many of the same
things that the fascists accomplish, while maintaining a democratic veneer,"
Parenti claimed, adding: "You're getting enormous tax cuts for the rich -
there are now corporations that are making billions of dollars in profits
that are paying no taxes - you're getting the rollback of trade unions
through outsourcing, closing down unionized factories ... you're getting
depressed wages, wages aren't keeping up with inflation; increasing spending
in the military sector - this is just exactly what the fascists did. So
you're accomplishing a lot of these same things without having to 'go all
the way' and destroy every little shred of democracy." Parenti then
proceeded to draw a firm parallel with the Italian 1930s "corporative
state".
"In practice, the big decisions regarding the political
economy were made by the industrialists," Parenti noted, but prefacing that
by saying all groups within the Italian corporative state were "supposed to"
share the decision power. He likened the large Italian industrialists' group
to America's National Association of Manufacturers, saying, "in effect,
those were the guys who were really thoroughly incorporated, and most of the
ordinary people were left out in the cold, as subjects of the state".
After a moment, Parenti quickly observed that "the people always get
a share of this action, though. The American people get a share of it, the
Italians did ... their share is the taxes and the blood. They pay the taxes,
and they send their sons off."
Notably, with the Nuremberg
Tribunals, society long ago determined that those who may commit criminal
acts while influenced by groupthink are nevertheless criminals, and should
be judged accordingly.
(Copyright 2004 Asia Times Online Ltd. All
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The phenomenon that group discipline and dynamics
leads to hindrances for new ideas in groups.
- "Yes! We're all individuals!" "I'm
not"
Most broadly, groupthink occurs when a group
makes suboptimal decisions because of process problems or communication
problems due to SocialNormalization. Most or all of the group members may,
privately, realize that the decisions is a poor one but feel powerless to
change it for fear of offending other group members, injuring SacredCows,
or detonating LandMines.
If everyone takes for granted the group's
perceived opinion, the group will choke itself to death. This can give rise
to the Wiki:AbileneParadox. Usually when this happens, the group
is considered to have an identity all unto itself. Sometimes it gets fuzzy
whether or not the individuals have identities or are even conscious.
Sometimes it's fuzzy whether or not there's even such a thing as an
individual.
GroupThink is
absolutely not collective intelligence. In CollectiveIntelligence, decisions are taken or opinions
are set up by a group of people in such a way you can't distinguish an
individual as the "author" of the decision or the opinion. To be achieved,
it requires to get over groupthink. In the situation where groupthinking
occur, each individual tend to conform his opinion to the opinion reached by
the group. That often lead to bad choices, as no individual entirely agrees
with what he finds himself ultimately supporting; also, it reduce
creativity, as individuals tend to forget they have other choices than the
one displayed by the group.
Contrast BarnRaising, where TheIndividual grants TheCollective influence over his actions, but not
his thoughts. This is much more healthy.
Further reading: Groupthink : Psychological
Studies of Policy Decisions and Fiascoes, by Irving L. Janis
You will often see online people complain about GroupThink
and how it must be combatted. This is justified by people's general, cynical
understanding of groupthink. To quote an anonymous author on this page:
- Groupthink generally refers to the collective stupidity, or lowest
common denominator of individual intelligence. It is mob rule. To err is
human, to really f*ck things up requires a committee.
However, certain AntiAuthoritarians use GroupThink
as a foil for their inappropriate behaviour. They rationalize or justify
their anti-social and often (psychologically/sociologically) violent
behaviour towards others by saying they are combatting GroupThink.
People not used to this strategy, and those aware that GroupThink
is an invisible evil, will be caught by this justification. They will begin
to ask themselves whether or not they are experiencing GroupThink,
and surely FreedomOfSpeech? is a paramount good? We should, therefore, allow this
pesky irritant to annoy us for the sake of democratic principles.
But that is not exactly how life works. A pesky irritant is undoubtedly
confronting and limiting someone else's rights or freedoms. And more to the
point, the person who feels that it is necessary to be as annoying as
possible to all types of people is likely to be very angry for some reasons
that reach well beyond their interaction with the community (under an AngryCloud
from birth). ControlYourself, but that also means we EnforceResponsibility.
GroupThink is only a problem when valid individual voices
are squashed due to a collective unwillingness to listen.
It is not GroupThink to police oneself. It is legitimate to not
listen to someone trying to squash your voice. Rather, it is
illegitimate to gain voice through ManipulativePower.
If there really was a problem with GroupThink,
the best way to change that is to introduce contravening opinions in a
constructive, positive way. The only way out of GroupThink
is to lead. Creating a fight is only going to reinforce the
GroupThink as it creates a SeparationOfPositions?. More to the point, it creates an UsAndThem
situation by making the boundary of the group clear where before it was
fuzzy; it at least signals to the group that the individaul AntiAuthorian? is outside the group, and thus that person will
be perennially excluded.
If you are a victim of such a ploy, just ask the person to lead
the group out of the groupthink, rather than try to fight it. Ask them to be
constructive, and positive. Help them with this, as the real problem may be
that they are lacking the social skills necessary to navigate group
situations.
For similar manipulative reasons, the term "groupthink" is often used by
trolls.
Leadership promotes and manipulates GroupThink.
The only way out of GroupThink is to not follow. The simple
statement "I dissent" is a better and non-violent way to not follow compared
to the combatative approach of the typical
AntiAuthoritarian.
- Or even more likely, starve itself to death because no one is
contributing any ideas.
As far as starving to death goes, I think that's highly unlikely. To
start with, OddBalls? turn up and add a different personality to the mix. This
helps prevent ThoughtStagnation? . Merely by being here, 'posting' something slightly
different, I'm affecting others' thoughts and injecting something a little
different, causing people to potentially behave a little differently than
before they encountered me. Likewise, the different people here affect me
and how I behave and this, in turn, filters into the way we all behave with
each other. As with anything in life, there are factors which simply can't
-be- factored (yet). For instance, one could argue a certain WayOfThought? needs to exist before one would even find oneself in a
scenario like wiki. This suggests an IncestuousMindset? in the first place. However, this is offset by raw,
potential growth. -- DominicBurns
---
A pod of whales, communicating at high bandwidth, function as a group
incredibly well. They even work very well with humans with limited
communication. We can't speak their language, they have to learn ours.
Perhaps this is why a pod beaches themselves after losing a key member. They
cannot function alone. Neither can we. -- JimScarver
---
People cooperate toward common goals, nothing new there. People form
structured groupings to divide labor, provide for mutual defense, and so on.
When it gets to be a problem is when a "group" is really a mob.
A collection of people who have no intentional common alignment is not a
group in the "going somewhere together" sense. The bigger this collection
gets, the narrower the scope of things they will all agree on.
Unfortunately, for whatever reason, the narrower scope doesn't tend toward
greater benefit either for the group of its individuals. It tends to be more
destructive.
If you extract the individuals and consult them directly you get a wide
range of responses, complete with nuances. Asked the same questions while
surrounded by a group, the answers are usually different.
Try this: Get a group of individuals, and survey them individually on
some matter or other. If you "load" the questions you're going to get
"loaded" results, so don't bother. Now, collect all these individuals
together in a room and have them "vote" on the same matters. When we did
this we found consistently that people didn't "vote" along the same lines as
their stated individual preferences.
So, if you want a truer representation of the inclination of a group, ask
the individuals *seperately* and not collectively.
GroupThink is, on the whole, a bad way to make decisions.
You get better vectors if you collect each discrete vector and then average
them, rather than poll a mob and take the resulting apparent vector.
-- GarryHamilton
---
I did some brainstorming on why GroupThink
occurs just based on my own experience.
- A confident voice claiming to speak the consensus will make
individuals think that is the consensus, even when it is not.
- Fear of being wrong and therefore embarassed in front of the group.
- Fear of retribution, such as being shunned by more powerful members of
the group.
- People AvoidConflict, and they certainly will want to avoid
conflict with a group they have GroupAffinity? for.
- People take sides. You may be inclined to support positions of your
group that you disagree with as long as you agree with most of what they
think.
- As professionals (BeProfessional), we all know how important it is for a
group to speak with one voice to the outside even if internally we
vehemently disagree. The CluetrainManifesto speaks against this, however.
I think, though, the biggest reason people don't speak up in a group is
that they are unsure of themselves, their status/position within the group,
and the veracity of what they would say. People that HaveCourage? don't have trouble dissenting in a group, and conversely
groups that AlleviateInsecurity? facilitate more individual contributions. Perhaps
groupthink is merely a failure mode of a community with weak BehavioralNorms? -- SunirShah
Seems to be a lot about status (continue brainstorming):
- People want to be part of the community, so they adapt. If they feel
weak they may fear to be rediculed. -- Wiki is about taking all opinions
seriously, any contribution is welcome.
- People are part of an informal hierarchy. If they feel up to, a
different opinion may be seen as a claim for leadership. One may want to
avoid that or test his chances. -- Wiki seems to be open for that kind of
problem. Trolls that split a community, usurpers who want to take
leadership, leaders that feel attacked by opposing opinions.
- Loyal members or obliged members defend the
rules and decisions of their community externally, even if they want to
change it internally. This makes it necessary to be able to
make the difference between internal and external! That means between
internal communication (other members, topics) and external communication
(guests, visitors)!
-- HelmutLeitner
AMPP: Indoctrination - Part
1
Next Chapter : Mass Media, Establishment Minions Previous Chapter :
Manufacturing Madness Indoctrination - Part 1 Making Little Monsters Go on
to Indoctrination Part 2 - Shoehorning the Public "There are gaps in our
knowledge and we often have no
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Back in 1972 Irving Janis invented the word "groupthink" to describe what
happens when people stop thinking as individuals and let group thinking take
over.
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As explained on our fabulous homepage, the idea behind Irving Janis's
groupthink theory is happening all the time without individual's being aware
of it.
GROUPTHINK/MANAGING AGREEMENT BIC
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Reading: ”Political Communication in Decision-Making
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Groupthink Quiz
What is Groupthink
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What is Groupthink?
Groupthink, a term coined by social psychologist Irving Janis (1972),
occurs when a group makes faulty decisions because group pressures lead to a
deterioration of “mental efficiency, reality testing, and moral judgment”
(p. 9). Groups affected by groupthink ignore alternatives and tend to
take irrational actions that dehumanize other groups. A group is
especially vulnerable to groupthink when its members are similar in
background, when the group is insulated from outside opinions, and when
there are no clear rules for decision making.
References (also see annotated bibliography
of books, articles and websites below)
Janis, Irving L. (1972). Victims of Groupthink. New
York: Houghton Mifflin.
Janis, Irving L. (1982). Groupthink: Psychological Studies of
Policy Decisions and Fiascoes. Second Edition. New York:
Houghton Mifflin.
Symptoms of Groupthink
Janis has documented eight symptoms of
groupthink:
- Illusion of invulnerability –Creates
excessive optimism that encourages taking extreme risks.
- Collective rationalization – Members
discount warnings and do not reconsider their assumptions.
- Belief in inherent morality – Members
believe in the rightness of their cause and therefore ignore the ethical
or moral consequences of their decisions.
- Stereotyped views of out-groups –
Negative views of “enemy” make effective responses to conflict seem
unnecessary.
- Direct pressure on dissenters – Members
are under pressure not to express arguments against any of the group’s
views.
- Self-censorship – Doubts and deviations
from the perceived group consensus are not expressed.
- Illusion of unanimity – The majority
view and judgments are assumed to be unanimous.
- Self-appointed ‘mindguards’ – Members
protect the group and the leader from information that is problematic or
contradictory to the group’s cohesiveness, view, and/or decisions.
When the above symptoms exist in a group
that is trying to make a decision, there is a reasonable chance that
groupthink will happen, although it is not necessarily so. Groupthink
occurs when groups are highly cohesive and when they are under considerable
pressure to make a quality decision. When pressures for unanimity seem
overwhelming, members are less motivated to realistically appraise the
alternative courses of action available to them. These group pressures
lead to carelessness and irrational thinking since groups experiencing
groupthink fail to consider all alternatives and seek to maintain
unanimity. Decisions shaped by groupthink have low probability of
achieving successful outcomes.
Examples of Groupthink: Past and
Present
Examples of groupthink “fiascoes” studied
by Janis include US failures to anticipate the attack on Pearl Harbor, the
Bay of Pigs invasion, the escalation of Vietnam war, and the ill-fated
hostage rescue in Iran. Current examples of groupthink can be found in
the decisions of the Bush administration and Congress to pursue an invasion
of Iraq based on a policy of “preemptive use of military force against
terrorists and rogue nations”. The decision to rush to war in Iraq
before a broad-based coalition of allies could be built has placed the US in
an unenviable military situation in Iraq that is costly in terms of military
deaths and casualties, diplomatic standing in the world, and economically.
Groupthink and the News
Media
Knowledge is power and we as citizens and
as a nation are becoming less powerful. We face an administration that
believes in operating under high levels of secrecy. The American
press, especially the television news media, has let down the American
people and the American people have allowed this to happen. US
television news is geared more toward providing entertainment than
information. When one compares the news Americans received about the
“war on terrorism” and “war in Iraq” with the news citizens of other
countries received, it is easy to see why many Americans were eager to
launch an attack on Saddam Hussein while most of the world thought this was
not a good idea. The major news networks eagerly voiced almost
exclusively the Bush administration’s (questionable) justifications for the
attack on Iraq and ignored the voices of millions who knew that other ways
of addressing the issues were still possible. Furthermore, the rapid
pace of CNN, MSNBC, and Fox News opinion programs makes it difficult for
viewers to process information in any depth. Americans need a press
that serves as a devil’s advocate to alleviate the ongoing groupthink
concerning the war on terrorism and the invasion of Iraq.
Review the following consequences of
groupthink and consider how many of them apply to the Bush administration’s
handling of the ‘war on terrorism’ and the issues related to Iraq and Saddam
Hussein:
a) incomplete survey
of alternatives
b) incomplete survey
of objectives
c) failure to examine
risks of preferred choice
d) failure to
reappraise initially rejected alternatives
e) poor information
search
f) selective bias in
processing information at hand
g) failure to work out
contingency plans
h) low probability of
successful outcome
Remedies for Groupthink
Decision experts have determined that
groupthink may be prevented by adopting some of the following
measures:
a) The leader should
assign the role of critical evaluator to each member
b) The leader should avoid
stating preferences and expectations at the outset
c) Each member of the
group should routinely discuss the groups' deliberations with a trusted
associate and report back to the group on the associate's
reactions
d) One or more experts
should be invited to each meeting on a staggered basis. The outside
experts should be encouraged to challenge views of the members.
e) At least one
articulate and knowledgeable member should be given the role of devil's
advocate (to question assumptions and plans)
f) The leader should
make sure that a sizeable block of time is set aside to survey warning
signals from rivals; leader and group construct alternative scenarios of
rivals' intentions.
Annotated
Bibliography
Books
Hart, P. (1994). Government: A study of
small groups and policy failure. Baltimore:
The Johns Hopkins University
Press
In the first book-length study of groupthink
since Janis’s work, Paul ‘t Hart has provided a rigorous and systematic
version of this influential theory which opens several new avenues for
research. Groupthink in government examines the circumstances most likely
to produce or counteract groupthink, and applies the theory to issues such
as leadership style, risk taking, accountability, and prevention. ‘t
Hart’s elaborate case study of the Iran-Contra scandal demonstrates the
continuing relevance of the groupthink theory in the examination of flawed
decision making.
Janis, I.L. (1972). Victims of
groupthink: A psychological study of foreign policy
decisions and fiascoes.
Boston: Houghton Mifflin Company.
Janis defines groupthink as the psychological
drive for consensus at any cost that suppresses disagreement and prevents
the appraisal of alternatives in cohesive decision-making groups. In this,
the first edition, Janis showed how this phenomenon contributed to some of
the major U.S. foreign policy fiascoes of recent decades: the Korean War
stalemate, the escalation of the Vietnam War, the failure to be prepared
for the attack on Pearl Harbor, and the Bay of Pigs blunder. He also
examined cases, such as the handling of the Cuban Missile Crisis and the
formulation of the Marshall Plan, where GROUPTHINK was avoided.
Janis, I.L. (1982). Groupthink: A
psychological study of policy decisions and fiascoes.
Boston: Houghton Mifflin
Company.
In this edition (2nd), Janis applies
his hypothesis to the Watergate cover-up, portraying in detail how
GROUPTHINK helped to put the participants on a disastrous course and keep
them there. In addition, he presents some new ideas on how & why
GROUPTHINK occurs, and offers suggestions for avoiding
it.
Kowert, P.A. (2002). Groupthink or
deadlock: When do leaders learn from their
advisors? Albany: Blackwell
Publishing.
This book argues that too much advice can lead
to policy deadlock depending on leadership style. The danger of groupthink
is now standard fare in leadership training programs and a widely accepted
explanation, among political scientists, for policy-making fiascoes.
Efforts to avoid groupthink, however, can lead to an even more serious
problem-deadlock. Groupthink or Deadlock explores these dual problems in
the Eisenhower and Reagan administrations and demonstrates how both
presidents were capable of learning and consequently changing their
policies, sometimes dramatically, but at the same time doing so in
characteristically different ways. Kowert points to the need for leaders
to organize their staff in a way that fits their learning and leadership
style and allows them to negotiate a path between groupthink and
deadlock.
Journal Articles
Ahlfinger, N. R. & Esser, J. K. (2001).
Testing the groupthink model: Effects of
promotional leadership and conformity predisposition. Social Behavior &
Personality: An International Journal, 29(1),
31-42.
This article discusses two hypotheses that were derived from
groupthink theory and were tested in a laboratory study which included
measures of the full range of symptoms of groupthink, symptoms of a poor
decision process, and decision quality. The hypothesis that groups composed
of members who were indisposed to conform would be more likely to fall
victim to groupthink than groups whose members were no predisposed to
conform received no support. It is suggested that groupthink research is
hampered by measurement problems.
Esser, J.K. (1998). Alive and well after 25
years: A review of groupthink research.
Organizational Behavior & Human
Decision Processes, 73(2-3), 116-141.This article provides a summary of empirical
research on groupthink theory. Groupthink research, analyses of historical
cases of poor group decision making are included, and laboratory tests are
reviewed. Results from these two research areas are briefly compared.
Theoretical and methodological issues for future groupthink research is
identified and discussed.
Fuller, S.R. & Aldag, R.J. (1998).
Organizational Tonypandy: Lessons from a
quarter
century of the groupthink phenonmenon. Organizational Behavior &
Human Decision Processes, 73(2-3), 163-184.In this paper, Fuller and Aldag argue that the
quarter-century experience with groupthink represents an unfortunate episode
in the history of group problem solving research. There has been remarkably
little empirical support for the groupthink phenomenon, and that the
phenomenon rests on arguable assumptions, that published critiques of
groupthink have generally been ignored by groupthink researchers, and that
groupthink is presented as fact in journal articles and textbooks. They see
continued advocacy of groupthink as a form of organizational Tonypandy, in
which knowledgeable individuals fail to “speak out” against widely accepted,
but erroneous beliefs. They explore the nature and causes of the Tonypandy
and encourage researchers to cast off the artificial determinism and
constraints of the groupthink model, and instead, seek to inform the general
group decision making literature.
Kramer, R.M. (1998). Revisiting the Bay of Pigs
and Vietnam decisions 25 years later:
How well has the groupthink
hyposthesis stood the test of time? Organizational Behavior & Human Decision Processes,
73(2-3), 236-271.
This paper
explains how in the twenty five years since the groupthink hypothesis was
first formulated, new evidence, including recently declassified documents,
rich oral histories, and informative memoirs by key participants in these
fiasco decisions have become available to scholars. This casts a new light
on the decision making process behind both the Bay of Pigs and Vietnam. Much
of the new evidence does not support Janis’s original characterization of
these processes. In particular, it suggests that dysfunctional group
dynamics stemming from group members’ strivings to maintain group
cohesiveness were not as prominent a causal factor in the deliberation
process as Janis argued. Viewed in aggregate, this new evidence suggests
that the groupthink hypothesis overstates the influence of small group
dynamics, while understating the role political considerations played in
these decisions.
Hart, P. (1998). Preventing groupthink revisited:
Evaluating and reforming groups in
government. Organizational Behavior
& Human Decision Processes, 73(2-3),
306-326.
This article
critically examines Janis’s recommendations for preventing groupthink in
high-level policymaking. It puts forward three models of small group
functioning in government, each of which highlights different dimensions of
collegial policymaking and distinct criteria for evaluating group
performance. Each model also inspires different proposals for groupthink
prevention and improvement of group performance in general. The article
concludes with an agenda for increasing the policy relevance and practical
feasibility of research on political decision groups.
McCauley, C. (1998). Group dynamics in Janis’s
Theory of groupthink: Backward and
forward. Organizational Behavior
& Human Decision Processes, 73(2-3),
142-162.This
paper traces groupthink to its theoretical roots in order to suggest how a
broader and a more consistent use of research in group dynamics can advance
understanding of decision-making problems. In particular, the paper explores
and reinterprets the groupthink prediction that poor decision- making is
most likely when group cohesion is based on the personal attractiveness of
group members.
Moorhead, G., Neck, C.P. & West, M.S. (1998)
The tendency toward defective decision
making within self-managing
teams: The relevance of groupthink for the 21st
century.
Organizational Behavior & Human Decision Processes, 73(2-3),
327-351.
Groupthink
theory has continued relevance to organizations because of the
organizational trend toward self-managing work teams. A typology is
developed linking the key differentiating characteristics of self-managing
teams to groupthink antecedents of group cohesion, structural faults of the
organization, and provocative situational context. Building upon this
framework, we more specifically examine variables that will impact the
occurrence of groupthink within self-managing teams. Implications for the
prevention of groupthink in self-managing teams are discussed.
Paulus, P.B. (1998). Developing consensus about
groupthink after all these years.
Organizational Behavior & Human
Decision Processes, 73(2-3), 362-374.
In the context
of these papers of this special issue, the models of groupthink are
evaluated. The major focus is on the basis for its impact and its scientific
status. The groupthink perspective is seen as consistent with some other
contributions to the group’s literature. Interesting parallels between the
groupthink and the brainstorming literature are noted. It is conclude that
many of the issues raised by the groupthink model are worthy of further
examination in a broad-based study of group decision processes.
Peterson, R.S., Owens, R.D., Tetlock, P.E., Fan,
E.T. & Martorana, P. (1998). Group
dynamics in the top management teams:
Groupthink, vigilance, and alternative models of organizational failure and
success. Organizational Behavior &
Human Decision Processes, 73(2-3), 272-305.
This study
explored the heuristic value of Janis’ (1982) groupthink and vigilant
decision-making models as explanations of failure and success in top
management team decision making using the Organizational Group Dynamics
Q-sort (GDQ). Top management teams of seven Fortune 500 companies were
examined at two historical junctures—one when the team was successful
(defined as satisfying strategic constituencies) and one when the team was
unsuccessful. Results strongly supported the notion that a group’s
decision-making process is systematically related to the outcomes
experienced by the team. The results illustrate the usefulness of the GDQ
for developing and empirically testing theory in organizational behavior
from historical cases.
Raven, B.H. (1998). Groupthink, Bay of Pigs, and
Watergate reconsidered.
Organizational Behavior & Human Decision
Processes, 73(2-3), 352-361.
In this paper,
Raven argues that group decisions have often been seen as offering the
benefits of collective wisdom, but may also lead to disastrous consequences.
Groupthink then focuses on the negative effects of erroneous group
decisions, the two major examples being the disastrous Bay of Pigs, which
then led to the Watergate scandal. While Janis seems to suggest that
groupthink will ultimately lead the group to fail in its ultimate endeavors,
we need to consider the frightening possibility that in the case of the
Nixon group, the group actions came close to being successful.
Schwartz, J. & Wald, M. L. (2003, March 03).
Smart people working collectively can be
dumber than the sum of their brains:
“Groupthink”is 30 years old, and still going
strong.
NY Times. Retrieved February 20, 2004, from Ebsco
database.
This issue came
into sharp focus in Houston in 2003 at the first public hearing of the board
investigating the Columbia disaster last month. Reprinted at: http://www.mindfully.org/Reform/2003/Smart-People-Dumber9mar03.htm.
Street, M. D. & Anthony, W. P. (1997). A
conceptual framework establishing the
relationship between groupthink and escalating commitment.
Small
Group
Research, 28(2),
267-294.This article presents three propositions designed to demonstrate a
theoretical relationship between the groupthink and escalation commitment
models. Proposition that groups exhibiting groupthink characteristics are
more likely to escalate commitment to a losing course of action than are
groups not exhibiting groupthink characteristics.
Turner, M. E. & Pratkanis, A. R. (1998).
Twenty-five years of groupthink theory and
research: Lessons from the
evaluation of a theory. Organizational Behavior
& Human Decision Processes, 73(2-3), 105-115. Retrieved January 20, 2004,
from
Ebsco database. This is from a special issue on theoretical perspectives of
groupthink, a twenty-fifth anniversary appraisal. The article examines the
historical development of the groupthink model of decision-making processes
and discusses recent responses to the body of empirical evidence amassed on
the model. The article concludes by articulating general lessons implied by
the evolution of research on the groupthink model.
Whyte, G. (1998). Recasting Janis’s groupthink
model: The key role of collective
efficacy in decision fiascoes.
Organizational Behavior & Human
Decision Processes, 73(2-3),
185-209.
This paper
advances an explanation for decision fiascoes that reflects recent
theoretical trends and was developed in response to a growing body of
research that has failed to substantiate the groupthink model (Janis, 1982).
In this new framework, the lack of vigilance and preference for risk that
characterizes groups contaminated by groupthink are attributed in large part
to perceptions of collective efficacy that unduly exceed capability. High
collective efficacy may also contribute to the negative framing of decisions
and to certain administrative and structural organizational faults. In the
making of critical decisions, these factors induce a preference for risk and
a powerful concurrence seeking tendency that, facilitated by group
polarization, crystallize around a decision option that is likely to fail.
Implications for research and some evidence in support of this approach to
the groupthink phenomenon are also discussed.
Web Sites
Groupthink Central: http://www.groupthinkcentral.blogspot.com/
This website is for groupthink central, and has the
following quote by Walter Reuther. "There is no
greater calling than to serve your fellow men. There is no greater
contribution than to help the weak. There is no greater satisfaction than to
have done it well." --
A First Look at Communication Theory:
http://www.afirstlook.com/main.htm
This website is primarily designed as a
companion to communication theory by Em Griffin and the Instructor’s Manual
by Glen McClish, and Jacqueline Bacon. This site includes links to resource
materials for texts, and a description of Conversations with communication
theorists, a video of the interviews conducted with the authors of a number
of theories featured in the book. Links to theories in the current
(5th) edition can be found, as well as theories in the archives
of past editions. Chapter 18 by Irving Janis, in the book A First Look at
Communication Theory (1997), by Em Griffin http://www.afirstlook.com/archive/groupthink.cfm?source=archther..
In this chapter,
Janis discusses the events behind the Challenger disaster, as a model of
defective decision-making. He describes the mode of thinking and how people
in a cohesive group have a tendency to seek concurrence with others in the
group to finalize their decisions. The chapter outlines the eight symptoms
of groupthink, and offers a critique on avoiding uncritical acceptance of
groupthink.
Errors and Accidents: Groupthink http://www.ess.ntu.ac.uk/miller/error/groupthink.htm#linking.
This BSc Psychology website developed by Hugh
Miller and Bill Farnsworth at the Nottingham Trent University offers
chapters on Groupthink by Irving Janis and others.
Argos Press GROUPTHINK Risk Management
and Decision Making Glossary: http://www.risk-management.argospress.com/groupt.htm.
This website is a glossary to risk management
and decision making, systems thinking, and situation awareness. This site
has a comprehensive glossary of utility terms and a Peer Tool that can be
ordered free online to guide the group towards making better decisions.
Back to Groupthink
Resources
Groupthink
Groupthink
The Challenger space shuttle explosion. The Bay
of Pigs invasion. The Korean War debacle (Janis 1-28). These are examples of
situations where group communication failed. Group communication involves a
shared identity among three or more people, a considerable amount of
interaction among these people, and a high level of interdependence between
everyone involved (Trenholm 196-97). It is essential to understand group
dynamics for a variety of reasons. Everyone participates in groups
throughout the course of a lifetime, and these groups are often very
goal-oriented. The business community, non-profit organizations, and town
governments all use groups to make decisions. Sometimes a condition known as
Groupthink can occur in groups that are extremely task-oriented and
goal-driven. Groupthink is as "a mode of thinking people engage in when
cohesiveness is high" (Blumberg and Golembiewski 134). Groupthink leads to
poor decision making and results in a lack of creativity. Although
Groupthink has been studied extensively, many people are unaware of its
dynamics and the consequences that they might induce. This paper was
designed to raise awareness about Groupthink and to provide some suggestions
that can help task-oriented groups avoid this condition. To understand
Groupthink it is essential to have a basic familiarity with group
communication dynamics. Once this is accomplished some symptoms of
Groupthink will be explored and some solutions will be
offered.
Groupthink Theoretical Framework
Communication Theory A First LookChapter 18
On the morning of January 28, 1986, the space shuttle Challenger
blasted off from the Kennedy Space Center in Florida. Seventy-three seconds
later, millions of adults and school children watched on television as the
rocket disintegrated in a fiery explosion, and the capsule plunged into the
Atlantic Ocean. The death of all seven crew members, and particularly
teacher Christa McAuliffe, shocked the nation. For many Americans, the
Challenger disaster marked the end of a love affair with space. As
they learned in the months that followed, the tragedy could have been—should
have been—avoided.
President Reagan immediately appointed a select commission
to determine the probable cause(s) of the accident. The panel heard four
months of testimony from NASA officials, rocket engineers, astronauts, and
anyone else who might have knowledge about the failed mission. In a
five-volume published report, the presidential commission identified the
primary cause of the accident as a failure in the joint between two stages
of the rocket that allowed hot gases to escape during the ‘‘burn." Volatile
rocket fuel spewed out when a rubber O-ring failed to seal the joint.
The average citizen could understand the mechanics of the
commission’s finding. After all, everyone knows what happens when you pour
gasoline on an open flame. What people found difficult to fathom was why
NASA had launched the Challenger when there was good reason to
believe the conditions weren’t safe. In addition to the defective
seal, the commission also concluded that a highly flawed decision process
was an important contributing cause of the disaster. Communication, as well
as combustion, was responsible for the tragedy.
As the person in charge of the Flight Readiness Review
for NASA, Jesse Moore had the ultimate authority to approve or scrub the
shuttle mission. He relied on the assessments of managers at the Kennedy,
Johnson, and Marshall Space Centers, who in turn consulted with engineers
from the companies that designed the Challenger’s subsystems. The
film Apollo 13 dramatized the final phase of this ‘‘go/no-go"
launch procedure.1 NASA has always taken the position that ‘‘a launch
should be canceled if there is any doubt of its safety."2
The day before the launch, Morton Thiokol engineers
warned that the flight might be risky. As the team responsible for the
performance of the rocket booster, they worried about the below-freezing
temperature that was forecast for the morning of the launch. The O-ring
seals had never been tested below 53 degrees Fahrenheit, and as Thiokol
engineer Roger Boisjoly later testified, getting the O-rings to seal gaps
with the temperature in the 20s was like ‘‘trying to shove a brick into a
crack versus a sponge."3
The O-ring seals had long been classified a critical
component on the rocket motor, ‘‘a failure point—without back-up—that
could cause a loss of life or vehicle if the component failed."4 Yet when
Thiokol engineers raised the safety issue in a teleconference, NASA
personnel discounted their concerns and urged them to reconsider their
recommendation. After an off-line caucus with company executives, Thiokol
engineers reversed their ‘‘no-go" position and announced that their solid
rocket motor was ready to fly. When the Kennedy, Johnson, and Marshall
Space Center directors later certified that the Challenger was
flight ready, they never mentioned any concern about the O-rings. At the
top of the flight readiness review chain, Jesse Moore had every reason to
believe that the shuttle was ‘‘A-OK."
Irving Janis, Yale social psychologist, was fascinated
with the question of how an acknowledged group of experts could make such
a terrible decision. He was convinced that their grievous error wasn’t an
isolated instance limited to NASA decisions, corporate boardrooms, or
matters of a technical nature. He believed he could spot the same group
dynamic at work in other tragic decisions. He was especially interested in
White House fiascos—Roosevelt’s complacency before Pearl Harbor, Truman’s
invasion of North Korea, Kennedy’s Bay of Pigs fiasco, Johnson’s
escalation of the Vietnam War, Nixon’s Watergate break-in, and Reagan’s
Iran-Contra scandal coverups. If Janis were alive today he would probably
also examine Clinton’s approval of the raid on the Branch Davidian
compound in Waco, Texas. Janis didn’t regard chief executives or their
advisors as stupid, lazy, or evil. Rather, he saw them as victims of
‘‘groupthink."
In case of broken links please try to use Google search. If you find the page
please notify us about new location
A Concurrence-Seeking
Tendency
[The following notes were compiled from a variety of internet
sources.]
Irving Janis originally defined groupthink as ‘‘a mode of thinking
that people engage in when they are deeply involved in a cohesive in-group,
when the members’ strivings for unanimity override their motivation to
realistically appraise alternative courses of action." According to his
definition, groupthink occurs only when cohesiveness is high. It requires
that members share a strong ‘‘we-feeling" of solidarity and desire to
maintain relationships within the group at all costs. When colleagues
operate in a groupthink mode, they automatically apply the ‘‘preserve group
harmony" test to every decision they face."
Janis introduced the concept of groupthink through the popular press in
1971. The idea struck a responsive chord with policy planners who had
hastily approved courses of action that just as quickly turned out to be
major blunders. The term groupthink paralleled the ominous expression
doublethink in George Orwell’s novel 1984, and it immediately
caught on among business and government leaders as a catch-all term to refer
to any ill-conceived group plan. In later extensions of his theory, Janis
emphasized that not all bad decisions are the result of groupthink, and not
all cases of groupthink end up failing.
Janis later proposed a refined conception of groupthink. To begin, there
are six conditions that make the occurrence of groupthink possible. The
first of these factors is high group cohesiveness. Usually
cohesiveness leads to the free expression of ideas; however, in groupthink
circumstances, the opposite occurs. Second, the members have an
authoritarian-style leader who tends to argue for "pet" proposals.
Thus, we would not expect groupthink to occur in groups that have a
tradition of democratic leadership. Third, the group is often
isolated from the "real world"; that is, the group is not forced to
deal with what is happening "out there" beyond the group.
Fourth, the group does not have a definite procedure, or method,
for decision making. Fifth, the members of the group come from
similar backgrounds and have similar viewpoints. The sixth
condition for groupthink follows from Janis and Mann's arousal theory of
decision making. The group is in a complex decision-making situation that
causes a significant amount of arousal in each member, and the members feel
that finding an alternative better than the leader's pet proposal is
unrealistic. Under these conditions, "defensive avoidance" will occur, and
the group will either procrastinate or, more likely, adopt the leader's pet
proposal. The presence of any one of these six conditions will not ensure
that a cohesive group will suffer from groupthink. The more of these
conditions that exist, however, the more likely it is that groupthink will
occur.
Because a close-knit group at the top of an organization is insulated
from outside opinions, Janis suggested breaking up into subgroups that work
simultaneously on the same issue. Each subgroup can draw on the expertise of
trusted subordinates who are encouraged to give their advice freely.
Leaders climb to the top by being ‘‘take-charge" people. Unfortunately,
the very force of personality that placed them in authority can have a
chilling effect on group candor. Some leaders are able to lead an impartial
discussion without imposing their opinions, but Janis’s prescription for
open inquiry is to have the leader periodically leave the group so that
members will feel free to express their personal views.
Since many groups have no set procedures to ensure close scrutiny of
favored solutions, Janis recommended assigning the role of critical
evaluator to every member. Instead of representing his or her own
constituency or narrow area of expertise, each participant would take
responsibility for the entire plan. Of course, a leader’s request for
critical comments is a hollow exercise if he or she shows irritation or cuts
off debate when the group starts to carve up a cherished idea. If these
measures fail, we can spot the presence of groupthink by its observable
effects (listed below).
Symptoms of Groupthink
What are the signs that group loyalty has caused members to slip into a
groupthink mentality? Janis listed eight symptoms that show that concurrence
seeking has led the group astray. The first two stem from overconfidence in
the group’s prowess. The next pair reflect the tunnel vision members use to
view the problem. The final four are signs of strong conformity pressure
within the group.
1. Illusion of Invulnerability. Janis summarizes this attitude as ‘‘everything is going to
work out all right because we are a special group."
2. Belief in the Inherent Morality of the Group. Under
the sway of groupthink, members automatically assume the rightness of their
cause.
3. Collective Rationalization. This collective rationalization supported a mindset of ‘‘hear
no evil, see no evil, speak no evil." (believe that nothing can be wrong
with their plan even if there is significant evidence to prove
otherwise)
4. Out-group Stereotypes. Typically negatively biased
with oversimplification of member similarities (profiles)
5. Self-Censorship. group members don't share their
ideas with the rest of the group because of fear of being rejected
6. Illusion of Unanimity. silence can often be interpreted as
acceptance
7. Direct Pressure on Dissenters. a group member who
questions the rightness of the goals is pressurized by others into
concurring/agreeing.
8. Mindguards. ‘‘Mindguards" protect a leader from
assault by troublesome ideas.
Does all this automatically produce a ruinous outcome? Not necessarily.
Groups that do everything wrong may luck out from time to time. There are
also many routine occasions when a groupthink mode is actually helpful
because it makes for a speedy and amicable consensus on issues of minor
importance. But according to Janis, when a group confronts a great threat or
a grand opportunity, concurrence-seeking almost always produces an inferior
solution.
Most students of group process regard members’ mutual attraction to each
other as an asset. Marvin Shaw, a University of Florida psychologist and the
author of a leading text in the field, states this conviction in the form of
a general hypothesis that has received widespread research support:
‘‘High-cohesive groups are more effective than low-cohesive groups in
achieving their respective goals." But Janis consistently held that the
‘‘superglue" of solidarity that bonds people together often causes their
mental process to get stuck:
The more amiability and esprit de corps among members of a policy-making
in-group, the greater is the danger that independent critical thinking will
be replaced by groupthink. . . . The social constraint consists of the
members’ strong wish to preserve the harmony of the group, which inclines
them to avoid creating any discordant arguments or schisms.
Janis was convinced that the concurrence-seeking tendency of close-knit
groups can cause them to make inferior decisions.
Groupthink may result in the following:
- The group limits the number of alternative courses that it considers.
Usually such a group examines only two options.
- The group fails to seriously discuss its goals and
objectives.
- The group fails to critically examine the favored course of action.
The members do not criticize, even in the face of obvious
problems.
- The members do not reach outside the immediate group for relevant
information.
- The group has a selective bias in reactions to information that does
come from outside. The members pay close attention to facts and opinions
that are consistent with their favored course of action and ignore facts
and opinions that are inconsistent with their choice.
- After rejecting a possible course of action, the group never
reconsiders the action's strengths and weaknesses.
- The group fails to consider contingency plans in case of problems with
implementation of the course of action the members choose.
Avoiding the worst of Groupthink
Janis offers recommendations to avoid bad group decisions.
- The leader can refuse to state which course of action he/she prefers
until late in the decision-making process.
- Appoint group members to roles which evaluate group processes and
contributions of other members (e.g., Devil's Advocates).
- Challenge the data - assess its significance and reliability. In
discussion, focus fully on areas of doubt and uncertainty - be tenacious
in challenging tethered assumptions and presenting the fullest possible
information.
- Group leaders need to solicit and receive feedback/criticism from
others re- his/her judgments. This feedback and examination process needs
to seen as a contributor to quality and not a gripe or complaint
mechanism. The potential for holding grudges and punishment of "critics"
must be avoided.
- Consult with informed people outside the group and invite them to
meetings. The outside people may add information and challenge the group's
ideas/assumptions.
- Set aside time to rehash earlier decisions, thus avoiding "premature
closure.". This provides chances to consider any new objections to the
decisions that the group members might have.
- Help the group to take regular time-out breaks to give individuals
room to re-think, re-formulate, gather further data and re-present.
Sub-groups can do more detailed work for re-presentation. Group cohesion
as a problem-analysis and solution development unit is assisted as
difficult tasks are decomposed and alternatives properly synthesized.
- Have the group continue searching for warning signs even after the
chosen course of action has begun to be implemented.
Two further phenomena, "risky shift" and "cautious shift" and may also be
seen.
A. With Risky shift , the decision group becomes more radical and willing
to take a risk. The decision makes as a group gamble more than an individual
often would when making the same decision.
B. With Cautious shift - the group shifts to being more conservative than
solo individuals would usually be.
Risky Shift
Risky shift or cautious shift behaviors in a group may undermine good
decision making and group members need to be sensitive to such processes and
their implications.
We normally think that committee decisions are usually slow and cautious
where think that bland consensus compromises result yet we be frustrated by
slow, rule bound, bureaucratic processes involved. However committees can
often be bolder and more adventurous decisions than single members acting
alone. Why?
- Some risk takers are more powerful and persuasive in a group
situation.
- Member responsibility is diffused as there is a degree of anonymity (a
corporate veil) in the group. The group is responsible for decisions and
risky decisions carry less of a burden for individuals.
- The converse also applies, a group can be overly cautious.
- A group can polarize into cautious and risk-taking opposites.
- As with groupthink, the group may not rationally and systematically
process decisions based on full information and all member views.
Group behavior research into 'choice shifts or group polarization' offers
more insight into some of group processes which may be enacted. When
deciding between dilemmas involving different levels of risk, groups
sometimes assume riskier positions than those held by individuals prior to
joining the group. When reaching consensus "the group" did not average
individual judgments but 'shifted' to greater risk but not always. Sometimes
there was no shift or sometimes the group demonstrated greater caution.
When, in a group, individuals make social comparisons and adjust prior
positions relative to the group majority view.
- In group discussion, information and arguments may favor a 'majority
view'. The individual is exposed and, conforming, may shift to the
emerging polar position of the majority.
- Individuals face a choice of being members (in) or marginalized (out).
To be accepted they need to anticipate the group's perspective and this
may move them further towards 'the norm' and the group average leans to
more to the extreme or polarized position.
- In a group social diffusion of responsibility may be evident - those
who are less dominant may not press their point of view as they are able
to hide behind 'cabinet responsibility'.
Diffusion of Responsibility
The story of a woman who was murdered in 1964 just outside her New York
home is often told to illustrate the cautious and risky shift phenomena. She
fought the murderer off but he latter returned and attacked her again over a
30 minute period. She screamed for help but nobody responded or called the
police even though her cries were heard by many. Did everyone assume that
someone else was taking action? The burden of responsibility was diffused
..... by the assumption that "somebody was doing something about the screams
".
Social diffusion of responsibility reflects a belief that the presence of
other people in a situation makes one less personally responsible for the
events that occur in that situation.
In terms of risky shift, the individual is less included to challenge the
tethered assumptions of the majority position - but instead may find it more
comfortable to hide within a 'majority' view. Thus the 'risky shift' or
'cautious shift' group decision may prevail. The individual - post decision
- can always state in private, 'Well, I really felt that too big a risk was
being taken, but everyone wanted to move in that direction'.
Scapegoating
The term scapegoating comes from the ancient Hebrew tradition in which,
on the Day of Atonement, the Rabbi would confess the sins of the community
over the head of a goat. The goat would then be released into the desert,
carrying the sins of the community away with it.
Similarly, one way to view many acts of discrimination is to see them as
examples of displaced aggression. According to frustration aggression
theory, frustration leads to an aggressive impulse directed towards
reducing that frustration. However, often it is impossible to aggress
against the source of the frustration or even to accurately identify a
target. In many instances, the aggression will shift to convenient
scapegoats, which are often members of other groups (e.g., minority groups)
or people with little power to retaliate (e.g., kick the dog).
Historical examples of scapegoating include Hitler's successful campaign
to blame most of Germany's problems on European Jews. The benefits of
scapegoating include:
- Deflection of negative attention and punishment.
- Avoidance of confronting the complexities of the real problems.
- Avoidance of the social and financial expenses involved in confronting
powerful groups (e.g., veterans or senior citizens) and interests (e.g.,
large corporations).
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Last modified: June
13, 2010
January 5th, 2009 at 8:03 am
My recent favorite paper was about the S&L crisis of the early 80s. Came out in 1993, after the facts had been collected, bailout money wasted and careers shattered. Insightful, but hardly the sort of stuff of journalism. I think blogging leads us to believe that hair-trigger response is always more useful than in-depth research, the dimensions of which aren’t always obvious.
For that matter, certainly the blogosphere, the MSM and Washington, DC, are all scrambling to understand What To Do. Not that Who/What Was To Blame isn’t a useful question, but the disorder of the latter, and the presumptive benefit from getting it righter than wronger, seems an order of magnitude more important.
Finally, you are a victim of the same sort of selectivity biases that you rail against in economists. In February of 2003, 450 economists, including 10 of our surviving Nobel laureates, signed a full-page ad in the NYT that blasted the direction of the Bush tax-n-spend tax policy. While that ad hardly could have been expected to forecast a full-blown recession 5 years later, it DID predict a raft of problems such as weak employment, an exacerbated trade deficit, a weakening of the not-top of the income distribution, and a Federal deficit that would require expanded borrowing, all of which (a) came to pass, and (b) created a “who cares” environment by politicians and MOTUs.
I think more of the problem sits with a society as a whole, which has been willing to believe in lies that make the Tooth Fairy story look rock-solid. I.e., “we have met the enemy and he is us.”
January 5th, 2009 at 8:11 am
I would add:
1. Ingrained belief that all economic growth is inherently good.
2. Failure to identify, recognize and include externalities.
3. Failure to consider law of unintended consequences.
4. Failure to ask at every juncture, why?
The rampant overdevelopment of the past decade reminds me of all those cars from the 1950s with those monstrous fins. Nobody asked for those giant fins. They just appeared. And then they got bigger. And bigger. And bigger. Until massive amounts of car real estate and steel and chrome was consumed to make giant fins a little bit bigger than the last set of fins.
And then they disappeared.
January 5th, 2009 at 8:15 am
My favorite is the article from over the weekend, “Why don’t policymakers respond to rising markets?” It seems that very few economists consider a bubble to be a problem. There’s no doubt that the general public isn’t going to complain but don’t policymakers have a responsibility that goes beyond giving people what they (think) want?
January 5th, 2009 at 8:21 am
This question echoes similar questions about the run-up to the war, and the errors of the “foreign policy establishment”.
January 5th, 2009 at 8:40 am
Try “In with the In Crowd.”
Most economists on Wall Street and in Academia are baby boomers, a generation notable for its groupthink and ostracism of members who stray from “conventional wisdom.” Note also the curious effect in journalism: there are no old faces, and no young faces, just baby boomers. All thinking the same thing: Nobody could have seen this coming!
January 5th, 2009 at 8:52 am
HHeh…. He said defecate…….That’s funny
Not a spammer, just a reader trying to make a joke. Perhaps everyone was a little too serious about themselves as well.
>>”The Efficient Market Hypothesis, homo economicus, the deification of markets, all need an open public review and a good thrashing.”<<
They may be explanations but the reasons are always the same. It is just unusual when a group of people offend a majority of the Seven Sins. Greed, Pride, Gluttony, Envy, Wrath, Lust, and Sloth. http://tinyurl.com/7rvzp
January 5th, 2009 at 8:56 am
hey watts,
WELL SAID!!!
pravin… one of the reasons for the rapidity of the collapse was the stock markets denial for quite some time that there were any problems at all. remember oct 2007 the stock market was hitting ALL TIME HIGHS and the credit markets were in freefall. hell the stock market and shills believed everything was contained after BSC and the collapse of the auction rate security market. i still hold the belief that the stock market is no where near pricing in all the horrible news which continues to deteriorate.
January 5th, 2009 at 9:00 am
I agree with Keynes. America as a whole follows that principle.
Those who are skeptical of the comfortable present make almost everyone else uncomfortable and are shunned or derided. Look at Taleb, Roubini, etc. who were labelled cranks. Many cannot deal with that treatment emotionally. Others who were skeptics and didn’t already have a tenured position or “f-u” money like Taleb, would probably be concerned about promotion if they didn’t go with the flow. An example of what academics might fear is the story of Mandelbrot told by Taleb: he was set for a nice job somewhere, but the offer was yanked by George Shulz because he held unconventional beliefs.
January 5th, 2009 at 9:06 am
From my perspective at a Fortune 100 is many of the cheerleaders do not want capitulation and have a upward bias in all situations as that is linked to incentives, reputations and positions of power.
I think the BP stated an interesting observation along the following “those that denied the recession, now state we have been in the recession for a year and now are at the bottom and recovering”. Bias such as groupthink from the previous comment and initial thread is a failure of rational driven discourse at the macro level to drive a better outcome on an macro basis.
Taking a walk in a small town and observing what people are doing in conjunction with quantitative research is a combination many policy makers and economists can incorporate into the conclusion process to balance relative empirical cheerleaders with a dose of old fashion common sense. If you see a long line at the employment office, perhaps checking out the U-6 rate via BLS makes sense to see the Big Picture - no pun intended.
January 5th, 2009 at 9:18 am
11. Navel gazing or specialization.
I find that most people who work long hours have limited knowledge of things happening outside their sphere of influence. How can you understand what is happening in the economy if all you are doing is reading economics books, Fed data, the Economist and shopping in expensive stores or staying in expensive hotels and boating?
Most economist don’t know enough in other disciplines to be good economists.
January 5th, 2009 at 9:18 am
OK, but my question is: will the “government” get the fix right? Will a bailout of everyone (banks, insurance, cars, states, etc.) help or hurt in the long run? What is the plan anyway, aside from throwing money around?
January 5th, 2009 at 9:21 am
I use to make up stories for a living: I worked at the Federal Reserve Board in Washington, DC.
At the Fed we had a preconceived “story” about the economy, and I would analyze economic data to make it fit the story. Or in our research we had no clear idea what the data “should” say, so we analyzed the data, but if the results were counter intuitive, we would make up a safe consensus view story to fit it. I thought, “if I am going to be a story-teller, I should get a PhD in philosophy.” Nothing against philosophy, as it is one of my passions, and I studied it as an undergrad.
The problem with economics as a discipline is that many economists think it is a science, but it is not. The field is way to quantitative, and many use quantitative models to do their thinking. These models are too rigid and the underlying assumptions [not always] rest on rationality.
Furthermore, the positive research bias leads “professional” economists to massage the data using econometric techniques until there is statistical significance. Sometimes it is useful to know that the dog does not bark.
January 5th, 2009 at 9:39 am
As Pravin said the Austrian school of thought recognized this would happen. Two quotes from Mises’ “Human Action”:
What is needed for a sound expansion of production is additional
capital goods, not money or fiduciary media. The credit
boom is built on the sands of banknotes and deposits. It must
collapse. Human Action, p. 559; p. 561
If the credit expansion is not stopped in time, the boom
turns into the crack-up boom; the flight into real values begins,
and the whole monetary system founders. Human Action, p. 559; p. 562
January 5th, 2009 at 9:42 am
Why did economists, asa group, miss the credit crisis?
Because in the run up…to the dizzying heights of “Flip that House” and DOW 15,000, etc., etc….all arguments highlighting the insanity were met with, “Yeah, but it’s different this time”. The reasons given for it being “different this time” just happened to make the person offereing those reasons sound pretty damn intelligent.
Greenspan was the perfect in this role of intellectual prophet. Listen to his turgid, opaque “analysis”. As an economist, you either “got it” or you didn’t. Too many economic lemings did not want to come across as being an intellectual lightweight…so all of us had to suffer through the nonsensical bullshit as if it made sense. “At the end of the day, the proliferation of nondeterminant economic models and innovative financial structuring mechanisms has resulted in an unprecedented dispersion of risk across uncorrelated asset classes…” BLAH, BLAH, BLAH….
The beauty of it all is that no clear thinking economist could honestly even disagree with the above—because it has no structural coherence.
“Sir, our model was created be a team of theoretical mathmeticians from MIT. This is cutting edge stuff! You, unfortunately are a dull, rusty blade. Back to Community College for you!”
It’s no coincidence that the rogue economists who did call the crisis were contrarian thinkers who take a certain intellectual pride in going against the grain. Unfortunately for many of these economists—there’s a certain validity to the notion that they too often play the role of contrarian for the sake of being contrarian…and in the case of someone like Roubini, it’s too easy for his critics to simply say “There goes Nouriel again. Always has to be the Devil’s Advocate.” [And there's some truth to this---as over the long haul, Roubini has been far from perfect in his prognostications.]
Economists just try too damn hard. Too many are physicist wannabes. Economics is not a science, and should not be treated as such. Any prediction given by an economist should be treated with the same weight as one given by an astrologer (sorry to all you astrologers out there). Economics departments should be permanantly removed from science departments and be made part of the Accounting Department at all schools. Upon graduation, in addition to their diplomas, economists should be given a simple Radio Shack Tandy calculator. The Dean, upon shaking their hands, should give each one of them 4 pencils along with the following advice: “Here stuff these in your shirt pocket. Get ready for a social scene filled with actuaries and accountants. Your down time will be filled with creating dynamic avatars in the 2nd Life Virtual World. Enjoy the Revenge of the Nerds (1-8)….Oh yeah, I almost forgot—Realize this: The opposite sex is not part of your future.”