People are reeling from the upheaval in our financial system. How could this happen? We need more oversight and regulation (now that the horse has left the barn), they say. Presidential candidates are tweaking their campaign messages. I’ll bring real change, says one. I’m a long-time maverick, says the other. And the media (and now bloggers because they have been assimilated into the machine) speaks to us in high-pitched frenzy.
The problem is complicated says one pundit. It’s simple, says another. Talking heads are brought forth to our TV screens like cards being shuffled from a triple deck. If you are trying to figure out what happened by watching this kind of “information” then the chances are you’ll remain lost.
There are two problems going on here it seems to me. First, we are in the midst of an unusually large bust cycle. Remember how large the boom cycle was? See any correlation to how large the bust cycle is? Another question to ask is: how does the greed/fear cycle meld with the boom/bust cycle? These cycles are not new; they’ve been occurring for as long as humans have had sophisticated economies based on fluid exchange of capital and debt. That’s my view. Not helpful, and perhaps even uselessly simplistic.
I don’t offer it for your benefit. If you derive benefit from it then don’t thank me. I don’t know anything. I simply observe and try to see things as they are. Things as they are change constantly so there is little accumulation of “knowledge” by simply observing. On the other hand, it seems to me that there has been little accumulation of useful knowledge by participating in the kind of discourse that we see in our everyday world. This is the second problem, and it’s the one that will be hardest to address.
People have divided themselves into groups based on likes and dislikes, beliefs and superstitions, national pride and zenophobia. And this has been going on for as long as recorded history. Today, however, there are tools which we could use to improve our level of thinking, and with it, our level of discourse. Science is a relatively new development in human evolution, at least the kind of science that uses rigorous analysis that abstains from emotionalism. Economics is called the dismal science, and some may argue that it is not really a science. But, it is more of a science than the kind of thought process that most people use in their daily lives.
All kinds of studies have established that most people are bad at assessing risk. We worry about handguns more than swimming pools because the kind of injury inflicted by a bullet is more grotesque and widely-reported than death by drowning. This is not to say that we shouldn’t regulate handguns, or that we should regulate swimming pools more. I’m simply pointing to one example (widely discussed among risk-experts) of how people have trouble making sober assessments of risk.
People like to believe that they can trust their instincts; they discount any evidence that their instincts are not as sound as they believe. Some of these people would benefit from taking flying lessons. When you get to the part of your pilot training where you learn that your sense of balance will tend to cause you to crash if you fly into cloud cover then you’ll begin to understand. Pilots who want to fly in clouds (so called “IFR conditions”) learn that they have to trust the instruments and disregard their ‘balance instincts.’ Every year a few pilots get into trouble and rely on their instincts. They almost always die.
So, here we are in our financial tail spin. How did we get here? Perhaps we relied on our ‘instincts’ more than on sober information. We assumed many things, not because the assumptions were inherently sound. We relied on assumptions that confirmed what we wanted to believe. So how do we fix this problem (which is a perennial one, not some never-before-encountered one)? My suggestion is that we need to learn to think better. All of us.
The idea that we’ll outsource the level-headed thinking to regulators is flawed. Who is going to regulate the regulators? What if they suffer from the same undesirable tendencies that the rest of us suffer from? No, I’m afraid if we want to break this cycle we’ll have to all do better. We’ll have to learn to think for ourselves and we’ll have to learn to improve our thinking. It won’t be easy, of course. A lot of us simply aren’t going to do it. And watching television isn’t going to help either. Lastly, we shouldn’t expect the next president to help out. Politicians can’t bring about significant social change, and—sadly—that’s the biggest superstition that poor thinking tends to perpetuate.
You can’t push a button to get real change. You have to work for it yourself. Every day, and every moment. I hate to say, but real change is real hard.