The Limits of Incompetence

Our social instincts compel us to think well of our fellow man. In spite of much evidence to the contrary, we think him competent to cast votes, to decide how to spend and borrow money, and how to bring up his own children. We persist in this conviction even as the manifest lack of competence at every level of American society causes it to careen toward ruin. We recoil at the thought of government bureaucrats separating the competent from the incompetent, making those who are incompetent, along with their children, wards of the state, remedying their incompetence through strict discipline when possible, and consigning the rest to a lifetime of manual labor in service of society. Many of us quite justifiably think that the government bureaucrats are themselves incompetent, or worse. Those who no longer trust the competence of either the government or our fellow man instead put their faith in corporations or in churches or even in bloggers and internet newsgroups (pathetic, I know). They may preserve their sanity by doing so, but it does nothing to change the big picture. Presumably, it is better to be a competent observer of collapse than an incompetent one.

Of course, the label of generalized American incompetence seems to cast too wide a net. After all, most of us have the competence to not starve when provided with cans of baked beans and a can opener. But it seems that each and every one of us is forced to plead incompetence when presented with the task of judging the value of various figments of financial imagination which comprise fully half of the increasingly fictional US economy, for the depths of incompetence on which this crumbling edifice floats are truly unfathomable. It started with incompetent public officials who blithered on about “ownership society,” which is a boneheaded idea. This, in turn, empowered individuals who were incompetent to make financial decisions to borrow vasts sums of money, with the loans backed by an implicit government guarantee. It proceeded to incompetent appraisers, who inflated the value of the collateral based on circular reasoning (value = price = value), and to incompetent bankers, who improperly documented, resold and bundled the loans into unfathomably faulty Collateralized Debt Obligations. It proceeded to incompetent government officials who treated these faulty documents as valuable and backed up their value with public money which they are yet to collect in taxes. It proceeded to incompetent judges who rush through foreclosures and throw people out of their homes based on faulty or nonexistent documentation of ownership.

Some people express umbrage at all this, harrumphing about this and that technical defect in the paperwork, throwing around big words like “personal responsibility” and “fraud.” Some of them claim that a concerted effort by brilliant legal and financial minds must be made, to flush all of this illegality out of the system, to determine what all of this soiled paper is really worth, to punish the guilty and to restore dignity to the innocent who were harmed along the way. In this they have so far been quite incompetent: they have vociferously yet impotently complained about a matter over which not a single one of them is competent to exercise any degree of control. An attempt to unscramble all of the faulty financial paperwork is bound to lead to a ridiculous death by a thousand paper cuts. About half of the US economy consists of financial froth that is floating above an unfathomable abyss of incompetence, and once that froth blows away, what will remain of the US economy will turn out to look like a deflated, shriveled little thing, at a standstill because it will be unable to borrow internationally to finance fuel imports, full of defunct financial institutions right up to and including the Federal Reserve, with a worthless currency that nobody is willing to accept as payment, and full of people furiously shaking their tiny fists, hurling their impotent rage at an indifferent sky.

How does a “can do” nation degenerate to such depths of incompetence? A key insight is offered by the Dunning-Krueger effect, defined and experimentally tested by Justin Kruger and David Dunning at Cornell University. Kruger and Dunning proposed that, “for a given skill, incompetent people will:

1. tend to overestimate their own level of skill;
2. fail to recognize genuine skill in others;
3. fail to recognize the extremity of their inadequacy;
4. recognize and acknowledge their own previous lack of skill, if they can be trained to substantially improve.”
   

Krueger and Dunning, and other experimenters, have shown this effect to be quite pronounced. Competent people initially assumed that others were competent as well, and were able to correct their misperception once they were allowed to examine the work of others. Incompetent people, on the other hand, were only able to recognize competence in others after being taught to recognize their own incompetence. Thus, a weaker version of point 4 above suffices: incompetent people do not need to become competent, but to able to judge the superior competence of others they do have to gain some insight into their own incompetence.

But now comes an embarrassing fact: Krueger and Dunning carried out their initial research on American subjects, and their results squared well with their hypothesis, but when their experiments were repeated with Europeans and East Asians, a different picture emerged. With Europeans, the effect seemed barely measurable, while with East Asians the exact opposite picture emerges: Dr. Steven Heine of the University of British Columbia has found that East Asians tend to underestimate their abilities, focusing on self-improvement and group cohesion. I have come across examples of such a systematic error before. I recall listening to a certain researcher of human behavior at Yale, who was discussing the results he got by doing experiments on his students, which he blithely extrapolated to all of humanity. But I suspected that an error had crept into his experiments, due to his unstated and unquestioned assumption that his little sample of Yalies was representative of the inhabitants of Planet Earth rather than Planet Yale (which is what I walked away thinking).

And so it turns out that this blind faith in everyone and sundry's competence is quite specifically an American trait. I invite cultural anthropologists to concentrate their efforts on finding out how this cultural trait could have ever evolved, seeing as it is quite obviously maladaptive. I would venture to guess that it will come down to a false incentive for fostering “inclusive fitness” rather than fitness per se: one's ability to work and play well with others being emphasized and rewarded over and above one's ability to work and play well, others be damned if they can't keep up. A certain vital part of humanity has been bred out of us. How many of you Americans have sat through endless meetings, listening dutifully (or pretending to while doodling on a pad or daydreaming) whereas what you really wanted to do is to stand up, extend the accusatory finger and say: “This is bullshit. You, Sir, are an idiot. How dare you waste our time with this nonsense? Shut up and get out.” Were you to do this, you would have found your American colleagues cringing pathetically and trying desperately to smooth things over while avoiding your eyes like whipped puppies, while your foreign colleagues would be doing their best to stifle their guffaws while looking at you with newfound respect.

Now, if you have ever worked for a Chinese, a Russian, or especially an Israeli company, chances are you have been witness to a few variants of the scene described above, all accompanied by easy laughter and cheers, and a general sigh of relief: idiot expelled, sanity restored. But here in America we are now a bunch of pathetic cringing ninnies branded with a peace sign and mooing dolefully. Some Mr. Gnang-Gnang or other from Planet 10 can get up in front of us and tell us that printing half a trillion dollars will create jobs, and not a single person jumps up an screams “WHAT? WHAT?” No, we don't do that here, plus it's almost lunch, so let's just chew our cud until somebody comes and feeds us. Here's a prime example: just a week ago Germany's Finance Minister Wolfgang Schäuble called US policy “ratlos,” which translates into the local vernacular as “clueless.” Immediately some apologists popped up, saying that “clueless” is too harsh a translation. Well, here is “ratlos” done unto English via Russian, thanks to Google Translate: “ignorant, embarrassed, helpless, indecisive.” Does that work for everyone?

To recap, we have three categories of incompetent people, whose definitions at this point in our exposition should seem uncontroversial. First, we have the proud, the few—the competent. They are becoming rather thin on the ground in the US, because Americans have largely forgotten how to make new ones, and the ones that exist are getting a bit long in the tooth. Their main problem is that they have been conditioned to think the best of others; in essence, to suffer fools gladly. They can be turned around simply by setting the right incentives.

Second, we have the incompetents who know the limits of their competence. These are potentially useful: they just have to be matched up with tasks at which they can become competent. They are less likely to have inflated expectations for what they can expect to achieve through their labors, and although their lavish habits may not be in line with what their increasingly impoverished country can provide, they can be brought around.

Third, we have the vast army of the deeply incompetent, some of whom look upon themselves as paragons of home-spun self-reliance, have a “who the hell do you think you are to tell me anything” attitude toward their betters, and with their clueless bungling pose a grave danger to themselves and to everyone else. They are a problem, but many of them can be rehabilitated. You see, being pointed and laughed at when you do something stupid is something of a human universal, and most people are wired to accept that message, remember it as a formative experience, and struggle to avoid it in the future.

But there is also a fourth category of incompetent people: those who are so deeply incompetent that nobody can assess their competence, or lack thereof, because they cleverly shy away from all forms of productive activity, thus making their competence, or lack thereof, impossible to assess. Wouldn't it be nice if they displayed some telltale physiological trait, such as tufts of hair on the earlobes or the nose? Or if some genius were to devise a hand-held sensor that, when pointed at them, would blink a red light and sound an alarm? Alas, nothing of the sort exists. What's more, pointing at them and laughing serves no purpose, for they inhabit a rarefied bureaucratic realm where human cultural universals do not apply, and where anyone who calls them incompetent can be treated as a security risk, to be handled by those who are competent at just one thing: dispensing violence.

The final refuge of the deeply incompetent is in economics and finance. It is easy to see why this is so. Think of any very useful object you happen to own, and think of its value. Do you know how to use it well? Do other people? (The fewer the better, of course.) Is it ruggedly built, to last a long time, or is it flimsy? If it breaks, do you know how to repair it? Can you live without it, or are you hopelessly dependent on it? Is it a popular item, and therefore a thief magnet, or is it sufficiently unusual to be passed over by the casual thief despite of its usefulness to you? Does anyone know that you have it? (The fewer know, the safer it will be.) Do you know one or two people who like it as much as you do, in case you have to sell it? And so on. Now usher in a bunch of financial incompetents. What can they tell about the value of your very useful object? Just its price. How can they tell? By asking other incompetents how much they would pay for it. To this bunch, value equals price equals value equals price, at various times and in different places, until the whole thing crashes and burns because nobody actually knows the value of anything to them.

What empowers these people is our love of money. The last vestige of sanity an American seems to be able to cling on to is in his ability to count his money. While he still has some money, he adds up his “net worth,” and the higher the number, the better he feels about himself. Once all he has left is debt, he adds up the money he doesn't have, and the more “credit” he has, the better he feels about himself, because of all the things he can still “afford.” And once he finally defaults on his loans and no longer has any credit, it is as if, in his own minds, he ceases to exist. “I lost everything,” he is apt to say, as if his earthly existence amounted to a number written on a piece of paper. A population that is in thrall to arbitrary numbers written on bits of paper is what makes it possible for the financial incompetents to remain undetected, practicing their sort of low-grade magic. It is as if everyone is blindly in love with them and thus unable to see their faults. But this spell can and will be broken, because the rest of the world is now quite ill-disposed to tolerating any more of this financial nonsense. A day will arrive when America's sages and high priests of finance, together with their wealthy clients, will suddenly turn out to be, for all to see, what they have been all along: clueless incompetents unsuitable for any task that is worth doing.

Adieu, Stage 1 Collapse!

In February of this year, I wrote The Five Stages of Collapse, connecting each stage of collapse – financial, commercial, political, social and cultural – with a specific mental milestone, where faith in some aspect of our status quo is shattered in the face of dramatically altered circumstances. Here is what I had to say at the time about Stage 1: Financial Collapse:

Financial collapse, as we are currently observing it, consists of two parts. One is that a part of the general population is forced to move, no longer able to afford the house they bought based on inflated assessments, forged income numbers, and foolish expectations of endless asset inflation. Since, technically, they should never have been allowed to buy these houses, and were only able to do so because of financial and political malfeasance, this is actually a healthy development. The second part consists of men in expensive suits tossing bundles of suddenly worthless paper up in the air, ripping out their remaining hair, and (some of us might uncharitably hope) setting themselves on fire on the steps of the Federal Reserve. They, to express it in their own vernacular, "fucked up," and so this is also just as it should be.

The government response to this could be to offer some helpful homilies about "the wages of sin" and to open a few soup kitchens and flop houses in a variety of locations including Wall Street. The message would be: "You former debt addicts and gamblers, as you say, 'fucked up,' and so this will really hurt for a long time. We will never let you anywhere near big money again. Get yourselves over to the soup kitchen, and bring your own bowl, because we don't do dishes." This would result in a stable Stage 1 collapse - the Second Great Depression.

However, this is unlikely, because in the US the government happens to be debt addict and gambler number one. As individuals, we may have been as virtuous as we wished, but the government will have still run up exorbitant debts on our behalf. Every level of government, from local municipalities and authorities, which need the financial markets to finance their public works and public services, to the federal government, which relies on foreign investment to finance its endless wars, is addicted to public debt. They know they cannot stop borrowing, and so they will do anything they can to keep the game going for as long as possible.

About the only thing the government currently seems it fit to do is extend further credit to those in trouble, by setting interest rates at far below inflation, by accepting worthless bits of paper as collateral and by pumping money into insolvent financial institutions. This has the effect of diluting the dollar, further undermining its value, and will, in due course, lead to hyperinflation, which is bad enough in any economy, but is especially serious for one dominated by imports. As imports dry up and the associated parts of the economy shut down, we pass Stage 2: Commercial Collapse.

So far so good. In terms of mental milestones, we can tease apart financial collapse into a number of psychological levees that are being breached one by one. The first one to go was people's faith in home equity: that the value of their homes will serve as a nest egg to sustain them in retirement. What we have been witnessing for the past week or so is the demise of people's faith that their investment portfolio will sustain them. It is still easy to find investment advisers who will tell you to "go long on equities" because, you see, "eventually the economy will recover," but their reassuring words are starting to sound like a death rattle to all those whose retirement savings suddenly look laughably inadequate.

Eventually, faith in the magical, mystical properties of the US Dollar will be lost, but it seems very important to all concerned to make the process gradual. It seems safe to assume that in the limit, as time goes to infinity, the value of the US Dollar goes to zero:

lim_t→∞US$ = 0

It also seems safe to assume that it is negligible even for finite, foreseeable values of t. The problem is making it look like a continuous function. If the value of any given type of dollar-denominated garbage jumps to zero suddenly (because it cannot be sold at any price) then that produces a discontinuity: a rift in the fake financial space-time continuum.

This is what the current bailout plan is generally about. It is not about making anyone here happy: the fascists think that smells of socialism, the socialists think that it smells of fascism, and everyone (except for Bush, Paulson and Bernanke) agrees that it smells. Some people would like to see some heads roll, but as Robespierre discovered in the course of the French revolution, that just puts you knee-deep in headless aristocratic corpses, still with neither bread nor cake to feed to the peasants.

Speaking of peasants, everyone continues to repeat that the bailout is being financed by "the taxpayer," although it is unclear why our soon-to-be jobless and destitute taxpayer should be expected to cough up an extra trillion or more. The taxpayer may soon need a bailout too. If this mythical taxpayer actually tried to borrow her share of a trillion dollars against her future earnings, what sane person would want to give her that loan? Clearly, the gratuitous mention of the taxpayer is just a ruse designed to hide the rather obvious truth.

The bailout is actually going to be financed by foreign interests that hold US Dollar assets. Yes, the value of their holdings will go to zero, but they do not want this to happen suddenly. They wish to continue redeeming their US Dollar holdings for all manner of things of value, from capital equipment and intellectual property, which can be expatriated, to farmland and other means of production, which can be used in situ to grow food, mine ore, and so forth, which are then expatriated. There is some optimal function for this great unwinding, which will allow foreigners to expropriate the maximum amount of value in the minimum amount of time before their efforts to redeem their remaining US Dollar holdings stop paying for themselves in terms of the value of the available stuff.

As this process runs its course, the US will lose access to imports. Most significantly, it will find it more and more difficult to obtain the 2/3 of the transportation fuels that come from abroad, which are needed to keep the economy functioning. And that will bring on Phase 2: Commercial Collapse. That is probably what we are getting for Christmas this year, or shortly thereafter.

In the meantime, enjoy Stage 1. You will miss it once it's over.

Survival of the Nicest?

Periodically I find myself bombarded with a certain type of query: What is the timing of the collapse? How far along are we? Is it 5 years away, 50, or 500? And no matter how many disclaimers I issue, the queries keep coming.

If you listen to extremist yahoos like Alan Greenspan, we appear to be in the midst of a financial collapse. As it runs its course, the strange idea that endless economic growth on a finite planet is possible, or even desirable, will mercifully fall by the wayside, to be replaced by the much nastier mindset that economics is a zero-sum game: if you are to win, somebody else has to lose. No amount of greenwash or pining after sustainability is likely to stem the tide of nasty people who are determined to make it at your expense.

And so collapse, for you, is likely to turn out to be a deeply personal experience. Furthermore, if you manage to survive it, chances are, you will be none to eager to divulge the details of how you made it, for they will not be edifying. The process of survival is only enjoyable if it is experienced vicariously -- at someone else's expense.

I recently picked up a book about castaways, and was amazed to discover that the introduction to the book spells out this very idea succinctly and in good prose, perhaps better than I could, so I will reproduce a piece of it here:

After a century of enjoying the roller coaster ride of the Industrial Revolution, we face the bleak prospect of it all ending so suddenly that there's no time to don a life jacket, grab a parachute, or find a pack of matches. The fact that most humans are hopelessly unprepared for the ultimate crisis was driven home for me several years ago when a survey of boating accidents on Chesapeake Bay produced a curious detail: most of the male corpses fished out of the bay over the years had their flies open. The inescapable conclusion reached by the authorities was that all these people met their end while blithely peeing over the side. Their last thought, I'm sure, was astonishment. The next most common emotion (for those who do not die immediately) is a deep, sometimes suicidal melancholy, eventually pushed aside by hunger, panic, and -- in many cases -- temporary insanity...

One fascinating aspect... is the dawning awareness that when survivors get back to civilization, they carefully hide much more than they reveal. For the brutal truth, we have to look for clues between the lines. Some of these stories right more true than others, and it is entertaining to see the lengths to which the scoundrels go to paint themselves in noble hues. One comes away with the nagging suspicion that nice people usually do not survive being stranded, and when they do, it is often through freak accident or divine intervention. The real survivors in this world are few and far between. And if they are the fittest to survive, God help us, indeed...

How many of us, unexpectedly tumbled onto an alien shore, would silently give up the ghost rather than face the reality of drinking iguana urine, chewing up grubs, or gagging down raw turtle liver? Lord Byron's grandfather, shipwrecked in the Straits of Magellan, saw his dog killed and eaten by his shipmates... then became so starved himself that he dug up and devoured the dog's paws. We are all far too removed -- even from the rural farms oof our immediate ancestors and the prosaic hardships they faced -- to know what is really put in sausage meat or scrapple, or how to wring a bird's neck. Our soldiers have to be given months of training in jungle survival to prepare them for only a few days of commando operations in rain forests where barefoot people happily raise babies. It is all in your point of view.

Certainly it helps to be marooned with somebody else, for you can commiserate, quarrel, an feud like newlyweds, and when things really get difficult, you can always eat him, or vice versa... When the going gets tough, the tough get eaten. Cannibalism like so many other customs, is merely a state of mind. Over the centuries famine repeatedly drove Europeans and Asians alike to eat everything, including each other. The culinary genius of the French and the Chinese, working with nothing more than a few spices and a bit of garic, turned famine food into such delicacies as snails, sea slugs, and stewed bats, garnished with larvae, pupae, and spawn -- all, like escargot, under more elegant names. And while doughboys in the trenches of World War I were driven insane by body lice and other vermin, political prisoners, POWs, and castaways savor them in their gruel as if they were herbs from Provence. One culture's famine food is another's caviar.

In the case of survival cannibalism, society seasons its judgments with something akin to garlic by conveniently applying certain criteria: Was the main course already dead of natural causes? If not, was a lottery properly conducted before the murder, and are the culprits suitably pious, making analogies to Holy Communion? In this way, the survivors of a plane crash in the Andes could make a group decision to eat some of their number, and walk away heroes. It is only a short distance from the Andes to Soylent Green.

But what is customary is comforting. Cannibalism is a social affair. Solitary survival is not. Solo survivors are a breed apart. Confronted by extreme solitude, by starvation, an by no prospect of rescue, they do not sit around long pining in self-pity but set about urgent practical matters. In some cases this reveals strength of character, tenacity, and the will to live. In others it reveals only animal cunning and stubbornness. Sensitivity and imagination are terrible disadvantages in the crunch. Unusual among these tales because of its painful and pathetic revelations is the diary of a nameless castaway on Ascension Island. Unlike other classical accounts, in which the survivor returns to civilization to enlarge endlessly on his own ingenuity, this victim was much too sensitive for his own good. He kept a diary frankly revealing his misery, his mistakes, his melancholy, his weakness of character, and his hallucinations. The diary is singularly lacking in excuses. Perhaps because he was overly absorbed in his own failings and inadequacies, his struggle failed, and he diary was found beside his bones.

Excerpted from Sterling Seagrave's Foreword to Desperate Journeys, Abandoned Souls: True Stories of Castaways and Other Survivors by Edward E. Leslie