By David Malone 
What would it look like if our leaders had lost control? What would be the signs? Here’s a list of some of the signs I think we would see.
The first sign would be that the measures our leaders had taken did not have the effect we were assured they would have. Not that they didn’t have some effect, after all you can’t subsidise banks with $16 Trillion without something happening.
By David Malone
What would it look like if our leaders had lost control? What would be the signs? Here’s a list of some of the signs I think we would see.
The first sign would be that the measures our leaders had taken did not have the effect we were assured they would have. Not that they didn’t have some effect, after all you can’t subsidise banks with $16 Trillion without something happening.
But if the effect is not what they assured us it would be and moreover if the underlying problem they said the actions would fix, remains unfixed, then this is to me a simple and clear proof, not even a sign, a proof, that they don’t know what they are doing.
If a doctor gave you an antibiotic and said it would clear up the infection but instead your hair fell out while the infection roared on, what would you think of the doctor and his understanding of a) medicine and b) your disease?
And if the good doctor then pushed his way back to your bed side and began shouting down all other diagnoses and insisting that you be held down and forced to swallow another, larger dose, would you swallow it? Or would you have your friends take said doctor and throw him in to the street?
Part of our problem is that the veneer of control and understanding persists long after the actual substance has gone. So Mr King comes out today defending more QE [Quantitative Easing]. He is a reasonable and intelligent man so there is a strong temptation to believe he must know what he’s doing. If he says we need to take another dose of the medicine before it will finally have its advertised effect …. well he’s the doctor, right?
But the way I see it our bankers, financial experts and politicians have become like the rats, pigeons and monkeys that used to press bars for rewards in the Skinner boxes of 1950′s psychology experiments.
For those of you not familiar with the jargon of Skinner boxes and Operant Conditioning, it’s very simple. Wait until the animal does something you want it to do, such as peck at a button when a light comes on or press a bar, and then deliver a reward so that the animal associates the action with the reward. Simply reward the actions you want and the animal will learn to perform the actions you desire. It was found you could train animals to do the most amazing things.
More interesting it was found that once the animal had learnt what behaviour gave the reward, it would continue to press its bar long after the reward stopped being given. The animal had, so it was hypothesised, created a theory if it was an ‘higher’ animal, a ‘reinforced neural pathway’ if it was a ’lower’ one, and the behaviour became a learned habit.
Once the habit was ingrained the animal would persist in it no matter what. The rat or monkey would sit there grimly pressing its bar in the apparently dogged ‘belief’ that it had worked before it would work again. The scientists found that it took a long time for, to use the jargon, the behaviour to be extinguished.
The worst situation for the animals was what the researchers called ‘intermittent reward’. The scientists found they didn’t have to reward a behaviour every time for that behaviour to be learned and become ingrained.
As long as pressing the bar would occasionally give a reward then the animals would persist in it for longer and longer periods without any reward. They would just keep pressing it, long, long after any ‘untrained’ animal – a casual observer, would have concluded that bar pressing just didn’t work.
The poor trained animals had learnt that once upon a time this was the correct action to take and now had it firmly in mind that it was still the action that gave the desired outcome, it is just that you had to be determined and maintain confidence in the policy, not being blown off course by those who had lost faith, or those who had never seen the miracle of the bar pressing in all its former glory. And so on they would go starving in their corner pressing their bar.
The ‘better’ trained the animals were at pressing their bar the longer they keep at it in the face of overwhelming objective evidence of the failure of their actions.
Seems clear to me our leaders are just pressing that bar because they don’t have the imagination to think of anything else. They never did know why pressing the bar delivered the reward. Economics is a Skinner box, a black box, where no one can see and certainly none of them understands, the mechanism at work.
They have theories about the underlying rules and mechanisms and assumptions about human nature and the nature of economic behaviour. Their assumptions are almost all fatuous from any kind of evolutionary perspective. And their theories about the mechanisms are generally drawn from dubious first principles or based on correlations which they have noted – when this has happened in the past then this has followed. But sadly for them the correlations are very often ephemeral.
They hold true for a decade or two and then seem to stop being correlated. At which point a new correlation is elevated to the status of a new rule and the old rule is quietly no longer referred to. Like some embarrassing family member everyone pretends not to have heard from in ages and ages, if ever. ”Gosh, is he still alive. You know I always thought there was something not right about him.”
And so they continue to press the bar and attribute anything positive that subsequently happens to their bar pressing. While anything negative is attributed to not pressing it correctly or to malign external factors. If nothing happens, well press it again a bit harder. Remember confidence in the bar is the key to seeing the policy through!
When the proponents of pressing the bar start to disagree among themselves this, to me, is another sign that the end is approaching. Each still believes firmly in the magic properties of the bar and of pressing it.
But as they come to disagree more and more about how to press it – harder, softer, use some leverage, don’t use any leverage – and disagree about what the results are likely to be if successfully pressed, the fact of their disagreement starts to eat away at their collective faith in the bar and its magic. This is how paradigms collapse. And I believe we are in the early stages of that collapse.
The paradigm is not making sense even, I think, to some of the faithful.
The essence of the paradigm was that debt was not a problem because growth would take care of it. All that was required was to stimulate growth and pressing on the ‘Bail out the banks’ bar would take care of that. They have pressed and pressed and it has not delivered. In fact debt has got worse.
In ’09 banks would not lend to each other. We were told it was a liquidity problem. Our leaders refused point blank to even listen to any other ideas. They ignored or ridiculed those who said this was a crisis of solvency not liquidity, and ignored as outlandish and dangerous the idea that the reason banks wouldn’t lend to each other is because they all knew they had massive debts and that the assets/income stream underpinning all those debts was a lie.
But the truth is the assets were not worth what the banks claimed. And because the banks all knew this to be true they quite reasonably refused to accept each other’s assets as collateral and without collateral they would not loan.
Fast forward over two years during which, instead of cutting out the infected tissue of bad debts, we simply fed it all to National banks and what is the result? Now we have nations who won’t lend to each other. We now have a credit crunch at the sovereign level. And it will have the same effect it had last time but larger.
Now nations are starved of cash and via them whole national systems of the banks who were infected and starved of cash in 09 are at death’s door again. Only difference we, the peoples of these nations, are trillions more in debt than we were three years ago. Bravo! Bravo!
Meanwhile the monkeys in charge still won’t listen to any alternative ideas and are still at their sacred bar pressing it and telling themselves that one day soon it will work as it once did.
Courtesy of David Malone – http://www.golemxiv.co.uk
David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: http://www.debtgeneration.org/index.php