By James Kwak
Don’t get me wrong: I like behavioral economics as much as the next guy. It’s quite clear that people are irrational in ways that the neoclassical model assumes away, and you can’t see human nature quite the same way after hearing Dan Ariely talk about his experiments on cheating. But I don’t think cognitive fallacies are the answer to everything, and I don’t think you can explain away the myriad crises of our time as the result of them, as Richard Thaler does in his recent New York Times article.
Like many people, Thaler wants to write about the parallels between the financial crisis and the BP oil leak. For Thaler, the root cause of both crises is that “people in general are not good at estimating the true chances of rare events, especially when human error may be involved” — catastrophic market seizures in the first case, catastrophic oil rig explosions in the latter case.
I have no doubt that it is true that people have problems estimating the chances of certain rare events.* But to stop there is to whitewash the sins of the companies and the executives who created these crises.
First, it doesn’t do to say that ordinary people are irrational in making ordinary everyday decisions, and therefore we have to accept that companies will be irrational in making big decisions — like, say, whether to drill holes in the Earth’s crust a mile under the ocean. As they say, people make big bucks to make these decisions, and we expect them to use a little more reasoning than the kind we evolved on the African grasslands.
The problem isn’t that people have cognitive biases in assessing unlikely events. When you’re dealing with a big company like Citigroup or BP, you have many people applying lots of clever thinking to these problems. The problem is that there is a systematic bias within these companies against certain assessments and in favor of others. That is, the guy who shouts, “Danger! Danger!” will be ignored (or fired), and the guy who says, “Everything’s fine, the model says disaster can strike only happen once every hundred million years” will get the promotion — because the people in charge make more money listening to the latter guy. This is why banks don’t accidentally hold too much capital. It’s why oil companies don’t accidentally take too many safety precautions. The mistakes only go one way. You have executives assessing complex situations they don’t even begin to grasp and making the decisions that maximize their corporate and personal profits. (Is BP’s CEO going to give back years of bonuses now?)
On top of that, it isn’t even true, as a matter of fact, that the companies involved failed to estimate the risk of disaster. In a recent Fresh Air interview, Abrahm Lustgarten discussed three internal BP memos, written in 2001, 2004, and 2007, each of which warned that the company’s culture of inattention to safety — “a consistent emphasis of profits over production over safety and maintenance and environmental compliance,” in Lustgarten’s words — was creating a high degree of risk. The problem wasn’t cognitive fallacies; it was that BP employees were almost certainly falsifying internal inspection reports because of pressure to let production go forward.
This isn’t inability to quantify the likelihood of unlikely events; this is willfully looking the other way.
Thaler also wants to make the point that regulators are incapable of understanding the complex technologies involved, whether in finance or in oil exploration. But while this is undoubtedly true to an extent, it also misses the main point.
The most frightening part of Lustgarten’s interview has nothing to do with BP. It’s about the use of hydraulic fracturing (or “fracking,” apparently with no intended reference to Battlestar Galactica) to drill for natural gas. In fracking, a mixture of water and chemicals is injected underground under extremely high pressure to break up rock formations and release trapped natural gas bubbles. According to Lustgarten, there is no scientific understanding of what happens to those chemicals — many of which are toxic — and whether they end up in our drinking water. Yet the Energy Policy Act of 2005 forbids the EPA from regulating fracking under the Safe Drinking Water Act — by simply stipulating, without proof, that the chemicals are removed after being used, and therefore there is nothing to regulate.
If this reminds you of the Commodity Futures Modernization Act, it probably should. How could this happen? You should listen to the interview because I’m working from memory, but basically the EPA (this is under Bush and Cheney, remember) negotiated the deal with Halliburton and the other gas exploration companies. The EPA agreed to the stipulation, and hence the exemption for fracking, and in exchange the drillers agreed to stop using benzene (or diesel fuel, of which benzene is a component) as a fracking chemical. Years later, however, we now know that the exploration companies simply continued to use benzene as a fracking chemical.
This is what happens when you have a weak regulatory agency crippled by pressure from above (and political appointees who are opposed to regulation) and a private sector that simply does whatever it pleases in pursuit of profits. It’s not individual irrationality; it’s power, pure and simple. Free market economics has already whitewashed enough egregious corporate behavior. Let’s not repeat that mistake with behavioral economics.
* I have always been puzzled, however, by the fact that sometimes people say we underestimate certain unlikely risks, like financial meltdowns, but sometimes people say we overestimate certain other unlikely risks, like dying in a plane accident or a tornado.
The Baseline Scenario 
Right on!
A culture of safety first (or at least safety as important as profits) has to start at the top. BP’s Tony Hayward was brought in in 2007 in part to correct the “profits before safety” of his predecessor on whose watch people died in Texas. Hayward has utterly failed in that duty. Frankly, I think he and others should be held criminally responsible for the deaths of 11 workers and the pollution disaster.
Safety vs profits is one of several intrinsic conflicts (or trade-offs) in every business. It’s best implemented by equally powerful managers of safety and of profits… with a balance maintained at the top. There was no safety manager with authority to shut things down on that rig, just a profit driven or incentivized manager.
Government regulators at MMS ( or department of agriculture, atomic energy commission, etc.) suffer from the same intrinsic conflict… between insuring safety and collecting a share of the profits or promoting growth or the industries they regulate. Breaking those two functions up is long overdue, because, where they are under one roof, short term profits or growth almost always wins out.
Top executives are paid to manage intrinisic conflicts, when they don’t (as is evident in the oil and banking industries)major disasters happen; and those incompetent top executives (like Tony Hayward) throw up there hands and say it was a “one in a million event”….pure self-justifying BS.
As a note on your postscript–i’ve always suspected that people treat differently shaped risks differently. There are basically two kinds–risks of pain (ouch-risks) and risks of loss (purely monetary risks).
The former, for whatever reason, get overestimated because we don’t need any kind of thinking to determine the outcome. There’s no time value of pain, for example.
What i’d be curious to find then, is whether there are different kinds of moral hazard–does medical insurance increase risky behaviour in the way that bailouts do? That’s an empirical question, and i don’t know, but if it does, then splitting risk into two kinds–pain or loss–could help to explain that. People just might value the avoidance of pain higher than losing money, and so estimate their relative costs differently.
Good post!
Basically we need a working regulatory framework to better align corporate financial incentives with behavior that will ensure the integrity of our systems as a whole.
There are several separate issues in your post: subjective estimation of risk, agency problems (where individuals put their interests ahead of their employer’s), and true tail risk. I’m going to focus on the tail risk.
To give away the conclusion, I think the companies facing tail risk are often acting rationally, because the tail risk usually ends up being a negative externality that they don’t have to pay. So by ignoring it they are more profitable and would be at a competitive disadvantage if they were “responsible”. This is indeed a problem that requires regulation, but a very specific kind: The costs of tail risk need to be rigorously and ruthlessly made internal to the industries that cause the risks, so it becomes rational for them to adequately cover those risks.
Consider any of the normal tail risk problems — cranes falling off buildings, oil wells blowing out underwater, drug side effects killing people, etc. A tail risk event will maybe kill the company unfortunate enough to get hit by it, but all the other companies taking the same risk will be fine. Meanwhile they will have made much more profit by ignoring the tail risk. So it is actually rational for each company to ignore the tail risk even if they fully understand it is there — as you indicated BP did understand.
Right now, once the company that gets hit by the tail event goes bankrupt, the rest of the cost is borne by society at large, and/or the victims of the disaster.
Since the cost of the tail events is mostly external to any give company, it is rational for each company to ignore that cost.
Much of the point of regulation and/or law (such as product liability law) is to internalize that risk — basically to force companies to act as if they were bearing the full cost of their decisions. I’m by no means a libertarian, but I do believe that to a large extent companies would make the right decisions if they effectively had to bear the full cost of those decisions. For example, if energy companies had to bear the full costs of all the environmental and social costs of energy (including tail risks) we’d have a pretty good energy policy with very little further regulation.
I think that conversely trying to regulate the specific practices within an industry is just opening the door to gaming and the imposition of inefficiency. Your examples of BP memos are great because they indicate that BP was probably better able to make the right decisions than the regulators would have been — but it didn’t have the right incentives.
So we need a consensus that industries (not just individual companies) should internalize all predictable costs — either economically or through regulation aimed to produce similar decisions. Then at least in energy policy and similar areas we could have a coherent discussion about the true costs of tail risk. We could focus our political energies on getting the cost estimates right, and identifying costs that haven’t been internalized.
It is interesting to consider whether this is a useful approach to financial regulation as well. I’m inclined to think it is, if we can find the right way to measure and internalize the costs that financial screw ups impose on society.
Also just a very brief comment on subjective risk aversion: Tversky and Kahneman showed that people are very adverse to negative outcomes, and also that they judge likelihood by salience or “vividness”. So negative outcomes that are easy to imagine vividly (such as an airplane crash or tornado) will seem more likely, while other risks that are statistically more likely, such as falling in the bathtub, are much less salient and thus evoke less aversion.
I note that Pedro Bordalo, Nicola Gennaioli and
Andrei Shleifer have just written a paper adapting expected utility theory to generate this sort of result. I haven’t read it yet so can’t comment further.
This is a simple problem. When an executive only has next years bonus at risk, the obvious way to maximize his personal networth is to ignore the risks and swing for the fence because heads he wins and gets a big bonus, tails he gets no bonus. As Buffet says, the executives should be forced to put a large portion of their own net worth into the company. Then the tails, you lose is much more painful. Would BPs CEO and executives take risks like that if 80% of their own personal net worth could go to zero if BP went bankrupt? I think not.
It’s naive to assume that “people (who) make big bucks to make these decisions” should be expected to “use a little more reasoning than the kind we evolved on the African grasslands.” The behaviorists are on the right track. We (humans) have been working on being rational for hundreds of years and we just keep on getting in our own way. In fact, there are some who would argue that the more money involved, the riskier the behavior.
It’s not the “private sector” that “simply does whatever it pleases in pursuit of profits” – it the individuals and CEOs who make the decisions. Those big bucks, in others words.
On the commentary – “would BP CEO and executives take risks if their own personal net worth” could go to zero? Isn’t that the definition of risk? It could, or it couldn’t. Risk takers are willing to bet on that, one way or another.
These subjective risks are entirely due to newspaper coverage (the risk of dying of asthma, or drowning in your own swimming pool, is far higher)
Anyway, for two nice little talks on risk assessment and estimating future gains/happiness, see
http://www.youtube.com/watch?v=c-4flnuxNV4 (he also mentions airplane crash death likelyhood overestimation)
For those who missed it the first 5 times
Even simpler send them to prison for 50 years.
Everyone else would get the message: they have something personal at risk.
Thank you – excellent comment.
Didn’t really catch the meaning of “I’m by no means a libertarian, but I do believe that to a large extent companies would make the right decisions if they effectively had to bear the full cost of those decisions…”
To me it seems that many libertarians in reality are looking to a regulation-free environment where they can transfer the risks on to some other wittingly or unwittingly risk taker… Or did I misunderstand something in your post?
Thanks. Taking a charitable view of libertarians, they’d like to think the market is fully self-correcting, so for example companies that misbehave would be fully punished.
Of course you are right that often libertarian views are just a cover for a desire to be free to exploit others. But I was talking about the more idealistic case.
There are lots of reasons I think even the idealistic libertarian position is wrong. For example it completely ignores the difficulty of preventing fraud, agency problems, corruption, etc.
But even in an ideal libertarian world where companies couldn’t defraud or corrupt the markets, we can still all get screwed if they cause damage and then go bankrupt. That, other externalities and public goods are fundamental problems with any “free market” approach.
I believe the reason both groups take their associated risks can be summed up in one word: externalities.
BP will damage OUR environment and charge us to clean up their mess. Financial gambling companies will damage OUR economy and charge us to clean up their mess.
Is it really true that “The mistakes only go one way?” Or is it that we never hear much about the mistakes that go the other way, because they never make the news? Risk-adverse bureaucracies aren’t exactly rare, but they don’t make the headlines.
This is why banks don’t accidentally hold too much capital. It’s why oil companies don’t accidentally take too many safety precautions. The mistakes only go one way. You have executives assessing complex situations they don’t even begin to grasp and making the decisions that maximize their corporate and personal profits. (Is BP’s CEO going to give back years of bonuses now?)
That’s good. It’s a law of greed entropy. I’ll add that to my Law of Rent-Seeking, that no one is willingly an entrpreneurial capitalist competitor for one day longer than he has to be. The second he can switch to racketeering he does. All the “capitalist” textbooks are simply lies.
Free market economics has already whitewashed enough egregious corporate behavior. Let’s not repeat that mistake with behavioral economics.
But every idea has to be enlisted to whitewash corporate and political criminals. The job of claiming crimes are “mistakes” gets harder and harder all the time.
Just look at how impossible it’s becoming for the Obama hacks to claim their crook isn’t a conscious, willful corporatist thug. They’ve pretty much given up on the “he’s trying the best he can” lie. Now it’s the “he’s misguided” lie. So I suppose if behavioral economics looks like it can help with this and other hopeless tasks, it’ll be enlisted.
Good that behavioral economics gets some tractions. But their findings are old hat: We have had serious psychological research in the last 50 years, which already showed that people behave irrational, fearful, emotional, rather than rational! But these results have been overlooked intentionally by the free-market-zealots. Instead they succeeded in selling models which completely left out human behavior, and worked with unrealistic assumptions. I just wonder how they could convince so many
economists and ‘experts’ that these models were a valuable substitute for ‘real world facts, and – human behavior.
Thank you for pointing out this, to me simple, fact. The profit motive drives much of the ignoring of risk. It is rationally ignoring longer term risks to reap short term profits.
Afraid not. What we need is wholesale reduction in corporate power, a breakup of institutions to big to succeed by any means other than gaming any regulatory system and rich enough to do it. Giant corporations offer no meaningful efficiencies. Just looting opportunities for executives and disaster externalities for society.
In a sane society there are some risks you just don’t take even when the risk of disaster is very small, because the consequences of disaster are too great. Moreover, you cannot quantify the risk of something happening where there is no significant past history to consult. Keynes explained all this in his 1920 Treatise on Probability.
The incentives have to be correct. For oil companies, the incentives to drill by the book were not there. Too many economists are anti-regulation & pro-free-market as if markets somehow lack rules and incentives. They preach free markets. but do not address the market rules, incentives and structure. More attention needs to be given to incentives, especially those incentives that are aimed at prevention. Those are the ones that economists especially hate because prevention often ads a fixed cost. However, that fixed cost can greatly reduce risk and save money in the long run, because catastrophic failure like BP is always far more expensive to remediate than to prevent and our current financial crisis is proving far more expensive to the system than consumer protections that would have prevented it.
Incentives matter.
Behavioral Economics has shown some small glimmers of promise, but other than a mix of psychology with economics (which has been done multiple times before) and labeling itself a “new field”, I fail to see what the excitement is.
It’s interesting the conclusions these folks often some to, finding that tomato sauce stops prostate cancer after the research funds from Hunt’s, or grape juice fights cholesterol after the research funds from Welch’s, or that chocolate makes us more alert at work and more productive after scientists get money to do research from Hershey’s.
Richard Thaler may be the most honest and ethically sound researcher around, but I will be curious to see where his funding comes from. Judging from the NYT piece his source of funding must be something like “The Corporate Excuses and Rationalizations Association” (An industry trade group for corporations that f_cked up and now have their asses in the frying pan or….. that just LIED AND GOT CAUGHT)
those above examples of research were just hypothetical examples, not far from real life examples of claims from tainted research. This clarification is for any retarded visitors who wander upon this website/blog.
First, it’s about campaign finance reform. The lawmakers will be compliant and oversight will be inadequate until they can get elected without those thousand dollar checks.
The problem we have right now is that we can’t put a corporation in prison. We can assess fines. If the fines are affordable then it is just a cost of doing business. If they aren’t affordable the company goes bankrupt. We need something in between.
My modest proposal is something called moral bankruptcy. When a company can’t honor its financial obligations it can be forced into financial bankruptcy and special judges come in to take it over and restructure its finances. When a company can’t live up to its moral obligations to society we should be able to take it over, fire the management, and restructure it’s operational rules. The special judges would perform close oversight and control until the company had demonstrated a few years of good behavior.
This would allow the company to keep operating, but would also force compliance. It would have a salutary effect on the behavior of not only the company itself, but other companies in the same business. It would pucker the right orifices in the right offices.
“A tail risk event will maybe kill the company unfortunate enough to get hit by it, but all the other companies taking the same risk will be fine.”
Emphasis on “maybe”… congressional hearings != dissolving that little LLC clause.
The problem is that there is a systematic bias within these companies against certain assessments and in favor of others.
Disaster can remain absent for longer than you can remain solvent. By the time it actually shows up, CautiousCorp has long since gone out of business or been the target of a hostile takeover because of its high operating cost.
Competitive pressure forces businesses to cut corners, in order to compete with other businesses that are cutting corners. Free will is irrelevant. The market takes the shape dictated by the incentives and regulatory structures surrounding it.
IOW, they’re not irrational, they’re just operating on a short timescale that leaves them with no choice but to play Russian Roulette. Even if the safety features are cheaper than the disaster when properly amortized, cutting corners is cheaper still — for long enough to take over the market.
One of your best comments, James!
http://www.theparetocommons.com/?p=288
it’s all about incentives! several comments following the post make this (obvious) point, but why does the policy discussion so rarely focus on incentives? it should be the centerpiece of any reform, and anyone off the street can see that.
the congress/lobbyist relationship is the most blatant case of misaligned incentives of all. i guess the fish stinks from the head.
“I have always been puzzled, however, by the fact that sometimes people say we underestimate certain unlikely risks, like financial meltdowns, but sometimes people say we overestimate certain other unlikely risks, like dying in a plane accident or a tornado.”
James — it’s known in the field as “availability bias.” People overestimate the likelihood of events that actually happened recently, or in the past to them or someone they know; and underestimate the likelihood of things they have no experience with.
Read about it
I do not think that ‘competitive pressure’ in either finance or oil exploration does much to explain the behavior of large firms such as BP or Goldman. Rather, they are sufficiently large – and politically powerful enough to count on the privatization of gain and the socialization of losses. The problem with so much of the cleverness of behavioral economics is the assumption that all individuals begin with the same a priori assumptions and then proceed ‘rationally’ different assumptions (e.g. weltenshaung) lead to quite different ‘takes’ on the world.
But in the case of large institutions (e.g. firms) there is always a political dimension. Perhaps Olsen’s concept of distributional coalitions would be helpful?
“…no one is willingly an entrpreneurial capitalist competitor for one day longer than he has to be. The second he can switch to racketeering he does.”
Bravo!
“…no one is willingly an entrepreneurial capitalist competitor for one day longer than he has to be. The second he can switch to racketeering he does.”
Bravo! Just as everyone is for a free market until it’s their market.
One Sunday back in the late 80’s or early 90’s a vendor at a large financial institution’s data center cut the main power line in the data center and brought all equipment hard down, damaging circuit boards in all the computers. Due to a systems architecture that had disaster recovery built-in, processing continued non-stop and customers were totally unaware of any problem while the data center was down. This architecture, however, was discarded when the financial institution became a mergee and consequently a TBTF. Pray that no data center of a TBTF has a hard down – it will be a disaster that current disaster/recovery plans are unequipped to handle. The decision to abandon the robust architecture seemed to be primarily due to power struggles associated with a merger and the inability of Sr. Management to understand system basics. This decision also caused hardware and software costs to increase geometrically (if not exponentially) due to inefficiencies of the surviving system. Economies of scale? I think not.
Thaler doesn’t get it quite right. It’s not that “people in general are not good at estimating the true chances of rare events, especially when human error may be involved;” it’s that people are not good at making the appropriate preparations for these rare events. We all know that there is a small, but real chance that we could die on the commute home today, but human psychology prevents us from taking the “correct” actions – this is why it’s a good idea, in my opinion, for example, that states require you to buy car insurance even though this conflicts with my free market priniciples.
Interesting sign of the times (mid-50s) that the movie had to be prefaced with this cautionary statement.
But aesthetically it was definitely a step up from big fricking ants in LA storm drains allegedly caused by nuclear testing in New Mexico.
Uh, they told everyone they could be good for the community by always being selfish. Greed is good!!!!
Brilliant con. Simply brilliant.
Thanks DaveTee for the Gasland Trailer – worth viewing.
As someone with a background in Health & Safety, I learned how little human life was valued by corporations and governments – my first lesson in “behavioral economics.”
Social business is an answer. Corporation are doing what they are designed to do. An alternative is to create/design businesses that put profits into the company and not paid out as dividends. People invest for the social good and can get their money back, but no profit. Grameen Bank in New York offer $15oo loands at 15% interest over 6 months or a year. Payday lenders charge $50 if you don’t pay the loan back in full in two weeks. This is what I’m going to do. We can do better know, our consciousness had to evolve. BP coups in Iran, Investment banks thats the old maximizing profits, now we can design/create social businesses. Dannon, Adidas, lots of companies are doing it. Foundations could put up 10% of their charity for a social business fund. You don’t lose money, you don’t make money, but it’s not charity, you don’t have to belly next year. I’m so glad we’re evolving.
The guy that runs Massey Energy didn’t either work with or live next to the people he killed so his only worry was his slice of the profits. He should be tried for murder. So should BP execs.
If BP is held responsible financially, it is a good start at bringing accountability back to big capitalism.
It is still remarkable to hear residents of the Gulf complain about the spill while decrying any delay in further drilling.
Can anyone name, without googling it, the “Libertarian” candidate that ran against Obama and McCain in 2008?
The political principle was succinct back then:
“The only role of government is to protect the individual against force and fraud.”
Today it reads:
“…government should help the individual protect himself against force and fraud….”
Wrecking crew cynicism strikes again…
With every passing day, more people will make the personal decision to stop participating in the massive delusion – the inmates get to run the asylum. It’s the only rational thing to DO.
Two missing math formulas – 1. There is a LIMIT to profit. 2.The profit limit is dependent on sustainability.
Allowing a finite individual
(we’re all gonna die one day – trust me, medical research stepped back 50 years with wrecking crew deregulation)
to reap unsustainable profit
is no way to run a business…both die and leave a mess behind…
In science, it’s called cherry-picking the data…there is no such thing, even in theory, as “zero risk”!
Run, don’t walk, away form the pod people who took over the “libertarian” political party – they’re one group of inmates that the other group of inmates decided to play crazy with – for profit.
“Now go say 3 hail mary’s and sin no more…”
Since I monitor the “religious” sites to discern the inner workings of their minds, the “irrational” rationale has been brewing for a week or so while they sipped their celestial seasonings teas…
This is an argument for government regulation to level the playing field for all actors.
Some residents of the Gulf Coast do not want more drilling. It’s just that elected officials, who are tied into the oil industry, want a return (and also those that depend on it for jobs).
See http://www.gulfcoastfund.org
Governments and corporations don’t think, care, or do anything, they’re legal entities created out of nothing and operated by individual people.
Put individuals in positions where they are rewarded for ignoring or destroying the welfare of others and too many of them will do so without a qualm. Some will not… but market forces of short term profitability remove them from the marketplace…
This is not new. When slavery was profitable it was justified by Catholicism in Spain and Portugal, Calvinism in Holland, Episcopalianism in England and a host of religions and the State Governments in the American South.
The profit motive has to be continually, forcefully and creatively regulated by the body politic; monitored with rewards and punishments for individuals, not just institutions, both in business and politics. Until executives are personally punished by civil and legal means for their “profits over health and safety” decisions, this will go on. For issues like this the corporate shell of immunity should be eliminated.
What a huge fracking mess.
We are all familiar with the saying, “err on the side of caution.” But you make a good case that this rarely happens outside personal decisions. Because in the corporate sphere, “leaving money on the table” is a cardinal sin.
I like the newscaster’s wrap “the Colorado Department of Natural Resources is aware of [the problem] and will probably be doing [some further investigation]”
Reminds me, back in th 80’s natural gas was discovered on some legacy property in West Virginia that forced a sale to the driller. When I went to investigate, I was told that the paper property records were lost in the conversion to computer.
Wow, I really like your comment as it precisely nails today’s problem. I was reading something yesterday, I forget the author, but he used the phrase, ‘corporate royalty’, and that’s exactly what we have. Corporate executives who believe they are entitled to lie, cheat, and live the life of royalty – with no consequences. And they have structured the regulatory/legal system in such a way that any liabilities will be reduced or postponed for years, or even forever. And they continue to live in their high tech security compound, away from the rest of society.
Change cannot come fast enough to end this corporate royalty, (and to paraphrase Robert Reich), “who owe more to good fortune and the structure of society, than talents and hard work.”
Good, I recently heard of a Japanese proverb that went something like this; “Prepare for 100 years, but be ready to die tomorrow”
It’s not remarkable at all!
It’s what happens when you don’t have all the facts – bad decisions are made.
Isn’t this just a fancy description of nationalizing a company? (I have absolutely no problem with that, BTW.)
I remember (I may be a little off on the details here) reading about earthquakes around a Fort Worth Texas airport, and for awhile they couldn’t figure out what the deal was. Eventually it led back to shale gas exploration. shale is basically rock and they find a way to release the gas from the hard rock, using highly highly pressurized water and chemicals. It’s extremely dangerous and unregulated.
For the record I think natural gas if they can get it in raw form out of the ground is great and much better than oil/petroleum. But shale gas is a very different story. Shale gas (or natural gas drawn from shale rock) been sold as a type of fools’ gold to investors who don’t know the extreme danger of drilling, environmental damage, and also much higher fixed costs over raw natural gas. The gas/oil companies have told many lies about natural gas drilled from shale so investors can be suckered for more capital by the gas companies.
My laymen’s advice???? Natural gas is generally great and even can be a good investment depending on the current market valuations…. but stay the hell away from any company which does shale drilling or shale exploration. Big “T” for trouble in river city.
Just who is responsible financially? The spill occurred specifically in the Block 252 Mississipi lease called Macondo by the lessees. Three parties own the lease. 65 % BP , but who in BP? Anadarko 25 % and Molex a unit of Mitsui the remaining 10 %. Since there are three parties a joint venture exists at the Macondo level. Anadarko and Molex share in the costs , even as non operator lessee position holders. Is Macondo an LLC or other pass through entity with liability limitations if adequately capitalized? Don’t know but a legal entity exists to which a tort would attach. Going further, does BP Exploration and Production, Inc own the 65 % position in Macondo the lessee entity? It must be a near certainty here that all acts that led to tort liability would attach here if not at the Macondo level. This corporation would be very adequately capitalized and thus insulate liability further up the chain.
Over the past fifty some days since the accident, a lot of material has been put out by the media. The subcontractors apparently had wrap insurances provided by BP. Anadarko, due to it’s small size compared to BP could be severely damaged. One piece quoting Fadel Gheit of oppenheimer claims that Anadarko has around $375 million of liability insurances. Anadarko is tiny compared to BP. What are the liabilities coverages of BP as a whole? Where are they reinsured if BP has a captive insurer?
At this point a BP subsidiary is liable for tort damages and the buck should stop there. There is also that limit the oil companies relied in on buying the lease from the federal government.
Will the USG be able to dragoon BP to cover it’s complicity as lessor that was paid royalties?
I read ysterday where the USG could possibly cancel all leases to ” BP”. Prudoe bay leases are held by BP Alaska which in turn were royalty basis transferred to BP Prudoe Bay Royalty Trust. None of these entities had any connection to the tort problem involving Macondo Lease.
There are 70 rigs or thereabouts doing deepwater in the Gulf of Mexico . At the end of last year 37 of these rigs were operating mutiple wells producing around 1 million bbl a day. The other 33 rigs were E&P. Probably nearly all deep water projects have non operating lease ownership shares as illustrated in the Macondo project in Block 252.
If deepwater operations are too dangerous period to pursue it was the United States Government that sought to lease out it’s property for deep water recovery of crude oil. If the lessee should not, the lessor too never should have offered. The USG received payment and royalties here for profit.
If the liability limitations can be dragooned over for political fall out protection, every player should seek to shut down and abandon because the risk vastly exceeds any profit potential. That is especially true for non operator positions in these leases. Another problem will be that these lease positions may already be impaired across the board triggering write offs. If so, why not terminate E&P projects forthwith if the liability is not contained and limited to the statutory limits Congress set to induce deep water production in the first place.
BP and Anadarko own and control directly 24 out of the 70 rigs operating at the end of last year. An impairment charge to all the wells Anadarko operates plus those where it’s position is non operating could destroy the company.
I agree Edwin.
When things become ‘too complicated’ we need to simplify the solutions for the corporations with problems.
I believe that changing our laws to allow criminal and or civil culpability on corporate officers is a great, simple idea.
If corporations are allowed the rights of individuals, then the individuals in corporations should have the same culpabilities in their capacity of ‘citizen’.
The debate on this very often gets off the track because we fail to remember that a company is a fiction, a kind of virtual reality, which only exist as a legal entity. A company cannot plan, it cannot have intent, it cannot drill. Only people can do these things. So what you get out of a company is the sum of the activity of many people. And when the activity ends with disaster, those who actually did drill or did order someone skip a safety valve use the good old Nürnberg-defense of only following orders or SOPs. And somehow this defense has now become a valid defense, at least if you did it in the name of a company and not of the Third Reich. Maybe some of our legal fictions need a major work over?
The fact of the irrationality of the actors’ behavior doesn’t excuse the behavior. It argues for a legal/regulatory framework that punishes failure commensurate with the impact of the failure, and which limits the scope of that failure to a single (corporate) entity.
Honestly, I’ve felt like I’ve heard appeals to the fact of behavioral economics’ results in your declamations of institutions that are Too Big To Fail. I have long interpreted what I heard from you and Simon as saying, “First, we know that people in these positions will underestimate the possibility and consequences of failure. Second, we’ve compounded this by creating regulatory structures that permit institutions to become systemically dangerous should they fail. Third, our society is unwilling to suffer the systemic consequences of that failure. So, since we can’t do anything about the first issue, and we’ve agreed that we won’t do anything about the third issue, we’re left to attack the second: don’t let any concern become TBTF.”
And, FWIW, I’m pretty comfortable with us deciding not to permit the collapse of the financial system to collapse the economy. So I’m strongly in favor of limiting the damage of large institutions by preventing them from becoming TBTF. It just seems like the prudent choice. I may disagree on the parameters of the limitations we impose, but I really think the message that we should abjure TBTF is the right one.
Did I miss something?
Amen. I’ll bet millions of Americans agree, but the pollsters and the media will never tell us so.
http://www.harborstandard.blogspot.com
Blew it up on purpose. Now pass 15 trillion dollar cap and trade energy legislation.
Question: I’m wondering how much of this happening equates back to VP Cheney’s secret meeting with the “Oil Industry Behemoths – Secret Invite Meeting on Energy”? Remember this – it was so controversial,and secretive that it went all the way the Supreme Court not too divulge the attendants!
Edwin Lee wrote:
“Governments and corporations don’t think, care, or do anything, they’re legal entities created out of nothing and operated by individual people.”
They have no sympathy for whistleblowers.
“When slavery was profitable it was justified by Catholicism in Spain and Portugal, Calvinism in Holland, Episcopalianism in England and a host of religions and the State Governments in the American South.”
Agreed.
:-)
‘Wherever you see the large scale destruction of the environment, you will also see. Always! The subversion of the American democracy.’
(5:14)
Gaute wrote:
“The debate on this very often gets off the track because we fail to remember that a company is a fiction, a kind of virtual reality, which only exist as a legal entity. ”
The corporation has no soul to damn or body to imprison.
Spot on:
“Giant corporations offer no meaningful efficiencies. Just looting opportunities for executives”
Rating Agencies Dodge Bullet In Wall St Reform Bill
Tue Jun 15, 2010 8:23pm EDT
(Reuters) – “Credit-rating agencies like Moody’s and Standard & Poor’s dodged a bullet on Tuesday as lawmakers decided to strip out a provision in the Wall Street reform bill that would have upended their business model. Negotiators from the House of Representatives and Senate tasked with hammering out a final version of the sweeping reforms agreed to remove a measure that would have set up a new clearinghouse to eliminate perceived conflicts of interest in the ratings industry.
Instead, they ordered regulators to study the issue and take action only if they think it is necessary.
The credit-rating industry has been widely criticized for assigning overly rosy ratings to dubious debt offerings that brought Wall Street to its knees during the 2007-2009 financial crisis.
“A hoax was perpetrated on the American public and the world public,” Democratic Representative Paul Kanjorski said of inflated ratings….
“We did the best we could to put people on notice that they ought to be doing their own diligence,” Frank said.”
http://www.reuters.com/article/idUSTRE6575PN20100616
SEE NO RISK; HEAR NO RISKL SPEAK NO RISK!!!. Corporate practice sterilizes liability with deniability and the relationship between these two factors is called RATIONAL..
Buffet says this just as hes patting the back of his boys at Goldman.
James is exactly right when he says: “The problem is that there is a systematic bias within these companies against certain assessments and in favor of others.”
There is systematic failure throughout American Capitalism. When push comes to shove even one of America’s most respected business men supports his book by defending Goldman (his investment was after all Goldman’s advertisement to the financial markets that they are solvent) and lobbies Democratic senator Ben Nelson in favor of derivatives aka financial weapons of mass destruction (who said that?). The reality is Buffet is a great value investor who does not often have to get in the mud to defend his business, but when his business model is threatened (not to mention legacy) he acts like any other rational business man lobbies with the best of them and lies about the virtues of Goldman.
Is Buffet a bad person? Probably not, but due to the institutional structure of our system his actions were completely rational.
BP execs are faced with the same decisions. If they had the public’s best interest at heart they would allow (require) the clean up crews to wear respirators. The chemicals they are breathing in are highly poisonous. Since that might increase their legal liability Tony Hayward tells us that an “army” works on their stomachs and the clean up crews food poisoning and have not been chemically poisoned. As CEO his legal liability is to shareholders so in the boards eyes hes doing a fine job.
Check out http://www.thecorporation.com/ the only we need to increase public awareness of these massive market “inefficiencies.” http://www.youtube.com/watch?v=Pin8fbdGV9Y
Well put as usual James.
To note, what follows is my personal opinion, not that of my employer.
I actually work for a large company in IT and I have to admit that I’m a bit dumbfounded at BP’s behavior (not surprised I guess, just dumbfounded).
We live in incredible fear of compliance requirements and general liability, whether from shareholders or otherwise. Even if something’s technically “legal”, we are enormously careful because we don’t want to get sued period.
Subsequently we think about risk a lot and yet our daily liabilities are many orders of magnitude smaller than say an oil company. As an example, though this is more an internal liability than an external one, we don’t build anything that isn’t redundant and if it can’t be redundant we are damn careful to make sure the risk is extremely small and/or has significant mitigating controls.
When on the other hand you have billions at stake, which even just a tanker leaving the offshore well could cause in of itself, you’d think you’d live in enormous fear of liability. And yet, they seemingly didn’t.
Forgetting even the liability – the amount that went into this well and the lost revenues of the potential output here, one would think more care would go into the process. You’d think someone would be awful scared of getting fired here if the well went south and yet again, seemingly no one did.
Again, dumbfounded.
“I have always been puzzled, however, by the fact that sometimes people say we underestimate certain unlikely risks, like financial meltdowns, but sometimes people say we overestimate certain other unlikely risks, like dying in a plane accident or a tornado.”
It’s about perception of control. People in the financial industry feel like they have control of the situation, so they’re not very worried about catastrophe. On the other hand, passengers in an airplane feel helpless and at the mercy of fate, producing an inappropriate level of anxiety.
I absolutely agree. There is an amorality involved. Most people are simply never presented with the moral question in stark terms, because the culture does not allow the moral question to be asked. This does not absolve anybody. You are not absolved by refusing to look.
The culture which does not allow the moral question to be asked, is created deliberately and is ratified implicitly throughout the organization.
Yeah it reminds me of The Commodities Futures Modernization Act of 2000, A.K.A. the Enron Loophole. President Clinton signed that one for some reason.
Ten years later, Fed Reserve chair Ben Bernanke hired Linda Robertson for “congressional relations.” Linda Robertson used to head the Washington Lobby office for Enron. She is credited with authoring the Enron-Cheney energy plan. She helped write The Commodities Futures Modernization Act of 2000 A.K.A. the Enron Loophole, which also paved the way for Credit Default Swaps which allowed Wall Street to gamble trillions. Now in 2010 Bernanke is overseeing astronomical bailouts, for which (of all people) Linda Robertson has been hired to do what she can to block any audits of the Federal Reserve. She is the prime person for this PR job since she has been a major player all along.
The fact that she has been rooted in this financial meltdown for so long greatly contrasts with Bernanke’s claims regarding auditing the FED. Bernanke was quoted in the Wall Street Journal as saying “Thus, political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.” Linda Robertson is political interference, her presence implies that the corruption inspired back at Enron, lives on. Bernanke needs a better argument against auditing the Federal Reserve; I don’t think he has one.
The pure arrogance of the rich and powerful does leave the rest of us dumbfounded.
And then sometimes, we get mad.
“the culture does not allow the moral question to be asked. This does not absolve anybody. You are not absolved by refusing to look.” Excellent points.
We are not absolved by refusing to look at the carnage we cause in military adventures and police actions around the world. We are not absolved by refusing to look at the great poverty and misery within our own country. We are not absolved by refusing to look at our inadequately educated children. We are not absolved by refusing to look at the many unneccessary ways we destroy the planet and its hapless inhabitants, plant and animal.
We are not absolved of our utter and unending selfishness.
And then, there is Wall Street.
And then, there is BP.
“This is what happens when you have a weak regulatory agency crippled by pressure from above (and political appointees who are opposed to regulation) and a private sector that simply does whatever it pleases in pursuit of profits. ”
Don’t forget another huge source of problems – regulations that hurt us. As an example, consider the FHA and the GSEs. Regulators are pushing these entities to do more of the wrong thing. Instead of giving help to the bottom 10% of home buyers, they are helping 90%, which mostly results in higher prices that subsidize sellers, not buyers.
Sounds “frecked up” to me. Like Charles Freck.
With 75 posts ahead of me I see a missing argument in the main article, although I substantially agree with you, James. I see this as a societal issue as well. In our society we define success in lots of ways which seem to miss the point.
Take Wall Street for example. There were lots of things, many very much in the nature of the things which went wrong with the Deep Well Horizon disaster. There were lots of cheerleaders who were all about profits without regard to the issues of safety and prudence. Not only are these things substantially ignored in our current corporate culture because they tend to restrain growth and profits, but because success, above all other things in the modern world is defined as winning, and winning is defined as “the one with the most [fill in the blank] wins.” The answer is lots of things related to not just profits, but power, making the other guy lose, making our egos feel good, being better (by such definitions) than the competitor. This goes whether you are an oil executive, a stock broker, or a drug dealing gang member. Not only is winning an important thing, but, as Vince Lombardi said, it is the “only thing.” All else in our narrowly motivated society is just sloppy seconds, to be ashamed of, or even terrified by.
We, a human beings, can’t grasp the idea of winning WITH OTHERS, but winning to spite others. Why else would people elected to our government offices spend more money building their campaign chests than being involved in working for those who elected them (statistically nearly 70% of their time is spent raising money). Why else would our very largest institutions worry only about their own profits and ways to enhance them and not the country in which they exist.
This is the sociopathic, amoral environment in which we now exist. And, in spite of those who would like to waste paper or breath arguing otherwise, I see no signs of change. We can expect more of the same for the foreseeable future. Humanity, it appears, has reached self-destructive mass. Please, someone, talk me down from the ledge.
Appalling though the disaster is, the amount of oil spilled is tiny compared to the amount we consume and just burn every day. Every single day, America burns roughly 4 times the total amount of oil that has leaked into the gulf throughout this disaster. Check this post for more details: http://iancollingwood.com/the-scale-of-our-oil-problem
Blaming BP is not the answer – it’s a convenient diversion from the fact that all the industry relies on flawed risk assessment and weak regulation to allow them to externalise the immense costs of their business. I doubt there would be much profit left if the oil companies actually paid for the damage they cause.
Ian wrote:
“Blaming BP is not the answer – it’s a convenient diversion from the fact that…”
BP Buys Top Google Result For “Oil Spill”
7-days ago
“BP has purchased sponsored links that appear at the top of Google and Yahoo’s search results for terms like “oil spill” in its attempts to improve its public image in the wake of its massive oil spill in the Gulf of Mexico.
BP’s PR problems are severe. U.S. President Barack Obama said this morning that he’s talking to experts so he can determine “whose ass to kick.”
http://mashable.com/2010/06/08/bp-oil-spill-google/
Please come down of the ledge Bayard. You are one of my favourite commenters.
Honestly, there are also good American people. You have to look very hard but they do exist.
One of my favourite American books is called PiKHAL, A Chemical Love Story by Ann & Alexander Shulgin.
Lovely people, brilliant story.
Why not give it a try?
Re: @ Whistleblower____Ditto- just another word for one that doesn’t fall into “Conformity” – time too start another religion?
Re: @ Ted K___Made my day. Thanks
I think of nationalizing as permanent. This would be temporary, like financial bankruptcy. The mechanisms would be virtually the same. Just the focus would be different. Part of the process would be compensating victims and prosecuting corporate criminals.
Re: @ Ian___Way to fan the flames Ian – is it discourse you want – or an inkwell to drown yourself in?
You mean when a winner has been announced – checkmate – a new class of self-proclaimed “regulators” say it wasn’t a chess game?
I forget which level of Dante’s hell plays that game eternally…anyone?
More questions than answers.
Protection is a racket—whether by Don Corleone on the streets of NYC or Don Columbia law school in a Federal Agency. Government regulators “mucked” with the pricing mechanism (creating free-riding opportunities via oil subsidies) and randomness (conflation of risk versus uncertainty) of the underlying economic environment to create a Potemkin village for rent-seekers (MMS).
By what economic structure would you and Gene replace the corporate governance structure?
How would this function differently from state-sponsored Chernobyl to GSEs FNM and FRE?
And yet no one seems to worry about the Large Hadron Collider anymore. It is the most complex machine every built and we are supposd to take CERN’s word that all if fine simply because we cannot understand what they are talking about when discussing the risks invovled..much like we weren’t expected to ever understand how OTCs worked and thus let the investement banks run ramshod over the world economy.
One of the leading critics of the LHC is Professor Otto E. Roessler who is a Chaos Theory pioneer. Everyone loves the Chaos Theory but he has been essentially muzzled.
Then there is this evaluation from Professor Eric Johnson a legal expert from the University of North Dakota who conducted an analysis on the discourse on dangers and risks at the LHC…
“Even a tiny chance of a black-hole catastrophe could be very significant as matter of equity before a court. The alleged downside, after all, is the disappearance of our planet down a cosmic drain. From my perspective as a lawyer, sizing up the merits of the case, I find the assurances provided by the particle-physics community to be quite lacking. In particular, I am struck by the fact that the safety assurances are based on scientific work that brazenly lacks independence.”
“…the history of the black-hole debate leaves me uneasy. There is a repeating pattern of airtight assurances—presented with utter conviction—that are quietly abandoned later when the scientific bedrock upon which they are based suddenly erodes.”
“The experts are either afraid for their livelihoods or afraid for their lives,” writes Johnson.
Et also says:
“While it seems absurd, in the abstract, that a group of apparently normal people could risk the entire planet in the course of carrying out a science experiment, the prospect does seem distinctly plausible once one takes a look at the details. Such a disaster is not likely, to be sure, but it does appear plausible enough to give one pause.”
Be afraid. Be very afraid.
Or both! ;-)
Not unfortunately that anger will stop a ruptured well head, which is the real problem here. Assuming that BP is actually doing everything it can (which is dubious, but will pretend to give the benefit of the doubt) what the heck else can we do? The president can give another 12 speeches, do a better job at pretending to be angry, throw a few more scientists at it, but basically it sounds like until the relief wells are drilled we’re just, well, screwed.
As far as the long term cures, which is what this thread is actually about and I digress, well that is another thing. That in theory we can fix (but undoubtedly won’t due to legislative capture).
Where there is complexity (Hadron Collider, there is uncertainty.
The “repeating pattern of airtight assurances—presented with utter conviction—that are quietly abandoned later when the scientific bedrock upon which they are based suddenly erodes” is the result of policymakers’ one-size-fits-all deterministic governance perspective that conflates risk and uncertainty.
Reference Chapter 3 for Minsky Moment of boom-bust cycle in “We’re All Screwed: How Toxic Regulation Will Crush the Free Market System” and a series of articles on capital market governance.
http://w-apublishing.com/Shop/BookDetail.aspx?ID=D6575146-0B97-40A1-BFF7-1CD340424361
Can Mr. Cheney be called before Congress to answer now or ever?
Horribly annoying speaking voice, but some stuff people need to hear.
http://en.wikipedia.org/wiki/Milgram_experiment
Even without the profit motive, people will still do horrendous things to other people. All it requires is not being held responsible.
I’ll jump if you go first! Just kidding… I completely agree with you. I’ve always been the one who tells it like it is which doesn’t play well in a world firmly in the hands of sycophants.. It’s all about toadying to the people who can promote you and then once elevated surrounding oneself with yes men and women. It makes me sick. We have become a society of pathological narcisitists completely out of touch with the reality that as a species we mean absolutely nothing in the larger scheme of things.. The fact that we have evolved, through whatever cruel laws of Nature to become the cancer that is plaguing the Earth is truly a sad, sad thing. I am not convinced that we will be able to turn the tide. Perhaps we still have a generation or two to go before the present arch of human civilization burns itself out or maybe we only have a few years, maybe months left.. On the grand scale of Eternity the point is moot. Whether we continue for another day or another thousand years, The Universe is completely indifferent to our existence. We are but an ephemeral blink in Time’s Eye.
So all we have is right here on Earth. Now. Discipline and restraint, are to me, the essence of being human. Being able to recognize the pitfalls of desire and avarice and to willingly restrain ourselves from those pursuits is what is at the core of all religious texts. It didn’t take the Internet and smart phones and cheap energy for our ancestors to figure it out. They were much more human than we are. For humaness is a moral dimension. Not a biological one. And as we accelerate our use of machines to mitigate reality we become but digital simulacrums of our pre-computer analogue selves. It reminds of early critiques of compact discs. They sounded so crystal clear compared to vinyl…but lacked a certain warmth.. nobody but audiophiles seems to care anymore. The same was true with HD. So crystal clear…but something is missing. Ditto for social media. What all these compterized offerings are missing is “presence” I’ll leave it at that.
Despite this dour view I am still grateful for every day that the sun rises anew, or more to the point, that I am here to witness it. In a way I long for the madness to end. Nothing makes one feel more alive than having to struggle to see another day! And yet this makes me nervous. I am more afraid of what I might have to do in the name of survival if civilization collapses than what others might do to me.
It feels as though the regulatory process in any one country is insufficient to take proper account of the global risks from a whole range of human activities.
Perhaps a body like the UN should be used to manage, as in regulate, risky activities on behalf of the world’s citizens. That would include exploration for a whole range of the earth’s resources that have the potential to harm across borders. Because any company the size of BP is asymmetric in terms of rewards and risks – always leaning towards the side of rewards, as others here have said.
We have an excellent model of UN regulation in ICAO, the International Civil Aviation Organisation. It has allowed private aviation companies to operate both very safely and most times profitably.
Just a thought.
Re: @ Wyndtunnel___I’ve thought the same, but there’s been this lingering question I just can’t seem to rationalize. The final/latest stages of mankind’s evolution show the Neanderthals some 400K year ago, whereas the species has since replicated/evolved into Homo-Sapiens 250k years ago to present. Anthropologist & Scientist show anomalies, and quite striking similarities of overlap/duplicity, (natural selection/mutated genes) but my wonderment is, and of the excelleration in mankinds intellectual capabilities that might/could have hastened a pre-mature split in our evolutionary timeline into another distinctive species walking amongst us this very day? Thanks
Wyndtunnel wrote:
“And yet no one seems to worry about the Large Hadron Collider anymore. It is the most complex machine every built and we are supposd to take CERN’s word that all if fine simply because we cannot understand what they are talking about when discussing the risks invovled..much like we weren’t expected to ever understand how OTCs worked and thus let the investement banks run ramshod over the world economy.”
An interesting analogy, especially if you appreciate…
http://en.wikipedia.org/wiki/Bell's_theorem
– best left to it’s own forum and The Tao of Physics. :-)
I think Stephen King offered an interesting perspective :
“Do you believe in an afterlife?” the gunslinger asked him as Brown dropped three ears of hot corn onto his plate.
Brown nodded. “I think this is it.”
Well my thoughts on that are that the evolution seems to be towards biotech…the future is very much cyberpunk as far as I can tell. So far the changes are cosmetic. While we’d find it quite an adjustment if the Internet were no longer readily available to the population at large, I believe that we’d adjust, but people would be doing there damned best to get something like the Internet up again… There is a bill before the Senate I believe that wants to give the President authority to “shut down” the internet with a few phone calls to key hubs should the entire system be threatened by a cyber attack… But from responses I got from similar discussions elsewhere no one seems to know with certainty how to shut the Internet OFF in any meaningful sense as it is so complex and decentralized. Any event major enough to knock it out would therefore be a major threat to civilization itself… a nuclear attack, a meteor, a very well coordinated attack by a foreign force with follow up plans for occupation… who knows?
So if the Internet and our dependence on it is any guide than that is the vector in which I think we will evolve, both socially and bio-technologically. And those who don’t get it, or don’t like it will be dealt with according the laws of survival of the fittest. While transhumanists seem a bit over the top to many people, they do represent a growing trend. Enough that the New York Times reported on it this weekend.
What intrigues most about the article is how it suggests that access to life-prolonguing technology and other superhuman-minded biotech will most certainly be the domain of the super wealthy who will indulge in becoming a new class of transhumans… Which at the end of the day shouldn’t shock anyone. It’s simply a logical extension of the ever-widening gap between rich and poor that’s been going down since Reagan took office. The current Depression, because it is all very depressing not matter what you call it, is simply the world coming to termns with all the challenges that face us as we embrace technology and become more and more in service to it than it is to us. We have lost control of the narrative of The West. Who are The West and what do they stand for? We can no longer count on the narrative of Victory to propel us along.
If this makes anyone uncomfortable it should. Our species is changing and now more than ever we need to examine what it means to be human and what we want to make of our planet. I am not terribly optomistic based on what I’ve seen in the past two years. Politicians, economists and the uber wealthy seem to be running scared or cowering in the corner, utterly paralyzed about what to do next. No one is telling “THE PEOPLE” what the situation REALLY IS. Even Simon and James seem to be commenting under the assumption that growh economics is a given. Unfortunately we’ve so overshot the mean that if any growth is to be possible moving forward the whole edifice of our civilization has to be knocked down several notches. But even if we have a monstrous Depression that leads to war which destroys a good portion of the World’s infrastructure and reduces the population(aided by the spread of disease that would surely break out as we push our civil infrastructures to the limit) we still would only be setting up the next supercycle… We need to thoroughly re-evaluate what role we humans want to play in the exploitation of the Earth’s resources. Do we want to continue transforming the Earth’s raw materials into shiny plastic garbage with no social utility other than to mesmerize the masses who then pay tribute to their celebrated masters in sports, business and entertainment? Or do we want to pursue Truth in Nature by transforming her bounty into things of beauty for all to appreciate and within which we can all find inner peace and transendence as we embrace the mystery of our existence instead of desperately toiling to explain it all away and in the process leaving behind nothing but the stupid naked apes that we’ve been all along.
Shorter “cognitive bias” school: “Nobody could have predicted…”
I love you Wyndtunnel (red wine does that to me). But sometimes… ‘Even Simon and James seem to be commenting under the assumption that growh economics is a given’ …I am completely and utterly fed up with Professors & other Ph.D. people.
I think they are just irrational!
Anonymous,
Would you mind elucidating a bit how Bell’s Theorem relates to my analogy? I read the wikipedia entry and like most things related to QM I read the words and feel vertigo…not so much because I don’t understand but because I think I do…yet do not…
Re: @ Wyndtunnel____Precisely, but it is the recent split (few hundred years or so?) in our species now evolving that is now currently postulating biotech. We are all aware that mankind will destroy the earth in due (I pray its not tomorrow) time, but this is not sci-fi. My hypothesis suggest that only time-travel is possible for mankind’s survival to outer solar systems in our known galaxy. What concerns me the most is mans violent makeup! Thanks PS. I enjoy reading your comments on this blog:-)
Mr. Kwak wrote:
* “I have always been puzzled, however, by the fact that sometimes people say we underestimate certain unlikely risks, like financial meltdowns, but sometimes people say we overestimate certain other unlikely risks, like dying in a plane accident or a tornado.”
Speaking of ” unlikely risks, like financial meltdowns”, some people say…….
California On ‘Verge Of System Failure’
Friday, Jun. 18, 2010 6:06PM EDT – Globe & Mail – excerpt
“Think of California as Greece on the Pacific: bankrupt and desperately needing a bailout.
“We are on the verge of system failure,” warned Jean Ross, executive director of the California Budget Project, an independent think tank based in Sacramento.”
http://www.theglobeandmail.com/report-on-business/economy/california-on-verge-of-system-failure/article1609891/
Wyntunnel wrote:
” I read the words and feel vertigo…not so much because I don’t understand but because I think I do…yet do not…”
Understanding Schrödinger’s cat may help. Cheers.
http://en.wikipedia.org/wiki/Schrödinger's_cat
What I’ve been taught is that the difference is one of perceived control.
Bankers think they can control financial risks to their banks. Drivers think they can control the risk of texting while driving. Plane passengers don’t feel in control of the plane, and no-one controls tornados.
No doubt all the ‘irrational predictions’ are up against some herculean efforts by governments to hurl stimulus packages (funny money) at the cancer. Will this policy be effective in the long-term?
http://www.morningliberty.com/2010/05/16/economic-collapse-martial-law-24-experts-warn-of-2010-meltdown/
http://www.naturalnews.com/019659_national_debt_financial_news.html
It’s scary how clueless you are, Tom Thumb.
Go plant some tomatoes on the golf course…
The predatory Criminal Inc concocted in virtual reality by a generation of “technology” sociopaths
has all the charm and life span of the armed gangs in the Congo who wait in hiding until the crops are ready
then then “go shopping” in the fields “for free” because they slaughtered the village of farmers…
no credit or money needed, eh?, to create a “food shortage”….just need the cancer resistance genes of liars thieves and murderers to kill off all other gene pools of “labor”…
whatever wretched fantasy the latest volley of internet psychobabble is gushing out about “money” will be remaining a fantasy….BANK ON IT, as they used to say
back when they also used to say, “hey, it’s only money…”