Awareness and denial
"Professor Luis Garicano, director of research at the
London School of Economics' management department, had
explained the origins and effects of the credit crisis when
(the Queen) opened the £71 million New Academic
Building. Prof Garicano said: 'She was asking me if
these things were so large how come everyone missed it'.
He told the Queen: 'At every stage, someone was relying on
somebody else and everyone thought they were doing the right
thing.'" (Andrew Pierce, The Daily Telegraph, United
Kingdom, 5 Nov 2008)
"The Commons Treasury committee said male banking chiefs
became caught up in a 'group think,' where they failed to
challenge decisions which led the entire banking system to the
brink of collapse 18 months ago." Rosa Prince, The Daily
Telegraph, United Kingdom, 3 April 2010.
When people first become aware of peak oil, the
impossibility of endless economic growth and everything which
follows on from that, the first question they are likely to
ask is "How should I prepare?" The second question they
are likely to ask is "Why can't everyone else see what I can
see?" When someone understands that the supply of oil
is finite, our economy depends on oil, and that
perpetual economic growth is just as impossible as a
perpetual motion machine, they often feel compelled to pass on
this news to family, friends and co-workers, and are
surprised when the response is less than enthusiastic: in
fact, the usual response is anger, denial and accusations that
the person bearing the news has taken leave of their
senses. Even if evidence and arithmetic are presented to
support the case, many people don't believe it and often don't
even want to look at it.
A belief in perpetual economic growth and denial of
evidence to the contrary does not seem to be correlated
with intelligence, educational level, age, sex or
cultural background. Many highly trained and highly
intelligent economists, often working for national governments
and central banks, believe in perpetual economic growth, or
appear to believe in it. This phenomenon is
difficult to explain on rational grounds. In this
chapter I am going to offer an explanation based on genetics
and evolution. I don't claim that this is the best
explanation, or even that it is correct, but it does offer a
model for explaining something which many peak oil aware
people find difficult or distressing to deal with.
The explanation I am going to offer you is based on our
innate herd instinct. In this age of
individualism, the terms herd instinct, groupthink
or conformist are often used in a mildly derogatory sense, but
it is important to realise that the instinct to do as the
group does is an important part of the survival toolkit
which evolution has bred into us.
You can see the herd instinct in action by watching a shoal
of fish, a herd of buffalo or a flock of birds. At the
approach of a predator, all the animals start moving in a
coordinated manner away from the perceived
danger. The animals at the front of the shoal, herd
or flock may not even be able to see or smell the danger, but
they move anyway. This movement away from danger
protects both the herd and the individual animals within
it. If an animal decides to move in a different
direction, it may be trampled by the herd and/or eaten by the
predator, and so doesn't pass on its genes. In this way,
evolution reinforces the herd instinct and discourages
individual thinking.
You don't often see human beings moving in large herds,
except in artificial situations like airports or sports
stadiums, but the herd instinct is still there - it just
expresses itself in an intellectual rather than physical
form. People share a common set of beliefs about the
appropriate way to behave towards family, neighbours and
enemies, the nature of birth and death, communal rituals
and the origin and destination of their society. We
call these things culture and religion. People who
deviate from the core set of beliefs may be marginalised
or ostracised, and may have just as hard a time as the buffalo
who decides to make a left turn when all the rest are charging
straight ahead.
This all works well for 99% of the time, when things are
going smoothly and the herd is moving in the right
direction. But what happens if the herd starts moving in
the wrong direction? We can see some examples of this in
the animal kingdom. Fishermen can herd fish into nets by
making noise to drive them in the desired direction. A
famous fictional example can be found in Thomas Hardy's
1874 novel "Far from the Madding Crowd" in which an insane
sheepdog drives a herd of sheep over a cliff. In
both of these cases, the herd instinct causes the herd to move
into danger, not away from it, and the maverick animal which
heads in a different direction is the one most likely to
survive.
Unfortunately, a herd of human beings can also move in the
wrong direction intellectually, and history provides numerous
examples of this. We call these mass delusions, mass
psychosis or mass hysteria. For reasons which I cannot
explain, many (although not all) of the examples involve
irrational economic beliefs. Some are relatively
harmless, causing a few people to lose a moderate amount of
money. Some have resulted in the deaths of tens of
millions of people. My main criteria for describing
something as a mass delusion or mass hysteria are that a large
number of people believed in it, it ought to have been
possible to see at the time that the belief was false, and
that subsequent events did in fact prove it to be false.
One of the earliest documented examples of financial mass
hysteria was the tulip bulb mania in Holland in the 1630s in
which the contract prices for bulbs
of the recently introduced tulip
reached extraordinarily high levels and then suddenly
collapsed.
At the peak of tulip mania in February
1637, some single tulip bulbs sold for more than 10 times the
annual income of a skilled craftsman. The people participating
deluded themselves into believing that the tulip bulbs were
worth far more than they actually were. It is generally
considered the first recorded speculative or economic
bubble.
In the Salem witch trials of 1692-93, 150 people were
arrested and imprisoned for witchcraft and 19 hanged, on the
flimsiest of evidence. The delusional belief in witches
died out in Western culture soon after this episode.
In Europe in the 1930s and 1940s over 60 million people
were killed. One principal underlying reason for the
deaths was a mass delusional belief that Germans were the
master race and that all other races were inferior.
After the war, many German people had difficulty coming to
terms with their former delusions, and tried to resolve this
using denial (we didn't know, we feared for our own safety, we
were only obeying orders and so forth). This is
inconsistent with the evidence of enthusiastic mass public
participation in, for example, the persecution of Jews and the
atrocities committed by the German army against the Russian
civilian population on the Eastern Front.
The "dot-com bubble" was a speculative
bubble covering roughly 1995–2000 (with a climax on
March 10, 2000) during which stock prices
in Internet based companies rose rapidly to a level far in
excess of what those companies were worth. This
was followed by a collapse of Internet company stock prices in
2001 as investors realised that they had paid too much for the
stock and that most of these companies had not and never would
make any profit.
Following the collapse of communism in Eastern Europe,
there was a spate of economic Ponzi schemes - notably MMM in
Russia, Caritas in Romania, Jugoskandic and Dafiment Bank in
Serbia, TAT in Macedonia, and VEFA Holdings, Xhafferi,
Populli, Gjallica and several others in Albania. Over
time, approximately 80% of the Albanian population was drawn
into these pyramid schemes, often selling their only real
property in order to invest and then depending on the pyramids
for all their income. When the inevitable happened, the vast
majority of the population was completely dispossessed: http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-26-2008-from-top.html
The US house price bubble which peaked in 2005 was due
largely to a delusional belief, in the face of historical
evidence to the contrary, that house prices could only go up
and never down, and the house price inflation could be used to
fund consumer spending. The subsequent collapse of US
house prices was foreseeable and was a significant
cause of the 2008 global economic collapse. In a rare
moment of insight, the part played in this by the herd
instinct was acknowledged in a UK newspaper (top of
page).
So the lessons we learn from all this are that human
beings are prone to mass delusions, that these occur
frequently throughout history, they often involve delusional
financial beliefs, they are difficult for most people (even
intelligent people) to see at the time they are
happening, but they can be seen clearly for what they
are after the bubble has burst and the delusion is
dispelled.
Some individuals seem to have a natural resistance to mass
delusions, in rather the same way that some individuals have a
natural resistance to disease. These people have an
enhanced ability to see the delusion for what it is in
advance of their peers and to take early mitigating
action, but they have a hard time persuading their peers
to do the same. In a limited sense they are able to see
the future, which can be both a blessing and a curse for
the person afflicted. They have always been among
us, and have been called among other things mavericks,
doomsayers, oracles and prophets. Perhaps they are
evolution's Plan B, for when the herd instinct isn't working
out.
I believe that our society's current belief in
perpetual economic growth falls into the category of mass
delusions, and that this will become apparent in due course
with the longer perspective of history.
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