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Where did it all go so badly wrong? (Last – incentives, and stasis)

February 13, 2011 Leave a comment

[This is the last in a series of posts relevant to the all-consuming topic in Ireland at the moment: the fall of the Fianna Fail/Green Party Coalition Government, and the resulting general election to take place on the 25 February 2011. My title approximates a question/comment posed by a guest (I think it was Jim Glennon, the former FF TD) on George Hook’s programme on Newstalk].

Note 1: The full series is available as an article:  Where did it all go wrong article in pdf.

Note 2: Dermot Desmond has just published a remarkable document addressing some of the same issues as treated here from a sociopolitical reform point of view.

A truism of human behaviour is that people are incentive-driven (even by perverse incentives). Our economy became focused lopsidedly on property development because of tax incentives which people rationally responded to, resulting in a huge excess of un-needed properties. Groupthink suggests bulldozing them. However, we could incentivise property purchases by granting Irish residency to non-EU Nationals who purchase these properties for cash (no mortgages please)! If it is possible to incentivise investment in fixed assets such as property, it is possible to incentivise investment in new asset classes and businesses that are tradeable and saleable. Anglo-Irish Bank would not be in such trouble if it had a diversified loan book. Ireland Inc would not be in similar trouble, if there were multiple investment vehicles for rational investment in intellectual property, as opposed to the singularly obsessive concentration on investment in commercial and residential property. If we want an entrepreneurial culture which creates desperately-needed mass employment, then entrepreneurial activity needs to be incentivised. Adding taxes and other burdens on the self-employed reduces the risk-taking required to create employment on the scale needed to rescue the economy quickly. Risk-taking needs incentives; otherwise, why bother?

There are many other cognitive errors (for example, availability and affect heuristics, motivated reasoning, competence illusions, illusory superiority) which humans are also prone to (especially under duress). Memory (particularly recall) is badly affected by stress and lack of sleep. The decisions taken on the night of the infamous bank guarantee surely would have been better, if the Government had access to expertise and bought itself time (for example, by having a forced bank closure for 48 hours). This would have led to decisions in the cold light of day, with appropriate supports and inputs (of course, having an Economic Advisory Council in place would have helped). Memory for the precise sequence of events would be improved too!

Our elites must recognise that individual rationality and cognition is limited and error-prone. A system driven by the unrestrained cognition of individual ministers or others will fail; imposing political control where good policy formation should obtain is a recipe for disaster. And we know this, but this is the mistake we repeatedly make. Thus, our institutions must be re-engineered to be adaptive, plastic, and capable of learning (especially upsetting and unpleasant truths). Robust institutional processes are required to recognise error and failure quickly and to change course rapidly. However, the glacial pace with which our elites move leaves me believing this is a forlorn hope; we have seen little recognition of the need for change, despite the disaster that has occurred.

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Where did it all go so badly wrong? (Part V – Language)

February 11, 2011 Leave a comment

[This is the fifth in a series of posts relevant to the all-consuming topic in Ireland at the moment: the fall of the Fianna Fail/Green Party Coalition Government, and the resulting general election to take place on the 25 February 2011. My title approximates a question/comment posed by a guest (I think it was Jim Glennon, the former FF TD) on George Hook’s programme on Newstalk].

(V)

Language has the important property of ‘framing’ arguments and discussions.

The crime debate in the UK was dominated by the phrase ‘short, sharp, shock’, which relied on the folk theory that quick and severe punishment would shock teenagers out of criminal tendencies. (The pleasing alliteration of the successive sibilants was an important, but useless, selling point too). Short, sharp shocks, of course, predictably have no such effect, but why let data from the psychology of punishment and from criminology influence debate?

The phrase ‘cut and run’ was used to forestall debate about the palpably-failing US military strategy in Iraq, until empirical reality forced a change of direction.

The debate in Ireland over privatisation uses phrases designed to prevent discussion, such as ‘selling off the family silver ware’* or, much less analytically, that privatisation is ‘stupid’ (Ex-Minister Ryan). Who wants to be stupid? O course silver plates aren’t much good if you don’t have the food to eat from them. In the UK, the privatisation debate is about how a ‘war chest’ can be created for stimulus purposes. The consequences of the language used about privatisation frames very different outcomes. Unless one believes that the current configuration of Government ownership of assets is exactly optimal (an unfalsifiable position), then privatisation is reasonable to consider. It is our capital after all, and can be used to solve problems. By some estimates, the ESB is worth about €7.5 B**; there are perhaps 750,000 mortgages in the country. Privatisation would allow the quick writing down of these mortgages by €100,000 a piece, relieving enormous and growing distress, and giving the banks additional working capital to relieve other logjams in the economy. I am sure there are a thousand good reasons why this policy can’t be enacted, but there are 750,000 reasons why it could. And it is our money anyway, isn’t it?!

*This remark is in comment  # 1, not the article itself, which makes a good argument against privatisations. However, things have changed a bit since August 3rd.

**I can’t find where I read this estimate, but there are relevant numbers here.

Where did it all go so badly wrong? (Part III: Empathy, mirror neurons)

February 9, 2011 Leave a comment

[This is the third in a series of posts relevant to the all-consuming topic in Ireland at the moment: the fall of the Fianna Fail/Green Party Coalition Government, and the resulting general election to take place on the 25 February 2011. My title approximates a question/comment posed by a guest (I think it was Jim Glennon, the former FF TD) on George Hook’s programme on Newstalk].

(III)

Theory of mind’ is the name given to our ability to see the world as others might see it (‘other-centred perspective-taking’). It is central to our social behaviour and capacity for empathy. Recent studies have disclosed a brain area (the mirror neurons of pre- and supplementary cortex, if you must know) that allows you to simulate what others are likely to be thinking by mirroring their behaviour. Being able to take the perspective of others is vital for preventing catastrophic errors of social judgement by understanding what others will make of your decisions and actions. It is unlikely that Brian Cowen would have attempted to ‘refresh’ his Cabinet via the bizarre attempt to parachute in a bunch of new ministers if he had first tried to imagine himself into the shoes of his Government partners, or indeed, the public at large to imagine what they would have thought of this stratagem.

Where did it all go so badly wrong? (Part II: Attribution error and leadership)

February 8, 2011 Leave a comment

[This is the second in a series of posts relevant to the all-consuming topic in Ireland at the moment: the fall of the Fianna Fail/Green Party Coalition Government, and the resulting general election to take place on the 25 February 2011. My title approximates a question/comment posed by a guest (I think it was Jim Glennon, the former FF TD) on George Hook’s programme on Newstalk].

(II)

The iron law of institutions is the name given to the concern of people who have power in institutions to preserve their power within that institution (even when the institution is failing), rather than being concerned with the success of the institution itself. We have seen this law in action during the recent ructions in Fianna Fáil. Taoiseach Brian Cowen continually asserted as he fell from 52% to 8% in the polls that he was the democratically-elected party leader. Fianna Fáil found itself incapable of terminating (as it fell from 40% to 14% in the polls) his badly-ailing leadership.  And this despite the electoral cliff that Fianna Fáil was driving over! Disputes over Brian Cowen’s leadership convulsed Fianna Fáil. There is a substantial literature on successful and unsuccessful leadership. One major review suggests successful leadership requires obeying a few simple precepts. Leaders must be sensitive to their followers, support them, treat them with respect and exceed their expectations; to be positive and inspirational; to work hard and to be seen to work hard for the group; and not be overbearing or arrogant. Which of our leaders, past and present, can tick off these precepts successfully?

Solely focusing on individual leadership and ignoring the situations within which behaviour occurs is known as the fundamental attribution error, and is a cognitive bias caused by the salience of the person, and the relative invisibility of the system (group norms, laws, rules, etc.).  The lesson for Irish politics is simple: changing personnel is not enough to solve our problems, because the dysfunctional system itself persists. We need substantial systemic changes too. Political decisions are often (usually?) taken within a group context (think Cabinet collective responsibility). Groupthink occurs when a group makes poor decisions because of high levels of within-group cohesion and a desire to minimise within-group conflict (as might happen in an exhausted, embattled and worn-out Government Cabinet!). The necessary critical analysis does not occur. NAMA would hardly have emerged as the optimal policy response had there been a competitive public forum to test and vet competing policy ideas (with the Cabinet adjudicating). The hugely-criticised ‘Credit Institutions (Stabilization) Act 2010’ (e.g., e.g., e.g., e.g.) would hardly have emerged from such a process. Such a process would show that vesting such astonishing power and authority in the frail, bounded rationality of a single individual (the Minister for Finance) is a recipe for future catastrophe. Groupthink can be reduced by the group having an extensive network of weak ties to other individuals and groups. Weak ties provide us with novel ideas and knowledge, and provide a route to ‘reality-test’ planned courses of action. An extensive national and international weak tie network would provide Government Ministers knowledge, insights and ideas unavailable within the Dáil bubble.