THE BLOG

Is Our Brand of Capitalism Making Us Stupider?

08/04/2011 05:21 pm ET | Updated Oct 04, 2011

How can a society that contains so much individual brilliance act so collectively dumb? Does it matter that we know that there is a cliff ahead if we still go racing off the edge? The Wikileaks publication of State Department e-mails demonstrated that there is tremendous expertise at the ground level in foreign policy. That didn't stop us from charging into what has been called the "most feckless" war in American history. The key to our success as a species has been the development of communication and cognitive skills that enable us to leverage our collective intelligence so that a group is vastly smarter than an individual. In recent years, that seems to have gone into reverse. While individual brilliance abounds, collective stupidity prevails.

Consider a few recent examples:

The Ongoing Financial Crisis:

The most devastating financial crisis since the Great Depression followed the dismantling of reforms put in place during and after the 1930s to prevent institutions from bringing about the very financial collapse we just experienced. While there were many tributaries to the meltdown, a common element was a system of incentives that was optimized to reward those who made the biggest bets. Penalties for failure were gradually stripped away, and the costs dumped on taxpayers. Does anyone think that the Dodd-Frank package of financial regulation package signed into law by President Obama has eliminated these incentives, or that if it turns out that new regulations actually impede financial institution profits that they will stay in place?

Given that the crisis wiped out $13 trillion in national wealth and has brought much of the middle class to the brink of insolvency, one would think that voters, who vastly outnumber the rich, would insist on enacting a robust regulatory framework. One would be wrong.

And now, carrying forward its proud tradition of doing the wrong thing at precisely the wrong time, Congress just forced through, and the president signed into law, a series of spending cuts in return for allowing the US government to pay bills it had already incurred. This will shrink government spending even as the economy slows, removing any doubt that we will slip back into recession and unemployment will worsen. Congress and the president have thus exactly repeated the mistake of FDR, who agreed to cuts in 1937 that plunged the US back into the Great Depression.

The Deepwater Horizon oil spill:

The Gulf of Mexico oil spill of 2010, the most catastrophic environmental event in American history, directly followed from the neutering of regulations, safety mechanisms, and procedures put in place after earlier spills such as the Ixtoc Spill of 1979, and the Exxon Valdez spill in Alaska in 1989. Does anyone seriously believe that new regulations that arise from this disaster won't also be neutered? We need oil, and the easy-to-find oil is gone so we need to drill in the most inaccessible, politically hostile, and/or environmentally vulnerable places on the planet.

Climate Change:

Now here's a problem perfectly designed for a species with an ability to anticipate and avoid disaster! The science of the greenhouse effect that underlies concerns that emissions of C02 are changing climate is uncontroversial. There is overwhelming agreement among climate scientists that human-sourced emissions, largely traced to the use of fossil fuels, are already warming the planet; climate historians have vividly documented how civilizations are vulnerable to climate change, and since the 1980s, policy-makers have been discussing ways to reduce emissions.

So what has the U.S. done to avert the threat? Nothing! Despite 30 years of verbiage and negotiations, the recession has done more to limit U.S. emissions than anything we have done legislatively. The pattern for species ranging from fruit flies to elephants, and, yes, humans, has been for numbers to explode when the climate is favorable and plummet when it turns hostile. Our numbers have exploded in the climatically benign years since the end of the last Ice Age. Will it be different this time if climate turns hostile?

A Global Pandemic of Willful Blindness

America has no monopoly on collective dumbness -- after all Japan, perhaps the most rational nation on the planet, saw fit to site nuclear power plants in areas vulnerable to both earthquakes and tsunamis, and Europe continues to pile blunder upon blunder as it tries and fails to contain its own financial crisis. Time and again the best and brightest have alerted society to looming problems, but a persistent pattern has been to ignore the warnings, ridicule the experts, and suffer the consequences.

The pathetic refrain of recent years -- "nobody saw this coming" -- is always a self-serving lie. Something is making us stupid. My candidate is the way we practice capitalism, specifically the skewed incentives that promote hyper-focus on short-term gains, while leaving us effectively blind to long-term threats.

In each case cited above, actions to head off a threat were perceived to impinge on present profits, and, in modern market economies, we consistently make the decision that we'd rather head off a cliff in the future than limit the gains of those with access to the levers of power. In all these cases, economic interests ultimately control the lawmakers. We've created a system that leaves us constantly surprised by the obvious.

I'm certainly not arguing for central planning -- the failed communist states constitute a monument to collective stupidity. But there is a middle ground. Consider Canada, the friendly giant to the north, which seems to be able to regulate without suffocating innovation. Can this be fixed in the U.S.? Sure! Will it be fixed? Probably not, at least, not without shock therapy far worse than what we have recently endured, and that's exactly what we are rocketing towards right now.