In an interview with Ezra Klein (“Romney is Wall Street’s worst bet since the bet on subprime,” Washington Post, Nov. 28), Chrystia Freeland — author of The Plutocrats — commented on the sheer level of shock and disbelief among the moneyed classes after Romney’s defeat.
That prompted Klein to ask:
These folks… are purportedly very data focused, very good at assimilating new information. So I find it genuinely scary that neither Romney nor his super-rich backers had any idea he was going to lose. All the polls, all the models, all the betting markets said he was likely to lose. How did a group of people who, in their jobs, have to be willing to read and respond to disappointing data convince themselves to ignore every piece of data we had?
Freeland described it as “astonishing” and “mystifying,” adding that these same people had made the same miscalculation in their roles as managers and investors:
… it was also the case that all the smartest guys in the room managed to lose a lot of money in 2008 and managed to convince themselves of a set of very mistaken beliefs about where the markets where going to go. It was a lot of the same people on the wrong side of both bets.”
But there’s really nothing astonishing about either case. That these people with MBA degrees and long careers climbing management ladders could be so abysmally wrong in their predictions is a textbook example of how power, by its very nature, creates stupidity and irrationality.
As Freeland observes, Romney and his backers have internalized a legitimizing ideology in which all the things that are best for the American economy are — entirely coincidentally — also in their own self-interest. The very act of getting rich (“my success,” as Romney put it) is “an act of civic virtue.” They’re the “job creators,” after all. Billionaires see themselves as a class of the best and brightest — tough thinkers who make the hard, thankless decisions, “having an extremely unique set of skills that sets them apart from everybody else, and it’s partly brainpower, but they all see it as crucially including an ability to judge and take risks and work very hard.”
This social and political ideology is a powerful form of groupthink that filters what its adherents perceive about the world. It’s just as powerful inside institutional hierarchies like the giant corporation as in the political arena.
One central function of a hierarchy is to filter the upward flow of information — to tell naked emperors how great their new clothes look. Power distorts information flow because, as R. A. Wilson observed, nobody tells the truth to someone with a gun. Authority relations result in one-way information flows, preventing decisionmakers from receiving accurate feedback on the real effects of their decisions. As Kenneth Boulding put it, those at the tops of hierarchies tend to live in almost completely imaginary worlds.
As a result those at the tops of pyramids generally communicate much more effectively with their peers at the tops of other pyramids than with their subordinates in the pyramid below. CEOs tend to make policies based on the “best practices” of other hierarchical institutions in the same industry. They evaluate their effectiveness based on the enthusiastic propaganda from other CEOs about how well it’s working in their own organizations — despite the fact that those other CEOs are equally clueless about the real effects of their policies.
I’ve lost count of the number of columnists and talking heads who observed that Romney visibly bristled when debate moderators like Candy Crowley talked back to him. He was used to being surrounded by subordinates who were afraid to tell him anything he didn’t want to hear. Seriously, how would you like to be the person on Romney’s staff who tells him his proposal is a stupid idea, or why it didn’t work?
How are businesses run by managers like this gang of idiots able to stay in business? The same way Soviet factories and industrial ministries were able to stay “in business”: By playing in a rigged game.
The U.S. economy isn’t a free market. It’s a corporate capitalist market, heavily cartelized and subsidized by the state, so that each industry is dominated by a handful of giant firms sharing the same pathological culture. The system is designed to socialize risk and cost, and privatize profit, so that natural born idjuts (excuse me, “successful job creators”) like Mittens can spend their entire lives living in bubbles, being told exactly what they want to hear, without suffering any ill effects.