MacroEconomics Is Driving Decline In Policy Agility ... Largely Because It Is Still Rife With Illogical Fallacies Of Scale?

(Commentary posted by Roger Erickson)

A culture that no longer listens to the pain of its distributed aggregate .... can not stand.

Bill Mitchell's long review of most documents related to the evolution of the euro currency - and ECB policy - is truly astonishing reading. Most people even vaguely aware of context agree that euro-currency policy has been an unmitigated, self-imposed disaster for citizens of Europe, but the details of how it occurred are fully known to few.

Bill's exhaustive review of those widely distributed details is a lesson in humility, for it clearly shows that none of us is as smart as all of us, and that there is no apparent limit to the idiocy produced by small operators, committees or whole agencies when they are allowed to become isolated from aggregate feedback.

It can be difficult to quickly orient citizens to the magnitude of this catastrophe and its pathetically mundane origins, but I'll try.

The whole story of euro-policy reminds me of the rare cases of humans where those parts of their sensory systems which mediate pain signals become entirely dysfunctional, and they consequently suffer total loss of all pain feedback.

 At first blush, feeling no pain may sound enticing (or even briefly feel that way). Closer review, however, reveals the condition to be a total catastrophe for the "macro" physiology. Without the distributed feedback - minute to minute - of signals across the pain spectrum, from minor to major, every distributed malady goes undetected and uncorrected, and the consequences therefore rapidly compound. Stubbed toes and burned fingers pile up in alarming frequency, strained ligaments, bone bruises and even minor issues such as sun burn fail to trigger the most rudimentary cautions and timely, corrective actions. Then it gets worse. Rapidly! Without the ability to sense distributed pain, much of seemingly rote, programmed reflex & habit has to be left to conscious planning, which never keeps up. Historically, people with this thankfully rare malady usually suffer much and die very young, from their compounding injuries and infections.

Perhaps readers can grasp the analogy to a culture which allows its distributed feedback mechanisms to decline, and thus lets its policy agility also lag. Minus the ability to keep track of the economic pain of all citizens in real-time, cultural devastation can rapidly compound, while the isolated "Central Planners" go blithely on with their "let them eat cake" policy processes.

We know how loss of sensory feedback can occur in physiologies, but how do seemingly increasingly intelligent human aggregates allow cultural feedback to decline so catastrophically? That is one of the themes exposed in Bill Mitchell's latest review installment, where he returns to the - unfortunately quite common - phenomenal examples of a particular bit of illogic known as the Fallacy of Composition. That is itself an unfortunate name, given for the thinking process of the author expressing the illogic. Fallacy of Scale seems much more appropriate, since it refers to the impact on the recipients.

In a cultural fallacy of scale, individuals naturally START OUT thinking mostly of what works locally for them, and they then - IF NOT TAUGHT BETTER - tend to initially presume that what works for them individually works for everyone, no matter how many people accumulate in a growing aggregate. That's how aggregates with flawed educational practices may quickly accumulate illogical oddities such as excessive Libertarianism, or the classic example of sports. "If I stand up at a sport stadium, I'll get a better view. THEREFORE, if we all stand up, we'll ALL get better views." And all this despite truly phenomenal advances in nearly every single, isolated specialty!

In the case of macro-economic policy, Bill Mitchell uncovers repeated examples of idiotic policy errors directly exhibiting the Fallacy of Scale. We already know that perseverance of that fallacy directly correlates with lagging feedback, isolation and/or outright Control Fraud. Of course, those conditions all feed upon themselves, in a maladaptive example of autocatalysis known as Gresham's Dynamic.

The question is what to do about all this cultural and policy pathology, which has persisted for 80 years DESPITE being graphically exposed and thoroughly documented in the 1930s. At least a few lessons seem clear. First, never assume that YOUR feedback isn't necessary for preservation of functional democracy. Second, never send ONLY politicians and lobbyists-for-the-1% to a democracy fight. Those two messages embody the same concept. A house that no longer listens to the pain of its distributed occupants .... can not stand.

One remedy? Always change horses in the middle of a bad dream.*

*Note that that does NOT mean simply switching endlessly between two, equally unresponsive horses. It's past time for "neither of the former," but rather many new, unencumbered faces.