Atlas Shrugged: The Mocking

Friday, February 14, 2014

Systemic Falure

As we all know because we read the brilliant and incisive Megan McArdle, failure has no villains, it just happens for systemic reasons.
All of these papers suggest that the search for a villain behind the crisis will ultimately be fruitless. There are two basic narratives of what happened. The first is that bankers had bad incentives: they took massive risks because the profits were so good in the up years that it was worth the risk of the bad, or because they could pass the risks onto some other sucker, or they thought Uncle Sugar would bail them out. The other narrative is that bankers had bad information: they didn't understand the risks they were taking.  
I've always preferred narrative B, because Narrative A doesn't make much sense. The CEOs of big banks lost vast sums of money, and their jobs, most of their social status, and so forth. They held onto the worst tranches of their securities, which implies they didn't know how badly they were going to blow up. Etc.  
I find it vastly more plausible, if not so comforting, to believe that systems can occasionally produce bad results even if the incentives basically point in the right direction. The FICO score revolution was valuable, but we took it too far. The money sloshing around US markets disguised the problems, because people who got into trouble tapped their home equity, or in a pinch, sold the house at a tidy profit. Everyone from borrowers to regulators was getting the same bad signal, that their behavior was much less risky than it actually was.  
That doesn't mean that nothing can be done. Maybe we decide we want a less complex financial system. But it won't be because there's some villain manipulating everything into ruin; rather, we may decide that there are certain kinds of risks we can trust ourselves to handle.  
I'm not sure that this would work, and I'm skeptical that it's a good idea. But the more time we waste trying to figure out who did us wrong, the less quickly we will arrive at an actual solution.
Problem Identified: The System

Basis For Claim: Gut Feeling

Causes Of Problem: Unknowable

Solution For Problem: Solve problem without figuring out what went wrong.

It is absolutely incredible that Megan McArdle can be splashed all over tv, radio, and internet peddling a book that directly contradicts her earlier work. McArdle is being presented as a brilliant economist/journalist/Big Thinker, her book praised and welcomed and feted, called innovative, illuminating, humble, intelligent, "gracefully written, carefully researched," vibrant, seminal, and wise. But when the financial system collapsed under the weight of its own greed and graft McArdle leaped to its rescue, telling us nobody could know anything ever and there are no villains and CEO compensation shouldn't be cut. For systemic reasons.

Failure also, however, tells us exactly what went wrong. Ms. McArdle said, "Failure tells us exactly what doesn't work" and "Failure tells us more than success because success is usually a matter of a whole system." Now that she is selling a book on failure, she tells a different story.

God bless America, where income and social mobility are so easily achieved. All you have to do is be born to wealth and then latch onto a billionaire like a remora, spending the rest of your life sucking up the crumbs that fall from his mouth.

This is why I keep taking mental vacations. It is as stomach-churning as it is sad.


Anonymous said...


mew said...

Did she accidentally cut-and-paste two articles together and submit them as one?

ifthethunderdontgetya™³²®© said...

God bless America, where income and social mobility are so easily achieved. All you have to do is be born to wealth and then latch onto a billionaire like a remora, spending the rest of your life sucking up the crumbs that fall from his mouth.

Funny, I was just reading another Atlantic link: From & Friends

Failing upward at the Democratic Leadership Council with Al From.

(Don't read it until your stomach is feeling better!)

ifthethunderdontgetya™³²®© said...
This comment has been removed by the author.
ifthethunderdontgetya™³²®© said...

Oops, where's that link?

Susan of Texas said...

I think she started out with a premise--failure is good so kids need to learn how to fail--and worked her way backwards. Kids need to learn to fail but their parents won't let them out of fear for their future, so parents need to buy McArdle's book to realize their mistake.

McArdle knows this is true because (according to some interviews she's given recently) she got into trouble with a teacher in her prep school and her parents told her to solve the problem herself. We can only guess why she ended up in conflict with the teacher, but the fact that she says she used to stare out the window and had a 2.94 GPA might have something to do with it.

Miss Megan obviously is talking about herself; she extrapolates from a set of one. She was so talented at such a young age that of course she was a superior English student. She ran far ahead in her elementary school workbooks! Obviously she was gifted.

We can see yet another example of why McArdle named herself Jane Galt; Dagny McTaggart was a little too on the nose. She obviously identified with Dagny, who used to wonder why the other girls didn't like her, and decided it was because they were jealous of her brains. Dagny never had to work in school, she just knew everything because she was so smart.

I really have to get back to Atlas Shrugged. You can't understand our lower level of Ubermenschen without it.

So failure is a good thing because it teaches gifted people to become even more gifted. And McArdle thinks she is a great writer because everyone tells her she is a great writer, despite the poor quality of her prose and argumentation, and her haughty, affected "voice."

Susan of Texas said...

My god, our elite are slimy.

Anonymous said...

Diane Rehm is going to interview Megan on her show next Monday. Feb. 17


Susan of Texas said...

Thanks, Emily. That's going to be interesting.

But I doubt we will see anyone go through the flaws in her plan. Nobody noticed that she completely changed her tune regarding success and failure, and that both times it was in support of vampire squid banks.

How funny in a tragic sort of way. Anti-government ideologues trying to preserve Freedom! abet and enable fascists. Yet they are not really ideogues deep down. They just know what side their bread is buttered on.

That is why they had to become libertarians--they had to pretend to adopt a new fake ideology to cover up the fact they sold out to billionaires.If they were serious about civil rights they would have joined the party that expands them.

But who would they be superior to if they became Democrats? McArdle is going out of her way to be fair-n-balanced right now as she always does when she is angling for more money and power but usually it's tea-party conservatism all the way down. Her training, her jobs, even her husband are all tea party elite.

Kathy said...

"it is absolutely incredible that Megan McArdle can be splashed all over tv, radio, and internet -"

Goes to show who owns those mediums. The funny thing is that it looks like many of the billionaire boys (MOTUs) are about as smart as arglebargle and doughy.

Anonymous said...

Susan: why don't you call in and ask Megan a question? Just think how her blood would run cold when Diane says, "we have Susan from Texas on the line with a question for our guest....."


Susan of Texas said...

I've never wanted to interact with McArdle but the last time I asked her a question ( the results were dramatic.

I think she might have learned from her failure and she would not give an honest answer. She didn't when Chait asked her about her past work.

But you never know....