The Limits of Incompetence

Our social instincts compel us to thinkwell of our fellow man. In spite of much evidence to the contrary, wethink him competent to cast votes, to decide how to spend and borrowmoney, and how to bring up his own children. We persist in this conviction even as the manifest lack of competence at every level ofAmerican society causes it to careen toward ruin. We recoil at thethought of government bureaucrats separating the competent from theincompetent, making those who are incompetent, along with theirchildren, wards of the state, remedying their incompetence throughstrict discipline when possible, and consigning the rest to alifetime of manual labor in service of society. Many of us quitejustifiably think that the government bureaucrats are themselvesincompetent, or worse. Those who no longer trust the competence ofeither the government or our fellow man instead put their faith incorporations or in churches or even in bloggers and internetnewsgroups (pathetic, I know). They may preserve their sanity bydoing so, but it does nothing to change the big picture. Presumably,it is better to be a competent observer of collapse than anincompetent one.

Of course, the label of generalizedAmerican incompetence seems to cast too wide a net. After all, mostof us have the competence to not starve when provided with cans ofbaked beans and a can opener. But it seems that each and every one ofus is forced to plead incompetence when presented with the task ofjudging the value of various figments of financial imagination whichcomprise fully half of the increasingly fictional US economy, for thedepths of incompetence on which this crumbling edifice floats aretruly unfathomable. It started with incompetent public officials whoblithered on about "ownership society," which is a boneheadedidea. This, in turn, empowered individuals who were incompetent tomake financial decisions to borrow vasts sums of money, with theloans backed by an implicit government guarantee. It proceeded toincompetent appraisers, who inflated the value of the collateralbased on circular reasoning (value = price = value), and toincompetent bankers, who improperly documented, resold and bundledthe loans into unfathomably faulty Collateralized Debt Obligations.It proceeded to incompetent government officials who treated thesefaulty documents as valuable and backed up their value with publicmoney which they are yet to collect in taxes. It proceeded toincompetent judges who rush through foreclosures and throw people outof their homes based on faulty or nonexistent documentation ofownership.

Some people express umbrage at allthis, harrumphing about this and that technical defect in thepaperwork, throwing around big words like "personal responsibility"and "fraud." Some of them claim that a concerted effort bybrilliant legal and financial minds must be made, to flush all ofthis illegality out of the system, to determine what all of thissoiled paper is really worth, to punish the guilty and to restoredignity to the innocent who were harmed along the way. In this theyhave so far been quite incompetent: they have vociferously yetimpotently complained about a matter over which not a single one ofthem is competent to exercise any degree of control. An attempt to unscramble all of the faulty financial paperwork is bound to lead to a ridiculous death by a thousand paper cuts. About half ofthe US economy consists of financial froth that is floating above anunfathomable abyss of incompetence, and once that froth blows away,what will remain of the US economy will turn out to look like adeflated, shriveled little thing, at a standstill because it will beunable to borrow internationally to finance fuel imports, full ofdefunct financial institutions right up to and including the FederalReserve, with a worthless currency that nobody is willing to acceptas payment, and full of people furiously shaking their tiny fists,hurling their impotent rage at an indifferent sky.

How does a "can do" nationdegenerate to such depths of incompetence? A key insight is offeredby the Dunning-Krueger effect, defined and experimentally tested byJustin Kruger and David Dunning at Cornell University. Kruger andDunning proposed that, "for a given skill, incompetent people will:tend to overestimate their own level of skill; fail to recognize genuine skill in others; fail to recognize the extremity of their inadequacy; recognize and acknowledge their own previous lack of skill, if they can be trained to substantially improve."
Krueger and Dunning, and other experimenters, have shown thiseffect to be quite pronounced. Competent people initially assumedthat others were competent as well, and were able to correct theirmisperception once they were allowed to examine the work of others.Incompetent people, on the other hand, were only able to recognizecompetence in others after being taught to recognize their ownincompetence. Thus, a weaker version of point 4 above suffices:incompetent people do not need to become competent, but to able tojudge the superior competence of others they do have to gain someinsight into their own incompetence.

But now comes an embarrassing fact: Krueger and Dunning carriedout their initial research on American subjects, and their resultssquared well with their hypothesis, but when their experiments wererepeated with Europeans and East Asians, a different picture emerged.With Europeans, the effect seemed barely measurable, while with EastAsians the exact opposite picture emerges: Dr. Steven Heine of theUniversity of British Columbia has found that East Asians tend tounderestimate their abilities, focusing on self-improvement and groupcohesion. I have come across examples of such a systematic errorbefore. I recall listening to a certain researcher of human behaviorat Yale, who was discussing the results he got by doing experimentson his students, which he blithely extrapolated to all of humanity.But I suspected that an error had crept into his experiments, due tohis unstated and unquestioned assumption that his little sample ofYalies was representative of the inhabitants of Planet Earth ratherthan Planet Yale (which is what I walked away thinking).

And so it turns out that this blind faith in everyone and sundry'scompetence is quite specifically an American trait. I invite culturalanthropologists to concentrate their efforts on finding out how thiscultural trait could have ever evolved, seeing as it is quite obviouslymaladaptive. I would venture to guess that it will come down to afalse incentive for fostering "inclusive fitness" rather thanfitness per se: one's ability to work and play well with others beingemphasized and rewarded over and above one's ability to work and playwell, others be damned if they can't keep up. A certain vital part ofhumanity has been bred out of us. How many of you Americans have satthrough endless meetings, listening dutifully (or pretending to whiledoodling on a pad or daydreaming) whereas what you really wanted todo is to stand up, extend the accusatory finger and say: "This isbullshit. You, Sir, are an idiot. How dare you waste our time withthis nonsense? Shut up and get out." Were you to do this, you wouldhave found your American colleagues cringing pathetically and tryingdesperately to smooth things over while avoiding your eyes likewhipped puppies, while your foreign colleagues would be doing theirbest to stifle their guffaws while looking at you with newfoundrespect.

Now, if you have ever worked for aChinese, a Russian, or especially an Israeli company, chances are youhave been witness to a few variants of the scene described above, allaccompanied by easy laughter and cheers, and a general sigh ofrelief: idiot expelled, sanity restored. But here in America we arenow a bunch of pathetic cringing ninnies branded with a peace signand mooing dolefully. Some Mr. Gnang-Gnang or other from Planet 10can get up in front of us and tell us that printing half a trilliondollars will create jobs, and not a single person jumps up an screams"WHAT? WHAT?" No, we don't do that here, plus it's almost lunch,so let's just chew our cud until somebody comes and feeds us. Here'sa prime example: just a week ago Germany's Finance Minister WolfgangSchäuble called US policy "ratlos," which translates intothe local vernacular as "clueless." Immediately some apologistspopped up, saying that "clueless" is too harsh a translation.Well, here is "ratlos" done unto English via Russian,thanks to Google Translate: "ignorant, embarrassed,helpless, indecisive." Does that work for everyone?

To recap, we have three categories of incompetent people, whosedefinitions at this point in our exposition should seemuncontroversial. First, we have the proud, the few—the competent.They are becoming rather thin on the ground in the US, becauseAmericans have largely forgotten how to make new ones, and the onesthat exist are getting a bit long in the tooth. Their main problem isthat they have been conditioned to think the best of others; inessence, to suffer fools gladly. They can be turned around simply bysetting the right incentives.

Second, we have the incompetents who know the limits of theircompetence. These are potentially useful: they just have to bematched up with tasks at which they can become competent. They areless likely to have inflated expectations for what they can expect toachieve through their labors, and although their lavish habits maynot be in line with what their increasingly impoverished country canprovide, they can be brought around.

Third, we have the vast army of the deeply incompetent, some ofwhom look upon themselves as paragons of home-spun self-reliance,have a "who the hell do you think you are to tell me anything"attitude toward their betters, and with their clueless bungling posea grave danger to themselves and to everyone else. They are aproblem, but many of them can be rehabilitated. You see, beingpointed and laughed at when you do something stupid is something of ahuman universal, and most people are wired to accept that message,remember it as a formative experience, and struggle to avoid it inthe future.

But there is also a fourth category of incompetent people: thosewho are so deeply incompetent that nobody can assess theircompetence, or lack thereof, because they cleverly shy away from allforms of productive activity, thus making their competence, or lackthereof, impossible to assess. Wouldn't it be nice if they displayedsome telltale physiological trait, such as tufts of hair on theearlobes or the nose? Or if some genius were to devise a hand-heldsensor that, when pointed at them, would blink a red light and soundan alarm? Alas, nothing of the sort exists. What's more, pointing atthem and laughing serves no purpose, for they inhabit a rarefiedbureaucratic realm where human cultural universals do not apply, andwhere anyone who calls them incompetent can be treated as a securityrisk, to be handled by those who are competent at just one thing:dispensing violence.

The final refuge of the deeply incompetent is in economics andfinance. It is easy to see why this is so. Think of any very usefulobject you happen to own, and think of its value. Do you know how touse it well? Do other people? (The fewer the better, of course.) Isit ruggedly built, to last a long time, or is it flimsy? If itbreaks, do you know how to repair it? Can you live without it, or areyou hopelessly dependent on it? Is it a popular item, and therefore athief magnet, or is it sufficiently unusual to be passed over by thecasual thief despite of its usefulness to you? Does anyone know thatyou have it? (The fewer know, the safer it will be.) Do you know oneor two people who like it as much as you do, in case you have to sellit? And so on. Now usher in a bunch of financial incompetents. Whatcan they tell about the value of your very useful object? Just itsprice. How can they tell? By asking other incompetents how much theywould pay for it. To this bunch, value equals price equals valueequals price, at various times and in different places, until thewhole thing crashes and burns because nobody actually knows the valueof anything to them.

What empowers these people is our love of money. The last vestigeof sanity an American seems to be able to cling on to is in hisability to count his money. While he still has some money, he adds uphis "net worth," and the higher the number, the better he feelsabout himself. Once all he has left is debt, he adds up the money hedoesn't have, and the more "credit" he has, the better he feelsabout himself, because of all the things he can still "afford."And once he finally defaults on his loans and no longer has anycredit, it is as if, in his own minds, he ceases to exist. "I losteverything," he is apt to say, as if his earthly existence amountedto a number written on a piece of paper. A population that is inthrall to arbitrary numbers written on bits of paper is what makes itpossible for the financial incompetents to remain undetected,practicing their sort of low-grade magic. It is as if everyone isblindly in love with them and thus unable to see their faults. Butthis spell can and will be broken, because the rest of the world isnow quite ill-disposed to tolerating any more of this financialnonsense. A day will arrive when America's sages and high priests offinance, together with their wealthy clients, will suddenly turn outto be, for all to see, what they have been all along: cluelessincompetents unsuitable for any task that is worth doing.