from www.nytimes.com
July 1, 2008
Deep Down, We Can’t Fool Even Ourselves
By JOHN TIERNEY
In voting against the Bush tax cut in 2001, Senator John McCain said he “cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate.” Today he campaigns in favor of extending that same tax cut beyond its expiration date.
Senator Barack Obama last year called himself a “longtime advocate” of public financing of election campaigns. This month, he reiterated his “support” for such financing while becoming the first major party presidential nominee ever to reject it for his own campaign.
Do you think either of these men is a hypocrite?
If so, does this hypocrite really believe, in his heart, what he is saying?
Fortunately, we don’t need to get into the fine points of taxes or campaign finances to take a stab at these questions. We can probably get further by looking at some experiments in what psychologists call moral hypocrisy.
This is a more devious form of hypocrisy than what was exhibited by, say, the governor of New York when he got caught patronizing a prostitute. It was obviously hypocritical behavior for a public official who had formerly prosecuted prostitutes and increased penalties for their customers, but at least Eliot Spitzer acknowledged his actions were wrong by anyone’s standards.
The moral hypocrite, by contrast, has convinced himself that he is acting virtuously even when he does something he would condemn in others. You can understand this “self-halo” effect — and perhaps discover it in someone very close to you — by considering what happened when two psychologists, Piercarlo Valdesolo and David DeSteno, tested people’s reactions to the following situation.
You show up for an experiment and are told that you and a person arriving later will each have to do a different task on a computer. One job involves a fairly easy hunt through photos that will take just 10 minutes. The other task is a more tedious exercise in mental geometry that takes 45 minutes. You get to decide how to divvy up the chores: either let a computer assign the tasks randomly, or make the assignments yourself. Either way, the other person will not know you had anything to do with the assignments. Now, what is the fair way to divvy up the chores?
When the researchers posed this question in the abstract to people who were not involved in the tasks, everyone gave the same answer: It would be unfair to give yourself the easy job.
But when the researchers actually put another group of people in this situation, more than three-quarters of them took the easy job. Then, under subsequent questioning, they gave themselves high marks for acting fairly. The researchers call this moral hypocrisy because the people were absolving themselves of violating a widely held standard of fairness (even though they themselves hadn’t explicitly endorsed that standard beforehand).
A double standard of morality also emerged when other people were arbitrarily divided in two groups and given differently colored wristbands. They watched as one person, either from their group or from the other group, went through the exercise and assigned himself the easy job.
Even though the observers had no personal stake in the outcome — they knew they would not be stuck with the boring job — they were still biased. On average, they judged it to be unfair for someone in the other group to give himself the easy job, but they considered it fair when someone in their own group did the same thing.
“Anyone who is on ‘our team’ is excused for moral transgressions,” said Dr. DeSteno, a psychologist at Northeastern University. “The importance of group cohesion, of any type, simply extends our moral radius for lenience. Basically, it’s a form of one person’s patriot is another’s terrorist.”
If a colored wristband is enough to skew your moral judgment, imagine how you are affected by the “D” or the “R” label on your voting registration. If you are a Democrat, you are more likely to think Mr. McCain hypocritically switched tax policies to pick up conservative votes, but Mr. Obama’s decision to abandon public financing probably looks more complicated. If you’re a Republican you’re likelier to figure Mr. Obama did it just so he could raise more money on his own, but you’re more willing to consider Mr. McCain’s economic rationales.
The more interesting question is how presidential candidates, and their supporters, turn into hypocrites. It has been demonstrated repeatedly in experiments that humans are remarkably sensitive to unfairness. We’ve survived as social animals because we are so good at spotting selfishness and punishing antisocial behavior.
So how we do violate our own moral code? Does our gut instinct for self-preservation override our moral reasoning? Do we use our powers of rationality to override our moral instinct?
“The question here,” Dr. DeSteno said, “is whether we’re designed at heart to be fair or selfish.”
To find out, he and Dr. Valdesolo brought more people into the lab and watched them selfishly assign themselves the easy task. Then, at the start of the subsequent questioning, some of these people were asked to memorize a list of numbers and retain it in their heads as they answered questions about the experiment and their actions.
That little bit of extra mental exertion was enough to eliminate hypocrisy. These people judged their own actions just as harshly as others did. Their brains were apparently too busy to rationalize their selfishness, so they fell back on their intuitive feelings about fairness.
“Hypocrisy is driven by mental processes over which we have volitional control,” said Dr. Valdesolo, a psychologist at Amherst College. “Our gut seems to be equally sensitive to our own and others’ transgressions, suggesting that we just need to find ways to better translate our moral feelings into moral actions.”
That is easier said than done, especially in an election year. Even if the presidential candidates know in their guts that they are being hypocritical, they cannot very well be kept busy the whole campaign doing mental arithmetic. Besides, they are surrounded by advisers with plenty of spare mental power to rationalize whatever it takes to win.
Politicians are hypocritical for the same reason the rest of us are: to gain the social benefits of appearing virtuous without incurring the personal costs of virtuous behavior. If you can deceive even yourself into believing that you’re acting for the common good, you’ll have more energy and confidence to further your own interests — and your self-halo can persuade others to help you along.
But as useful as hypocrisy can be, it’s apparently not quite as basic as the human instinct to do unto others as you would have them do unto you. Your mind can justify double standards, it seems, but in your heart you know you’re wrong.
Tuesday, July 1, 2008
The Moose stays in cash
courtesy Bill Dirlam of www.decisionmoose.com
JUNE 27— Nobody ever wants to jump in front of a dump truck, or for that matter, a central bank announcement, so the markets stay to the curb and wander aimlessly until the Fed’s midweek press release. Then they go nuts the last couple of days trying to figure out what it all meant. Fed meeting weeks are always a bit schitzo, and this one was no exception.
The Fed’s Wednesday message turned out to be the same one the Moose has been pushing for several months: stagflation. Moreover, the Fed appeared to reassert its emphasis on the “stag”, as in stagnant. Observers figured the bank’s governors (with one dissent) still feel that the weak economy and the fragile banking system must take precedence over a growing inflation threat.
After sleeping on it for a night, investors, fearing slower growth and weaker profits, dumped stocks on Thursday, knocking the Dow down 358 points to a two-year low. Money fled into bonds for safety, driving down yields, which in turn weakened the Dollar, spiking commodity prices and gold.
The Fed’s apparent notion is that our economy, beset by high energy prices and beholden to a financial system that is too strapped to make new loans, even if it wanted to, will ultimately weaken enough to curb inflation on its own. Needless to say, that is hardly a comforting thought for stock investors.
Remember that scene from “Butch Cassidy and the Sundance Kid” when the two realize that they have to jump off a humongous cliff into a raging river to escape a posse? Sundance refuses to jump, confiding finally that he can’t swim. Butch replies incredulously, “Are you crazy? The FALL will probably kill ya!”
Inflation? Hell, the ECONOMY will probably kill ya. Thanks, Ben. Very reassuring.
After jumping off the cliff Thursday, stock investors went down a small waterfall Friday (-104 Dow points) but then managed to dog-paddle to shore. It wasn’t a pretty two days, but better than expected consumption and personal income data for May on Friday morning blunted previous fears of imminent depression. (Can you say “tax rebate checks”. How about “one time shot”?)
For now, technical indications are that stocks are temporarily oversold and ready to bounce-- although volume and volatility measures are not entirely conclusive. End-of-quarter-new-quarter follies on Monday and Tuesday can be expected, however, and don’t forget the ECB.
As noted earlier, no one wants to jump in front of a central bank announcement, and the European Central Bank is up next week. Moreover, the ECB decision has become more problematic. They have been the toughest talker on inflation, practically promising a rate hike next week, but lately European economies, led by powerhouse Germany, have begun to show signs of cracking. Stagflation is creeping into the global consciousness.
Whether the ECB will choose to maintain credibility and raise rates as expected, risking recession, or reverse itself and hold steady awhile longer has suddenly become an open question. The ECB only has one mandate—- to fight inflation. It does not have to concern itself with growth and financial stability as the Fed does, although it would be foolish not to consider those things. Whatever the decision, it could have a bigger impact on the investment markets than the Fed’s decision did.
Thinking is if the ECB raises rates, increasing European bond yields’ attractiveness relative to Treasury yields, the Dollar could slide further short term. That would push commodity prices (which are denominated globally in Dollars) higher for U.S. consumers and those in nations whose currencies are tied to the Dollar (China, Saudi Arabia, etc.) U.S. stocks would be vulnerable to more on the downside.
How much of this week’s action is anticipating just such a development is unclear. We won’t know until after the announcement. That’s why folks step back from dump trucks and central banks.
Higher Dollar denominated commodities do not necessarily mean higher euro-equivalent commodity prices, however, and an ECB rate hike would dampen European demand, lessening inflation pressures there. Eventually, that might lead to a slowdown and a weaker euro, provided of course the U.S. is not in a death spiral itself at the time. Since we’ve been six to nine months ahead of Europe for awhile now, nothing is a lock in that regard.
The problem for both the U.S. and Europe is that the excess demand generating the current round of inflation is originating in the emerging markets. The Fed or the ECB playing with interest rates in quarter point increments will not have a direct impact on that demand anytime soon. We have to go through our own demand first to get at theirs, and that can be painful. It can be done, but only if there is enough political will.
The emerging market boom, after all, was born of Greenspan’s 1% Fed Funds Rate, a rate that was lower and kept in place much longer than commodity and bond prices indicated was necessary. Lower U.S. rates essentially make more Dollars available, and since commodities are traded in Dollars, more Dollars chasing a finite amount of goods raises prices. Commodity inflation was born. More accurately, at one percent interest, it was shot out of a cannon.
Since the current Fed has basically ignored market prices from day one, it comes as no surprise that imbalances have developed over time. (Note to Congress: the Fed has done more to spike oil prices of late than any commodities speculator.) In fairness to Bernanke, his predecessor left him with some truly impressive time bombs (like the emerging markets boom, sub-prime and the housing bust, and incipient global commodity inflation). His choices have been difficult. I am thankful that they were not mine. (See ya. Wouldn’t wanna be ya.)
Unless there is a global economic collapse, I’m afraid that the Fed, by ignoring the markets’ inflation signals for almost a year, may have brought us to the brink of the worst inflation we’ve seen in this country in thirty years.
Now mine is only a theory, and I sincerely hope that I’m as wrong as a panty raid at a Vatican convent. If I’m right, however, you’ll want to own gold (to preserve your capital) and several cases of bourbon (to preserve your sanity). No stocks. No bonds.
It might take awhile-- and considerable anesthesia-- to get through, but we will. One day, ten years from now, on a boardwalk by the sea, as you’re blissfully licking a twenty-dollar ice cream cone, you’ll have forgotten all about it.
The Moose continues to hold cash. Bill runs one of the best mid term models with Decision Moose. His humor is as funny as his analysis is insightful. Thank you Bill for all that you do!
JUNE 27— Nobody ever wants to jump in front of a dump truck, or for that matter, a central bank announcement, so the markets stay to the curb and wander aimlessly until the Fed’s midweek press release. Then they go nuts the last couple of days trying to figure out what it all meant. Fed meeting weeks are always a bit schitzo, and this one was no exception.
The Fed’s Wednesday message turned out to be the same one the Moose has been pushing for several months: stagflation. Moreover, the Fed appeared to reassert its emphasis on the “stag”, as in stagnant. Observers figured the bank’s governors (with one dissent) still feel that the weak economy and the fragile banking system must take precedence over a growing inflation threat.
After sleeping on it for a night, investors, fearing slower growth and weaker profits, dumped stocks on Thursday, knocking the Dow down 358 points to a two-year low. Money fled into bonds for safety, driving down yields, which in turn weakened the Dollar, spiking commodity prices and gold.
The Fed’s apparent notion is that our economy, beset by high energy prices and beholden to a financial system that is too strapped to make new loans, even if it wanted to, will ultimately weaken enough to curb inflation on its own. Needless to say, that is hardly a comforting thought for stock investors.
Remember that scene from “Butch Cassidy and the Sundance Kid” when the two realize that they have to jump off a humongous cliff into a raging river to escape a posse? Sundance refuses to jump, confiding finally that he can’t swim. Butch replies incredulously, “Are you crazy? The FALL will probably kill ya!”
Inflation? Hell, the ECONOMY will probably kill ya. Thanks, Ben. Very reassuring.
After jumping off the cliff Thursday, stock investors went down a small waterfall Friday (-104 Dow points) but then managed to dog-paddle to shore. It wasn’t a pretty two days, but better than expected consumption and personal income data for May on Friday morning blunted previous fears of imminent depression. (Can you say “tax rebate checks”. How about “one time shot”?)
For now, technical indications are that stocks are temporarily oversold and ready to bounce-- although volume and volatility measures are not entirely conclusive. End-of-quarter-new-quarter follies on Monday and Tuesday can be expected, however, and don’t forget the ECB.
As noted earlier, no one wants to jump in front of a central bank announcement, and the European Central Bank is up next week. Moreover, the ECB decision has become more problematic. They have been the toughest talker on inflation, practically promising a rate hike next week, but lately European economies, led by powerhouse Germany, have begun to show signs of cracking. Stagflation is creeping into the global consciousness.
Whether the ECB will choose to maintain credibility and raise rates as expected, risking recession, or reverse itself and hold steady awhile longer has suddenly become an open question. The ECB only has one mandate—- to fight inflation. It does not have to concern itself with growth and financial stability as the Fed does, although it would be foolish not to consider those things. Whatever the decision, it could have a bigger impact on the investment markets than the Fed’s decision did.
Thinking is if the ECB raises rates, increasing European bond yields’ attractiveness relative to Treasury yields, the Dollar could slide further short term. That would push commodity prices (which are denominated globally in Dollars) higher for U.S. consumers and those in nations whose currencies are tied to the Dollar (China, Saudi Arabia, etc.) U.S. stocks would be vulnerable to more on the downside.
How much of this week’s action is anticipating just such a development is unclear. We won’t know until after the announcement. That’s why folks step back from dump trucks and central banks.
Higher Dollar denominated commodities do not necessarily mean higher euro-equivalent commodity prices, however, and an ECB rate hike would dampen European demand, lessening inflation pressures there. Eventually, that might lead to a slowdown and a weaker euro, provided of course the U.S. is not in a death spiral itself at the time. Since we’ve been six to nine months ahead of Europe for awhile now, nothing is a lock in that regard.
The problem for both the U.S. and Europe is that the excess demand generating the current round of inflation is originating in the emerging markets. The Fed or the ECB playing with interest rates in quarter point increments will not have a direct impact on that demand anytime soon. We have to go through our own demand first to get at theirs, and that can be painful. It can be done, but only if there is enough political will.
The emerging market boom, after all, was born of Greenspan’s 1% Fed Funds Rate, a rate that was lower and kept in place much longer than commodity and bond prices indicated was necessary. Lower U.S. rates essentially make more Dollars available, and since commodities are traded in Dollars, more Dollars chasing a finite amount of goods raises prices. Commodity inflation was born. More accurately, at one percent interest, it was shot out of a cannon.
Since the current Fed has basically ignored market prices from day one, it comes as no surprise that imbalances have developed over time. (Note to Congress: the Fed has done more to spike oil prices of late than any commodities speculator.) In fairness to Bernanke, his predecessor left him with some truly impressive time bombs (like the emerging markets boom, sub-prime and the housing bust, and incipient global commodity inflation). His choices have been difficult. I am thankful that they were not mine. (See ya. Wouldn’t wanna be ya.)
Unless there is a global economic collapse, I’m afraid that the Fed, by ignoring the markets’ inflation signals for almost a year, may have brought us to the brink of the worst inflation we’ve seen in this country in thirty years.
Now mine is only a theory, and I sincerely hope that I’m as wrong as a panty raid at a Vatican convent. If I’m right, however, you’ll want to own gold (to preserve your capital) and several cases of bourbon (to preserve your sanity). No stocks. No bonds.
It might take awhile-- and considerable anesthesia-- to get through, but we will. One day, ten years from now, on a boardwalk by the sea, as you’re blissfully licking a twenty-dollar ice cream cone, you’ll have forgotten all about it.
The Moose continues to hold cash. Bill runs one of the best mid term models with Decision Moose. His humor is as funny as his analysis is insightful. Thank you Bill for all that you do!
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