Incentives and Decision Making

Dan Geer has a snappy little rule of thumb on security which says that when those that can make the changes to improve security are not those that impacted by the effect of poor security, you will basically get status quo and no security improvement.

In the same vain:

"Mohamed El-Erian co CEO PIMCO: We are kicking the can down the road on issues...there's a reason for that. Its the wrong generation making the decision. Its basically my generation, which we have collectlvely over borrowed, didn't invest enough in our infrastructure and our people. And as a result are going to leave my children's generation with too much debt and too little growth. And we're not willing to sacrifice now and therefore the political process gets totally paralyzed.

There's no doubt in my mind that if the average age of politicians and/or the electorate we would be making difficult decisions now in order to secure a better future. The frightening reality, and I have a nine year old daughter, and I think about this every morning when I kiss her goodbye. There's a probability that for the first time in 100 years that the next generation will be worse off than this generation. And that's frightening

In the past, there's been reason for hope, and most people expect it to be better off. And in fact, the whole system expects it to be better off, because the whole system made promises for the future that relied on us being better off. And this was a really important part of what drives this country, the American Dream, the fact that with a lot of hard work and a little bit of luck, you and your family can be better off.

This time around, the next generation's going to inherit some realities, some really awful realities. The first one is going to be a debt load that we haven't seen since the end of the second World War, so we accumulated that debt in peace time. Second, policies stretched to their limits. We're not talking about interest rates remaining at zero to mid-2015. We're talking about a balance sheet of the central bank that has expanded beyond anybody's wildest dream. And then the growth dynamics. These things don't change overnight, so I do think it's different.

Then there's another element that I spend a lot of time looking at, which is the structural dimensions of our unemployment problem. Over 40% of the unemployed are long-term unemployed. That's a very high number. The longer you are unemployed, the harder it is to get back in the labor force. Twenty-five percent of the 16 to 19 year olds are unemployed; at that age, you go from being unemployed to becoming unemployable, and then you start talking about lost generations. So I think this is much more serious than what we've had over the last hundred years.

Morgan Housel: Do you worry that your nine-year-old daughter's generation will be worse off than your generation or just not better off?

Mohamed El-Erian: I worry they're going to be worse off, and part of what I'm doing these days is going to high schools and telling students it need not be like this. But don't expect my generation to change it. You are going to have to take much more responsibility, and much more personal responsibility. It's about education, it's about financial literacy, it's about having a global mind-set and, collectively, you are going to have to take a greater responsibility because my generation has shown repeatedly that it's incapable of making difficult decisions. "

Comments

[slonob]

What I find frustrating is that the public seems mostly not at all curious about how we got here. Any attempts to look at root cause are dimissed by those held as authorities on the subject despite the fact that these are the same people who have been stewards of public perception and policy who insisted that perpetual growth was attainable.

Any interpretations that are inconvenient to the status quo are quickly lacerated with idiotic partisan narratives and squelched with the label of conspiracy theory.

Being smart enough to know the nature of the problem is not enough. We must understand how we got here. We must also hold the right people accountable, or at the very least clear a path for future accountability.

However, what is the message of fools like Tom Friedman, whose books populate the shelves of the middle class? His message is to put your waders on and prepare for less. And we should do this because of some fantastic dream of global peace and prosperity. That he can even sell any of his nonsense as new ideas points to other problems with the education of the middle class.

We need to approach this as we approach any complex system. It is and always was prone to failure. We must understand why this system has failed (and it has failed) and consider radical redesign. If we build into the new system clear accountability and responsibility, we'll have a better chance of having faithful stewardship over generations.

[slonob]

The point about Friedman is that he sells collective responsibility and I believe this is intended to protect those who should be held accountable. He's a company man who kisses up and kicks down (gently). He tells us that this is the consequence of our dreams and satisfies our curiosity about the system with empty calories. We need to stop listening to these people.

I hear people parroting him often.

If only people sought truth as authority rather than the truth of authorities, we could start to imagine and create a better world.

[gunnar]

this would not be a bad start: "Why Financial Literacy Must be Taught in Our Schools"

http://www.fool.com/investing/general/2012/09/06/why-financial-education-must-be-taught-in-our-scho.aspx

[slonob]

That's just another article that blames the people for participating in a system that they don't understand and getting burned.

The solution to card counting at the Blackjack table is to eliminate card counting, not to teach the other players how to count cards.

[gunnar]

Education is a starting point, not an endgame. I am biased but I believe that better education is essential in any systems