All we have to fear is our optimism

Can optimism become a weakness?  Can too much confidence become hubris, leading to imprudence?  America seems determined to push our optimism to the limit, to provide future generations with answers to these questions.

Seen in terms of John Boyd’s Observation – Orientation – Decision – Action loop, excessive optimism creates a “locked orientation.”

The result is an Orientation that doesn’t accurately represent the changing external environment, and actions coming from such an Orientation are often inappropriate, ineffective, or late. Just like what we’re seeing today.   [Chet Richards, source]

Once hubris takes hold, our very success works against us.  Why play hard in a game we “know” we will win?  Complacency kills in a rapidly changing, hyper-competitive world where, as Andy Grove says, only the paranoid survive.  Our triumphant, incredible success in the post-WWII era world blinds us to the awareness that this was just one chapter in history.

Our optimism is our enemy

With this insight, so many incomprehensible things become obvious.

Why did we ignore so many warnings, given over such a long time, by so many prominent experts and institutions?  (see this for a list showing a tiny fraction of the warnings).  Optimism!

Why did so many Americans ignore the many signs that the economy was slowing, dangerously slow?  For example, in the almost 4 thousand of Internet posts mocking the warnings with “Dude, Where’s my Recession?”  Optimism!  (For analysis of this, see Making us dumber, chanting “Dude, where’s my recession?” and When did “Dude” predict a recession? How severe?)

Why has our leaders’ response to the financial crisis been so slow, incremental, and reactive?  Twenty programs, each too late and too small.  Optimism!  With success guaranteed, and recessions always brief and shallow (for the past quarter-century), our leaders concentrate on delicacy and precision with their medicine.

Why have economists been so reluctant to acknowledge the magnitude and unprecedented nature of this downcycle?  Optimism!  Mainstream economists still tend to see this as a typical post-WWII recession.  To open their minds to more extreme outcomes would push them to become Doctors Doom — “outcasts” from the safe community, like Professor Roubini.

We are like children playing on the beach who see a tsunami coming toward us.  “Cool, look at the wave!”

An alternative perspective

We are about to suffer the consequences of past mistakes.  At this point inevitable, unavoidable.  Our last opportunities to even soften the crash passed many months ago.

Adults are realistic, looking at their problems with clear eyes and steely resolution.  As did our forefathers in the Revolutionary War and the Civil War.  Let’s hope we can put aside our bubble gum and beanie caps, and prepare for what lies ahead.  A recession — even a depression — is not Armageddon.  Just bad times, like those America has survived before.

With hard work and a modest portion of wisdom we can come out of this stronger than before.


Originally published on November 12, 2008 at Fabius Maximus and reproduced here with the author’s permission.’

4 Responses to "All we have to fear is our optimism"

  1. economicminor   November 13, 2008 at 2:34 pm

    I agree with your last statements whole heartedly!Optimism certainly played a part in what happened but there was so much more. The fact that what the financial engineers were doing was paying big dividends to themselves was more than optimism, it was outright greed. Those in the positions of power seemed to have absolutely no regard for the workers or the retirees or the children, only thing that mattered to them was winning the game. The Monopoly game.There has been a lot of research done about the psychological damage by alcohol and drugs, even prescription drugs, on the unborn. I’m not saying all these people who engineered the damage to our society were defective but this is the kind of pattern done by people with these traits. There is a portion of their brains where the human emotions of caring and love are generated that is either not there, was never developed or doesn’t develop in a normal way. People with this have no feelings for others. Oh they can learn to imitate the responses but this isn’t from their own internal emotional responses.People with this defect, aren’t necessarily stupid, they just don’t care for others. Which is the personality type that rises in situations where profits are more important than people.It doesn’t take everyone in a board room with this defect to drive the company to rationalize doing things that are not good for most of the rest of society either because greed and arrogance and selfishness are emotional responses which are encouraged in corporate structures.That is why not only reasonable regulations but actual regulators are needed to keep the corporate structure from doing what happened. This is the same reason we need civil law and police to enforce them. An economic system with out regulations or enforcement is the same as a civil society with out good laws or policing.And maybe your analysis about few paying attention is true but most of the people I talk to seem to know that what is going on is bad but there is no credible leadership telling them what to do. Seems like few have any faith in our governmental system any more. Those who rose up and tried to point out the consequences of the bad decisions were pushed to the side of the road and left. We all know that. In corporate and in government. Leaving only those who participated in the bad decisions left to find a new direction.. We all seem to understand that this is just another sad story. Just look at how this bail out is transpiring. Does that give you any faith that they have a clue?I think most people would like straight answers but I sure haven’t heard any yet. With the exception of Roubini and a few other blogs, there really hadn’t been much recognition that the road we were on had dire consequences or that we even had a problem. Not to mention thousands of them. So I am expecting the depression you mention and then possibly a revolution or at a minimum civil chaos because the system only promoted those who promoted corporate profits over what was best for the entire nation and nothing has changed.Roubini has been great in seeing and discussing the problems but I think because of his training, he can’t grasp real solutions. All the solutions revolve around more debt. All this TARPing and other fool fraw can’t possibly help. You don’t solve alcoholism with more alcohol unless your solution is to kill the patient as the only way to get them out of your space. I think that subconsciencely we are doing just that. At least that appears to be the outcome I project from the current direction/plan.Yours Trulythe economicminor

  2. Tamar Chansky   November 13, 2008 at 8:37 pm

    Hi,I am not an economist, but rather a cognitive psychologist who teaches about optimism… Here’s how I see this. Optimists see opportunities but stay tethered to reality. I think it is optimistic thinking (in the sense of having flexibility, seeing possibilities etc) that will get us out of this mess. I fear that it was denial, self-centered-ness and greed that got us into it.I write about the issue of accurate optimism thinking in my new book for parents, Freeing Your Child from Negative Thinking: Powerful, Practical Strategies to Build a Lifetime of Resilience, Flexibility and Happiness– so that perhaps, if children learn to be more accurate from early on, they will have the foresight to anticipate the tsunamis and not be under the illusion that somehow they are immune.I stress in my book that overcoming negative thinking and embracing realistic optimism, it is a two person job, if parents are not able to face the realities of the challenges in life, they will be in no position to teach their children to do so.

  3. Becky   November 15, 2008 at 12:53 am

    Wonderful post. I love the question you ask…. “Why has our leaders’ response to the financial crisis been so slow, incremental, and reactive?” I find myself asking this same question! Maybe I should send them Chris Burn’s newest book, “Deadly Decisions.” Hopefully they have now learned their lesson, and they will be better aware next time!

  4. Guest   November 23, 2008 at 11:45 am

    talk about psychology of adjusting to leaving within means.. this crisis didint come about just because of pop of subprime.. the subprime was just a trigger of a much longer occuring under-current of saving-investment disbalance.. will take much longer to correct