A General Theory of Stupidity

[Adolar]

A GENERAL THEORY OF STUPIDITY
by Bill Bonner

"Two things are infinite: The universe and human stupidity; and I'm
not sure about the universe."
- Albert Einstein

The big news this week...at least before the premature exit of Anna
Nicole Smith...was the new U.S. budget proposal. The Bush
Administration revealed itself - once again - to be the most spend-
thrift regime of all time. No publicly elected government has ever
spent so much of its citizens' money, or so much money that its
citizens didn't have. Nor did any government ever redistribute so
much wealth - from the taxpayers to the defense contractors...from
the middle classes to the financial classes...and (most importantly)
from future generations to the folks living right here and right now.

The whole spectacle is breathtaking...and like all public
spectacles...absurd.

Nearly half a trillion dollars in debt will be added over the next
two years, according to the Bush plan. But then, in the year 2012,
the feds promised to deliver a modest surplus - of just over $60
billion. Of course, that will only happen if nothing goes wrong in
Iraq or Afghanistan (how could it?) and you are willing to employ
accountants who are inveterate liars.

Even in the best case, there is no plausible way in which Americans
can repay their debts - public or private. The public debt alone
equals more than $100,000 for every family of four. The interest
would be about $5,000. How many families could add that to their
budgets? What sort of a politician would ask them to? Currently, the
feds can't even keep up with the interest payments. So, the debt
feeds on itself...and the whole shebang just keeps getting bigger
and bigger. More money. More credit.
More debt.

We thought about it all last night...this time pausing neither for
prayer nor alcohol. What we were looking for was an answer to two
related questions: How big can this credit bubble get? And, more
profoundly, how stupid can people be? The questions keep coming up,
intertwined like a pole dancer and a bare leg - when we watch TV or
hear the news, when we listen to financial reports, when we read
about the new U.S. budget. The views...the prices...the numbers -
they are enough to make an imbecile take to thought...and a sober
man to drink.

And yet, the people we meet all seem responsible...even intelligent.
They drive cars...they have jobs...they manage their own checkbooks.
How is it possible that they can read about the U.S. budget without
shock and alarm...hold their life savings in dollar-based
assets...or lend more money to the world's biggest debtor for less
than 5% yield?

Suddenly this morning, we found an answer...or at least a theory.
And what a marvelous theory it is! You, dear reader, are the first
to have it.

Every great thinker stands on the shoulders of the giants who have
preceded him. We don't claim to stand on Darwin's shoulders, or on
Newton's, but at least we think we have stepped on their toes.

Newton's "Inverse Square Law" holds that gravity - and many other
things - decreases by the square of the distance from the source. In
a flash, we realized that this applied to useful investment
intelligence too. The further you get from the facts, the less you
know what is really going on.

We described this phenomenon earlier in the week:

If a person issues too many I.O.U.s, lenders catch on quickly and
cut him off. When a bank issues too many notes, word gets around.
Depositors get jumpy. Then, they take out their money...and the bank
fails. This used to happen all the time, before central banks
cornered the banking business.

Likewise, when a country spends more than it can afford, people
holding the nation's currency begin to have bad nights. Then, they
sell the currency for other devices, or for gold. Interest rates
rise...the currency falls. Gracefully or calamitously, the problem
corrects itself.

But now we live in a world of globalized, faith-based, denatured
currencies. The United States emits dollars, which are a form of
I.O.U. No one knows exactly what a dollar is worth...but that
doesn't stop other central banks from trying to keep up with it.
They issue more currency too. And then, the financial whizzes in
London and New York issue their own credits - I.O.U.s on the
I.O.U.s - which are backed by debt, backed by debt, backed by more
debt. And now, the poor investor - professional or amateur - is
light-years from the facts; he doesn't know what to make of it. Can
the United States go broke, he wonders? If it could, how come it
hasn't already? None of us has any idea. We don't know how many
dollars walk the earth...when they will depart it...or how much each
one should be worth.

Entire fortunes are put at risk. Billion-dollar bets are placed.
Trillions of dollars float on a sea of liquidity. And nobody really
knows what anything is worth...or when it might stop being worth
anything at all.

How could this be?

Here, we turn to Darwin and the dinner table for a lift.

"It just makes sense that some groups of people would be smarter than
others," our wife argued. "Different environments challenge people in
different ways. Harsh environments may require greater intelligence
to survive. Over time, the dumber members of the group are weeded
out. The result should be a higher intelligence for the whole group."

We have not noticed that people from places where the climate is
especially miserable are especially bright. Neither Eskimos, Indians
from Tierra del Fuego, nor Scottish highlanders regularly win chess
championships or Nobel prizes. But the idea was intriguing. Greater
intelligence would seem to be a benefit. So, you'd think that all
animals, everywhere, would have gotten smarter over time. But where
is the pig with an I.Q. over 140? Where is the parrot that can
decline a Latin verb? Or the whale that can write sonnets?

They don't exist. Perhaps they lack the gray matter. But killer
whales have brains seven times human size. Sperm whales, though not
the largest animals, have the world's largest brains. Obviously, we
have to conclude that bigger brains alone do not account for higher
intelligence. They have the intelligence they need for the
circumstances in which they evolved...any more would be not only
wasted, it would be counter-productive, leading the poor pig to
wallow in existential angst when he should be enjoying the mud.

Likewise, we can guess that human intelligence, too, is well sized
for the life humans lived when mankind did most of its evolving -
that is, hundreds of thousands of years ago. Then, people lived in
small groups in the forest, scratching larvae out of dead tree
trunks, rather than living in air-conditioned buildings in Manhattan
and earning a living by selling swaps to hedge funds. That is, we
are perfectly evolved for a different style of life...before the
invention of celebrity TV or central banking.

In those days before time, things made sense in a different way. A
man could see his enemies, and he knew what would happen if he
didn't fight them. He would stand with his comrades...and fight to
the death if necessary...to defend his tribe, his family, and his
little clan. Now, when he is sent to bring democracy to the heathen,
he takes up the challenge with hardly a complaint. But he still
fights as if his little band were under attack from wolves or sub-
humans. He fights to protect his comrades...and his
buddies...not 'democracy' or the 'divine right of kings.' Every
study of soldiers tells us so, and he still comes home a hero, even
if he had only been keeping the cola machines full at the base camp
or dropping bombs on people with no anti-air defenses.

Humans evolved in small groups, where they could know the
particulars of things. They understood the threats they faced...and
knew what was valuable. But when the scale and sophistication of
human civilization increased, man found himself in a situation for
which his brain was not prepared. He no longer had the precise,
specific, direct information he needed. Instead, he needed to rely
on a new kind of knowledge made up of abstractions, generalities and
slogans. This new knowledge, which Nietzsche called "wissen" to
distinguish it from the more ancient form of experience-based
knowledge called "erfahrung," trips him up, because it is too far
removed from the facts. The Inverse Square Law and Darwin's law
both work against him.

Our hairy ancestors didn't have to figure out the questions that
bedevil us now: How much is a dollar worth? Or how much credit can
the world stomach before it gets sick? Or will a troop 'surge' in on
the other side of the globe do any good? So, even today, our brains
are just not suited to it. They're not big enough.

Today, the average man can barely tell the difference between a fact
and a campaign slogan. And so the new ersatz knowledge leads him
into error. Modern politics turns the voter into an enabling
dupe...makes the amateur investor a chump for Wall Street...and
sends the poor, hapless foot-soldier off on a fool's errand where he
can only get himself killed.


Civilization, central banking and politics make monkeys of us all;
we're not equipped to deal with them. Like a hairdresser who shows
up to work with a wrench in his hand and liquor on his breath, we
are bound to make a mess of things.

Regards,

Bill Bonner
The Daily Reckoning

[Michael]

Society has many people and it is kept functioning by people doing their little thing. As this board proves there are many people who understand what is wrong with this country but they are not the ones in power. If we view society as a whole where people with different abilities use their skills to help society function, but what happens when the ones who know how society works (What Jefferson referred to as the Natural Aristocracy) and what is best for society are not ruling things and the worst have gotten control along with outsiders who run society for their benefit not the peoples. That is what we have going on in society today.