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BAD COMPETITION

and How to Tell it From Good

Competition is so enshrined in our culture as a virtue, so essential a motivation to our economy, that it is hard to be critical of it. If it goes bad, if it drives individual to cheat, say, to take performance enhancing drugs, or injure others or lose sight of their other needs, we punish the individuals who succumb to temptation.  In fact it seems as if we punish them doubly:  first for the transgression itself, but then for the disappointment and let-down we experience in having our ideals sullied and our role models tarnished.

We see this now clearly in the treatment of the baseball players who took steroids but it is also echoed in the current villification of CEOs and hedge fund managers in the wake of the collapse of Wall Street.  I am not suggesting that those who cheat, who are greedy or use poor judgment should not be punished.  On the contrary, I am suggesting that singling them our for blame can stop us from fully understanding why it happens and where useful changes might be made.

Competition in its essence is not an individual phenomenon. At the very least, it takes two to compete. Actually it take classes of combatants as well as teams – and observers - to sustain a viable competition.  Look at the Olympics industry, subdivided into associations and leagues for dozens of individual sports throughout the world.  Look any any market.  Or any spectator sport with its season ticket holders, avid fans and spin off products.  So much is at stake for so many.  The individual competitor is only the tip of the iceberg.

Bad competition for the individual is where it comes to mean too much, where the difference between winning and losing is catastrophic, unacceptable.  Such devastating pressure can come from parents of little leaguers who are over-invested in the child's success, coaches whose own careers are at stake in their team's performance, and certainly it can come from individual competitors whose insecurities find failure too painful to endure.  Not for nothing do we do our best to inculcate pride and sportsmanship in our children.

But the bigger problem is the larger system, when we ourselves demand that the competitor succeed for our own sakes.  If our self-esteem is invested in the performance of an athlete or our self interest  bound up with the achievements of a financial guru, we lose tolerance for disappointment and loss.  In such circumstances, all too often, there are no inner restraints to mitigate our response, no sign that our expectations and demands  are out of hand, that we are asking others to do more than they possibly can.  In essence we egg them on and on.

We create, in effect, a double pressure, without restraint and without forgiveness, and we do this largely without knowing that that is what we are doing.  It's not fair that we do this, of course;  but, worse, it is counterproductive because we encourage corruption and ultimate failure.

So how can we tell when good competition become bad?  We have to look at ourselves and our stake in the outcome.  This is not a foolproof test, but it is something we are not used to doing -- and something that will make a difference if we try.

SCHADENFREUDE: THE PLEASURE IN OTHERS FAILURE

DOES IT ONLY HAPPEN IN GERMAN?

The recent flood of news about financial scandals and economic reversals afflicting the wealthy and prominent have given a real workout for schadenfreude, the most embarrassing of our emotions.

We like to think of ourselves as empathic to those who suffer, good hearted and generous to those in distress -- and sometimes are actually are.  But all too frequently we are not.  In fact, we work hard to suppress our wan smiles or smirks or to conceal our spiteful thoughts when we hear about the victims of Bernie Madoff who can no longer afford their five houses, their private jets, or even, merely, the country club fees they used to pay without a thought.  We don't want others to know about those feelings;  worse, we don't often even want to know about them ourselves.

Recent research has confirmed what psychoanalysts have known for sometime: schadenfreude is a cousin of envy.  Because we do envy others for what they have that we don't, we take a special pleasure when they lose it.  And we don't like the fact that we are envious, either, and seldom will we openly acknowledge it.

But Natalie Angier has reported in Science Times on recent research that shows the actual  links in the brain.  New scanning techniques illuminate the areas of the brain activated in response to scenarios of envy and, then, the extended scenarios in which the envied person has a downfall.  The evidence is unmistakable:  we suffer with envy and we enjoy the reversal. (www.nytimes.com/2009/02/17/science/17angi.html?em)

In a society characterized by a widening gap between the rich and the poor, this happens more and more.  And in a recession such as the one we are now experiencing, our own pain only intensifies the pleasure we take in the pain of others.  This too can be amplified when we band together to enjoy punishing the "greedy" investors and managers to led us down this lane.  Indeed, the collective pleasure of schadenfreude can become irresistible, and a powerful political force.

Another aspect of this worth considering:  how much we don't want to know we are the object of other's envy -- and subsequently, of course, the fact of being a source of pleasure for others when we suffer a loss or reversal.  This may be a key element in humiliation, where we suffer not only the loss of esteem in the eyes of others but sense as well that we will continue to be punished for having been envied in the first place.

I have often wondered why our language has not come up with a native term for "schadenfreude."  It's not as if the German word is so mellifluous or, even, easy to say.  Perhaps it is yet another way for our culture to keep awareness of such feelings at a distance.  Without a convenient label, maybe we won't notice it so much.

CONFLICTS OF INTEREST

A PROBLEM THAT WON'T GO AWAY

There is no area of our society that is immune to conflicts of interest.  The revolving door between lobbyists and legislators -- and the conflicts and difficulties they give rise to -- was once again illustrated by Tom Daschel's failed nomination.  Bankers and regulators often move in and out of bed together.  Physicians and pharmaceutical companies are intricately bound by competing needs and mutual interests.  Pentagon officials and defense contractors, accountants and their clients, reporters and their sources . . . .  The list goes on and on.

The problem won't go away because the increasing complexity of our world requires that those who monitor and service industries know more and more about how they work in order to be effective.  That creates pressures to recruit those who not only know those industries intimately but also retain ties with them.  But then, of course, there are the advantages for those who are able to get on the inside track.  Pressures of competition mean that any advantage will be thoroughly exploited, and no amount of deterrance will prevent most people from doing their best to maximize whatever advantages they can, legitimately or not.

On the other hand, with our increasing sophistication and knowledge about how thinking is shaped by unconscious influences, we know we need to worry about the impact of these special relationships:  they impair and distort judgement, they skew decisions, they confound reality with powerful motivations.  Impartiality and neutrality may be impossible goals, in the last analysis, but that only means we have to struggle to maintain rationality, integrity and prevent corruption.  Disclosure is not enough.

Obama set out to put limits on influence peddling in Washington, and from the start he has been forced to make exceptions.  It is so pervasive and so accepted a part of business as usual, one has to wonder what kind of goal is reasonable to strive for.  At the same time, it is vitally important to restore integrity to the democratic process, and some greater degree of rationality, free of special interests, to public policy.  Because of the power of unconscious thinking, we so easily lose sight of what really makes sense, what actually needs to be done.

Dick Cheney's career is the outstanding case in point.  After serving as Secretary of Defense, he went on to serve as CEO of Halliburton, leaving that job to be Vice President in the Bush administration.  One could argue -- and no doubt he himself would and did -- that the knowledge gained in each job was invaluable in understanding the whole.  But that is a perfect example of the "military-industrial complex" that Eisenhower warned us about at the end of his second term, the point of view embodied in the CEO who proclaimed "What's good for General Motors is good for America."  Who could maintain an impartial and objective perspective in the face of such merged experiences and convictions?

Are we destined to have a partial and corrupt view of the issues we face?  Will the example of Cheney set the standard, or will significant reforms be possible?  And even if reforms prevail, will it be possible to establish clear boundaries that protect us from the ever-present danger of unconscious influences distorting decision making.  We would have to really want to make those changes occur in order to be constantly vigilant and enquiring.

A PSYCHOLOGICAL RECESSION

HOW LONG WILL IT LAST?

An economic recession inevitably produces psychological depression, and that, in turn, undermines our energy, hope and ability to recover.  We can't help but ask ourselves, then: "How much of a psychological impact will this recession have?"  But we are asking the question indirectly, afraid to stare it in the face because we don't want to know what we know the answer is likely to be.

Those whose parents and grandparents lived through the great depression of the 30's know how much they were permanently scarred by it, how they tended to live out the rest of their lives hunched over with fear.  We also know that such individual traumas as the loss of a significant job or a foreclosure and eviction can be as devastating as a fire or life-threatening illness, and the numbers of those enduring such losses is growing daily.  How great will the collective miasma become?  

We can detect this concern now in the media discussions about how long this recession will last -- more precisely when will it end.  Time here is an underlying reference to depth and darkness.  The frequent analogies with Japan suggest that it could be a  very long time indeed.  Their banks were "dead" for ten years , and now their gross domestic product has declined at an annual rate of 12.7 percent.

In today's New York Times (Friday, February 20th), Paul Krugman quoted from the minutes of the Federal Reserve, suggesting that some believe "more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates . . . of growth . . . unemployment and an appropriate rate of inflation."  He had to go back to the Panic of 1873 to find an historical analogy, a depression that lasted five years, followed shortly by another that lasted an additional three. (www.nytimes.com/2009/02/20/opinion/20krugman.html?_r=2)

David Carr's column in last Monday's New York Times not only highlights the pessimism of some experts but the extraordinary reluctance of journalists to hear what they have to say.  Carr cites last week's discussion on "Power Lunch" with Nouriel Roubini, the Stern School professor who has come to be known as Dr. Doom, and Nassim Taleb, author of "The Black Swan."  If you know their work, you may not be surprised at their pessimistic view of the economy.  What is surprising and disturbing is how consistently the panel wanted to steer away from their message.  Asked to offer any sign that the economy was turning the corner, they demurred.  As Carr put it, they "did not play ball."  It was too depressing for journalists, Carr noted, but too depressing for the public as well. (www.nytimes.com/2009/02/16/business/media//16carr.html)  

In recent years we have come to appreciate that the cost of war inevitably includes the penalty of Post Traumatic Stress Disorder, an inescapable consequence of exposing our soldiers to battle. And sometimes it does not show up until much later.  A financial setback is not a trauma in the same sense, and yet it comes with its own emotional cost of discouragement if not hopelessness, fear and withdrawal, avoidance of risk and circumscribed ambition -- and it can take years to recover from such symptoms, if indeed recovery ever comes to all.

CLASS WARFARE

The Underlying Fear

It is not difficult to see behind the criticism of Wall Street bonuses and the proposed salary cap for senior executives, the looming threat of a major battle between the haves and the have-nots.  It is the story hidden inside the congressional battles over the financial rescue package and Obama's failing efforts at bipartisanship.

Class warfare has been a central feature of western history since the French Revolution, and it has played itself out again and again in European politics.  FDR's New Deal, crafted while armies of the unemployed marched in protest and camped out on the Washington Mall,  is widely seen as the effort that "saved" the US from a proletarian take-over.  Now, as Obama's rescue plan is being compared with Roosevelt's, we can't help but sense the same underlying threat beneath the surface.  The anxiety is that there could be winners and losers on a scale unprecedented in our history.

The signs of this fear are subtle, and many of them are masked as denial.  Newsweek, for example, featured an article last week on "Why There Won't be a Revolution," making the point that  "Americans might get angry sometimes, but we don't hate the rich.  We prefer to laugh at them."   And to make their point, they posted a picture of Donald Trump in his absurd, over-the-top bedroom, evoking images of Versailles.  But there isn't much laughter these days and there is not likely to be any more laughter as unemployment mounts, foreclosures continue, and people watch their retirement savings disappear.  

Obama was chastised during his campaign for suggesting the tax system be used to "redistribute wealth," actually an old-fashioned, commonplace idea.  In these days, however, it smacked too close to what more and more people wanted to see happen, but were afraid to say or hear.  Now, if anything, the sentiment is rising.  Curtailing salaries and bonuses, a far more radical idea, looks as if it is about to happen.

American politics has usually been a subtle dance between two parties both close to the center.  Radical change is kept at the margins. For all his occasional radical talk, FDR's establishment ties made him a credible mediator, and his policies did undermine the prospects for revolution in this country.  Obama, similarly, is no radical.  He wants to bring us all together.  Class warfare, no doubt, is the last thing he wants to stimulate.

I am not suggesting that class warfare is actually lurking in the wings.  It's not so much that we like to keep the rich around to laugh at as that, for the most part, we still hope to emulate them. America has not lost its promise as the land of opportunity, and we want our rich to represent the reality of that promise -- though that want is no doubt hedged about with more and more ambivalence.  

My point is that the unconsciously registered threat of class warfare is actually inhibiting the discussions we need to have about what to do.  The gap between the haves and the have-nots is just too great.  The disparity between the almost $15 million average salary of CEO's and the average wage is unfair and, at this point, discouraging.  What we don't know we know about the issues we face is that our hidden fears of class warfare may prevent us from thinking and speaking freely about the remedies we need to consider.

THE FIRST MISTAKE

"I Screwed Up"

It was bound to happen, and the specifics were predictable.  And yet there is something refreshing in the way Obama owned up to it.  (See my entry for December 24th: Obama's First Mistake.)

To be sure, it took the New York Times, among others, to call for Daschele to withdraw his nomination after many days of unsuccessful damage control.  And it followed hard on the heels of Geithner's tax problems.  But the response was candid,  efficient, even acknowledging the nature of the fault.  Perhaps it is a new era in politics, but also Obama is still riding the wave of hope, and he gets an easy pass.

This was brought home in today's Times, when Brandeis University's president paid him the ultimate compliment of imitation. Referring to his own "mistake" of announcing the close of the Rose Museum on the Brandeis campus, he said "I screwed up."  Maybe he will get away with it as well.

"The Mini-Madoffs" (NYTimes)

Or As the WSJ Put It  (January 28): "Ponzi Cases Proliferate"

It is beginning to appear that the Ponzi scheme is the defining scandal of our time. The Journal noted that a "recent review of Securities and Exchange civil actions shows an increase . . . in Ponzi schemes. . . .  at least 23 cases last year, up from 15 in 2007.  It has already filed four in 2009."

Why would this be so?  Of all the forms of fraud and corruption available to financial manipulators, why choose the scheme that is inevitably doomed to fail?  Insider traders can hope to escape detection, and no doubt many embezzlers get away with their thefts before their victims uncover their losses.  But a Ponzi scheme has no chance to succeed indefinitely.  At some point the funds will run out.  There is no alternative.

There are many interesting dimensions to this, not the least of which is what the perpetrator thinks as he propels his scheme forward at the expense of friends and colleagues.  Madoff may have been sociopathic, as the Times suggested recently, akin to a serial killer motivated by the thrill of getting away with it again and again.  But it will be some time before a credible psychological profile emerges from interviews and the recollections of those closer to the action.

The profiles of the gullible may be somewhat easier to discern.  A steady and strong return on investments is desirable, to be sure, though the ups and downs of our financial system make it unlikely to be consistent and hard to explain when it is.  Still people have hopes and project their faith into the most unlikely vessels -- and Madoff certainy pulled off a very respectable image.

What interests me is the collective dimension now emerging.  Why now?  Why so many? What does it say about us?

There is an element of magic in the promises of a Ponzi scheme, just as there appeared to have been an element of magic in many of our dazzling financial successes over the past several decades.  Bill Gates became the world's richest man in the space of a couple of decades, and his partners also made tens of billions of dollars as well.  So many young kids, fresh out of college, have made huge profits from their technology innovations, then cashed in on IPO's or buy-outs.  Retailing innovations produced WalMart and other box stores like Costco, Best Buy and Home Depot that didn't exist several decades ago, creating many personal fortunes in the process. More recently Amazon, eBay, Google and others have dumbfounded conventional  expectations on the internet.  The rise of hedge funds has been explosive, and international currency speculators, like George Soros, have captured the public imagination with billion dollar gambles.  CEO's have become celebrities and billionaires.  These have been amazing times -- almost magical in their production of wealth.  To be sure, there have been reverses, but it does seem that something unprecedented, dizzying, almost crazy has been going on in the marketplace.

As a result, traditional values of fiscal prudence, balance and caution have come to seem outmoded.  People acting in accordance with such logic can look like timid losers.  Our technology and housing bubbles have contributed to this, illustrating how virtually everyone can become wealthy as prices for a time have seemed to go nowhere but up -- until they don't.

In this context, a Ponzi scheme doesn't look so implausible.  It can easily mimic the appearance of a normal investment, since the investor knows as little about how his profits are to be made as does the typical investor in a hedge fund.  It is only in retrospect that the putative source of profit is exposed as bogus.

In a sense the only difference between a Ponzi scheme and any other scheme for enrichment is the absence of a basis in reality.  It is a perfect symbol for any extraordinary, implausible investment, an alluring appearance that can correspond to almost underlying reality because it is thoroughly uncontaminated with reality at all. Completely self-referential, it is infinitely expandable, endlessly adaptable to suit every hope.

In a world that has come to seem to shower riches on so many, so lavishly and indiscriminately, the Ponzi scheme is the disturbing dream that tells us what we are about.

WE CAN'T KNOW HIM NOW

If We Ever Did

There is so much hope and fantasy surrounding Obama now, so much emphasis on his historic role, so many comparisons to Lincoln and FDR, such a stress on the mountain of problems he faces as he prepares to be sworn in, the person himself has been lost to view.  Through the welter of projections, the layouts, the interviews, the cover stories, the punditry, he has been rendered invisible.  And when he emerges, with or without his Blackberry, he will be safely encased in the Presidential bubble, his acts and statements endlessly spun, he will be invisible in yet other ways.  

Clearly we are in the midst of a national celebration.  He has become a totemic figure, an idol, a superman.

So what can we do about it?  To be sure, we will all -- myself included -- succumb to our dreams and join the celebration.  But then I think it will be important to keep reminding ourselves that we actually do not know him anymore -- if indeed we ever did.  The focus will shift to the job:  the actions and the projects he undertakes, what he uses his power and influence to accomplish, what he actually does.

The really important thing is that, as the real Obama disappears from view, he himself does not get seduced into believing that he is more than he is.  Recent history suggests that this easily happens to Presidents.  Most advisors have their own agendas, their ways of using those they advise to bring about their own ends.  Few people speak truth to power.  And then few powerful people retain the capacity to believe in their own limitations and ignorance.

That will be the real thing to watch for.