Are we approaching our human limitations?

by Ginosar  

There is a possibility that humanity is approaching the limit of our ability to manage the complex and interwoven global mechanisms we are so dependent on. It is also possible that our human limitations are inborn and our minds are more limited than we believe. Often good, knowledgeable people make major errors.


The recent near collapse of the financial markets, and our inability to grasp and act to reduce the escalating danger of global warming suggest to me that humanity is in great risk. Our world may be too complex for us to manage sensibly. And our old ways of dealing with national and international problems may no longer work.


Why did we not act earlier? Rational people would!

The current collapse of the global financial mechanism should not have been a surprise to economists, to the financial system, legislators and government. Ten years ago we got a very scary lesson, the collapse of Long-Term Capital Management hedge fund. During one tense weekend there was a danger that the global financial markets would collapse with the failure of that huge hedge fund. How could we ignore that lesson? May be we are unable to grasp this kind of danger despite having large numbers of highly regarded economists in academia, government and the financial markets. This is not just politics, both parties were deeply involved.


Look at that immense risk: "Long-Term Capital Management, used its $2.2 billion in capital from investors as collateral to buy $125 billion in securities, and then used those securities as collateral to enter into exotic financial transactions valued at $1.25 trillion", [NYTimes]. This is an immense ratio of nearly 600 to one! Banks are allowed to extend loans at a ratio of up to fifteen to one.

This is like me going to a bank offering them a thousand dollar in collateral, and asking for a loan of a half a million dollar so I can speculate in unregulated securities. Incredible!


The rescue of the global economy occurred during the Clinton administration guided by Treasury Secretary Robert Rubin. "In a statement issued after markets had closed, Mr. Rubin said the Treasury Department had been closely following developments related to Long-Term Capital. Congressional Republicans also announced they would hold hearings exploring all aspects of the hedge fund industry, including regulation and supervision." [NYTimes].

"Mr. Rubin disputed the idea that hedge funds should be regulated like banks and put under some form of Government control. '' I don't think it is a question of reining people in,'' Mr. Rubin told reporters in Washington. But he said Long-Term Capital's situation had raised some concerns. ''There are questions about disclosure and other issues, and my guess is there will be a lot of discussion and debate about that,'' Mr. Rubin said." [NYTimes]..


This kind of speculation opened the gate to others: "just don't worry, all will be ok" type mentality. We had clear warning, many in power said they would investigate but nothing happened to limit the range of immense speculation. Why? Not everybody is corrupt, stupid or self serving. There are many good people.


It is very complex, there are a number of causes, but there is also a possibility that we are basically unable to do much better. Here are the views of two scientists about our limited ability to think:


1. "Any modern investigation into how we think must illuminate why we're so bad at it. " We're totally committed to a view of how the mind works," she says - in short, we believe people are rational - "but most of the time, human behavior isn't based on an explicit, rational, considered decision." And our irrational tendencies are all too apparent. "[The mind] makes us make systematic mistakes over and over again, as individuals but also as societies."

Rebecca Saxe, specializes in Social Neuroscience at MIT



2. "People tend to assess risk like cavemen did. We pay heed to immediate threats - a rabid dog or poisonous snake- while ignoring abstract ones, such as pollution."

Arnon Lotem, Tel Aviv University, Dept. of Zoology.

 

This last point may be one of the key reasons why we can not deal realistically with long range problems. People who are concerned about global warming see it as a distant event and so do inconsequential things to reduce it by being green at home, which gives them satisfaction but can not make any difference on a national scale. Individually we may be unable to think the problem through. And thus are somewhat complacent and do not raise the substantial public outcry that drives bold political actions.

 

One of the most difficult things is to admit the limitation of one's knowledge and capabilities. We should not ignore our limited capabilities. We need to understand and accept them so we can compensate for our limitation.

 

IT IS CRITICAL TO KNOW WHAT WE DO NOT KNOW, AND OUR OWN LIMITATIONS.






 

 

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