The odds that you understand the economy better than POtUS are really, really low

The Internet has had innumerable salutary effects on society but one of its decidedly non-wondrous outgrowths is the bull market in half-baked, ill-informed snark. The Atlantic’s Megan McArdle detailed this beautifully over the weekend in if everyone Else is Such an idiot, How Come You’re Not Rich HERE, during which the author dismantles Forbes’ criticism of the coherent if ill-fated Netflix Qwickster strategy. Ms McArdle writes:

I don’t want to pick on [Forbes], particularly, because I’ve read some version of this lament about Netflix about a thousand times. And indeed, I completely agree that the Qwikster disaster was nothing short of debacletacular.

But how do we get from “that was a bad idea” to “Reed Hastings doesn’t understand what business he’s in?”  When Internet commentators see odd behavior that they don’t understand, why do they assume that the most parsimonious explanation is that management must be a bunch of drooling morons?

This tendency, to sit at a laptop and blamestorm without any type of detailed research, is the most destructive and lazy type of epidemic and politics is of course ground zero for the phenomenon. In terms of economic policy, a cursory examination of this morning’s media extends the accepted conclusion that both the Eurocrats and President Obama are the intellectual equivalent of drunken, “drooling morons.” Consider, though, how likely it is that you know more about the economic situation than they do. POTUS or Ms. Merkel have access to literally any information they need, including the attention of any global expert, (even professor Krugman at 3:00am if necessary, although I’d bet he’d be cranky) to respond to niggling questions. Add to this that the job security of said politicians is more dependent on economic factors than any other concern, it is a reasonable conclusion that to believe your comprehension of the situation is better than theirs is a colossal feat of arrogance.

To backtrack a couple thousand years, the general assumption regarding the fall of Rome is that the contemporary leadership was characterized by the same kind of ignorant as POTUS.  The historical record, however, clearly displays that the intelligentsia of the time was well aware of Rome’s failings, they just couldn’t figure out a way to fix them. Pointedly, the corruption of the Senate and political control by wealthy elite paved the way for the dissolution of democracy and the onset of empire.  They were not ignorant, contrary to popular belief, just overrun by socioeconomic trends too powerful to harness.

Returning to modernity, it is clear from McArdle’s post that Netflix CEO Reed Hastings was, with the spin-off strategy, attempting to address very real structural issues within his firm. The plan clearly ended up as an online Bay of Pigs, but the drivers behind it are completely explicable with a modicum of research. I would argue that the behavior of politicians is similarly intelligible, with electoral money-raising, pandering to constituents and poll-watching replacing rising digital streaming rights as major motivational culprits.

Labeling corporate or political celebrities “idiots” is to some extent to self-identify as part of the problem. Getting rid of these “idiots” will solve nothing, except to provide new vessels for sneering, self-congratulatory scorn. Focusing on the forces that makes these people appear to be morons, and widely publicizing these drivers to the point where they enter the general consciousness, actually provides an avenue for progress.

31 thoughts on “The odds that you understand the economy better than POtUS are really, really low

  1. Mario says:

    agreed completely. This is one more reason why real education is necessary and that major in anthropology or history does our society REAL GOOD. Just b/c a major in college doesn’t get you into the FIRE economy doesn’t mean it is worthless. There is more to our society than the FIRE economy.

    Also as for dealing with these “idiots” check this out. These guys are smart…they just play stupid:

  2. PureGuesswork says:

    An aspect of this I find interesting is the reason people do this. It stems from fear, I think. There is an emotional reward in pretending that you have an understanding of a situation that others lack. Markets are dangerous places and it is very tempting to try to talk yourself into believing you are better positioned than those more powerful than yourself. Whistling past the graveyard.

  3. […] Managing is hard, criticism is easy.  (Interloper) […]

  4. PD says:

    PureGuesswork above may have a point. In addition, I’d suggest the reason media do these slash-and-burn character charges is because, well, it sells; and indeed it sells very well.

    Does anyone else notice that mainstream media, over the last decade, have become more aggressive, less formal, more biased and, altogether, less trustworthy?

    Blame it on the popularity of blogs; blame it on the infotainment nature of the internet; blame it on a Twitter-attention span generation; blame it on certain media owners with histories of debasing their outlets; blame it on anything. The cause is an aside.

    What’s interesting is that this has created what Garrett Hardin referred to as a “tragedy of the commons” involving a race to the bottom. Hardin’s Tragedy related to nuclear warfare has no solution unless one side blinks first. Anyone who can solve Hardin’s Tragedy in media is bound to win a prize in publishing.

    One media owner’s exchange with one of his journalists captured the essence of the industry’s bottomless race in real-time—on camera:

    PS: I’m all for profit and believe some sectors at certain points of their lives under certain economic scenarios should operate in the public’s interests even if private ownership is supported; some news media today are an example.

  5. […] Managing is hard, criticism is easy.  (Interloper) […]

  6. Drob says:

    Most people focus on outcome rather than process. As well, most people focus on the outcome without considering the range of possible outcomes. That is why the financial leadership of our government – Presidents Bush and Obama, Congress, Treasury and the Fed – in the months following Lehman will never get the credit they deserve for the absence of a catastrophe and instead will be blamed for “not having known”. The hubris of hindsight is hard to resist.

  7. Great reading. My favourite blog at the moment.

  8. Jonas says:

    You’re missing a second feedback cycle though. The CEO’s and president’s themselves are often tempted or forced to play to the press, against what they may believe internally to be the best course.

    IMO most cases in which CEO’s behave like idiots involve cases in which they outsource their thinking to the press or popular fad. In such cases, the press, bloggers and commenters are perfectly qualified to judge them, since they drove the decision in the first place.

  9. Andrew Nelson says:

    Reminds me, in a way, of this story
    POTUS et al probably knows a lot of top secret info, wiretaps or other information that would make their actions seem reasonable if it got out. But of course, is not allowed to even give others hypothetical scenarios.

    • Interloper says:

      It’s not necessary to believe in secret economic knowledge to follow my argument, though, only to understand that the govt knows everything commentators do, but can’t act on it because of structural influences. Thanks for commenting.

  10. I seem to be alone in respectfully disagreeing with the points above.

    As the structure of Netflix’s debt combined with the apparently unstoppable stock and attention lavished on Reed Hastings it struck me that he is not as good as the media made him out to be and he, now, is not as bad. He is an average CEO that has an AURA of greatness that is laregly undeserved. His competition failed due more to their own ineptitude, than Netflix’s impenetrable wall. Those are my thoughts. Working in marketing, it is very obvious that you do not risk your core brand / name. It not just was a bad idea, it was executed SO poorly. On top of that it came right after price increases which made people question the service having value AT ALL. Could I have done better? Almost surely not, but I don’t have to and THAT is the point. I only have to be able to see when someone else is not doing the right thing to make money off it. And make money I did.

    On being smarter than the POTUS on the economy is a similar issue. People in power may have ACCESS to all information and people, but if they are too arrogant or close-minded to call on it or use it properly, then it doesn’t matter. I imagine with all his day to day duties and being insulated from the real world (which he clearly is) he is unable to really feel and see what is going on. Also, he is limited by his position as having to compromise with people who disagree with him. After all, his preconceived notions on the economy that he brings in as a Democrat (as republican would bring their own) may not be right. Although the economy is what he “needs” to win reelection, that is only partially true. A poor candidate can cause him to win regardless (see also: John Kerry). Outspending also will determine if he keeps his job.

    If we assume that the POTUS has all the information and access to the best people then we can only assume: First, that this is the BEST things can be. Second, that what the last POTUS and every preceding one did was also the best and most informed. Third, everything he does is intentional.

    • Interloper says:

      Great comment with a lot to deal with. It was not my point that CEOs or POTUS should be above criticism. I was objecting to the “since I don’t understand why they did what they did, they must be idiots” interpretations. No one is arguing that Hastings was right, only that closer examinations uncover a non-idiot motivation that drove decisions which commentators missed, before lazily yelling “idiot”.

      The argument On POTUS is similar. Not asking people to agree with everything he does, but to look deeper at why before calling him stupid. If the real problem is not economic ignorance but campaign finance, then let’s shift to talking about that.

      • I do agree that people I don’t think can put the correct shoe on the correct foot often criticize the POTUS / CEOs. Usually when I agree with someone like that I take a minutes to stop and rethink my position.

        I do not think the President is dumb on economics. I think he is intenitonally make choices and the people that it negatively affects are unhappy about it. He is responsible for his decisions. I think the most underrated problem is the uncertainty in the market for what shoe will drop next.

    • Pacioli says:

      @ disfigured:

      Thanks for commenting. You are not the only one who disagrees. I am right there with you.

      You are right on point here: “On being smarter than the POTUS on the economy is a similar issue. People in power may have ACCESS to all information and people, but if they are too arrogant or close-minded to call on it or use it properly, then it doesn’t matter.”

      The POTUS does have ACCESS, but has clearly failed to utilize it properly, resulting in idiotic policies.

      I do think that the blog author is partially on to something here: “Not asking people to agree with everything he does, but to look deeper at why before calling him stupid. If the real problem is not economic ignorance but campaign finance, then let’s shift to talking about that.”

      But the way that is phrased almost excuses the POTUS’s colossal economic ignorance, simply because that is not the LARGEST problem (the largest problem clearly being the campaign finance / lobbying structural travesties that allow for bought-and-paid-for elected officials in the first place).

      • Interloper says:

        It’s clear from your descriptor “colossal ignorance” for POTUS that we’ll have to agree to disagree on this. My relatively unshakeable belief is that unless you have a graduate degree in economics, POTUS knows at least as much about economics as you do but chooses, for intellectual or practical political reasons, to interpret things differently.

  11. […] You're not as smart as you think you are.  (Interloper) […]

  12. Wm. says:

    How should we account for what’s going on in the Republican Presidential race?

    • Interloper says:

      Small, extremely vociferous wings of the party are each throwing up their own candidate. Each group is focused on adherence to dogma on one specific issue, so they miss the fact that the candidate is unqualified on other fronts. Romney was generalist exception, but apparently too much so and is being replaced by Newty G.

  13. downtown says:

    Political disagreement over how to fix Rome’s problems was a permanent feature of the Empire/Republic. What did Rome in was a force of nature coming out of the east (hungry people) that could not have been contained no matter how much harmony or leadership there was within.

    On everything else, we agree. Great post.

    • Interloper says:

      Thanks Josh. I was pointing to the economic dependence of Roman state on the crazy wealthy to remain functioning, which corrupted decision making, and left them unable to defend militarily against a people that they had been relatively easily smacking around earlier. Zee Germans were not a new phenomenon for Rome in the 400s.

      • downtown says:

        yup. the Goths hit them first but the coup de grace wasn’t until a hundred or so years later. what Rome screwed up in the interim was cutting economic / protection deals with barbarians. In the eastern empire from Constantinople, they did no such thing

      • Interloper says:

        Gotcha. Thanks again. The Eastern Empire deal cutting is new to me.

  14. […] Megan McArdle is good on Netflix /quotes/zigman/87598/quotes/nls/nflx NFLX +5.65% , a Qwickster disturbance and useful critique of business errors. More on this from Interloper. […]

  15. geerussell says:

    I think much of the time what’s being expressed is not a genuine belief that in general politicians and CEOs are idiots. Rather it is frustration with the way they speak to us as though we are.

    • Interloper says:

      Yeah. The pandering bothers me so much because it works so well. People will vote for someone who lies to them when the alternative is an honest explication of hard choices and any amount of sacrifice.

  16. Vinz Klortho says:

    POTUS may have access to more information, but if the information is coming from erroneous or biased sources, it may be worse than useless. Economics is a perfect example, in that most/all of the govt economic advisors come from the same school of thinking. If everyone is thinking the same thing, then no one is thinking.

    I sure don’t need a graduate degree in economics to understand basic economics, and anyone who tries to tell me I do is trying probably to hide something behind an academic facade.

    Vinz Klortho

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