I’ve read about 100 books on money, including many tomes by the acknowledged experts of economics. Throughout my studies I noticed the authors overlook or minimize a vital aspect of economics one that could transform the theory and practice to benefit everyone in society. The more I researched the more I wondered: Why don’t these brilliant economic theorists discuss how money is created and introduced into the economy?
How money is created and entered into the economy is a powerful influence. But even the authors who did explain the process did so in a few paragraphs and then slid right past the meaning and implications of their own explanations. It seemed as if someone had performed a Jedi mind trick on them – or they were playing a mind trick on themselves and the rest of us. How can these experts be unaware of such obvious blind spots?
In my research, I also examined every Federal Reserve consolidated financial report back to 1914. I built a spreadsheet about the money supply using key numbers from these reports – the different kinds of assets and liabilities and the net equity. Charted, the numbers in the spreadsheet form a clear exponential growth curve of the money supply and today we are on the steep upward end of the money supply curve.
History tells us in our current money system, when the money supply grows outlandishly large, it must be corrected – and the natural means of correction in our current money system is recession or depression. The pendulum cannot swing wildly in one direction without swinging the other way just as wildly. The graph tells us a whopper of a correction – a depression – is on the way; dire outcomes are evident and imminent and most of the nation will suffer grievous harm. How can so many well paid experts ignore the story here? I’ve searched for answers. The why resides in our human nature.
I have included this section on human nature in the foundation material because it is important to understand why we continue with a money system that causes so much harm. It is also important to understand how so many schools of economics can teach incorrect information about our money system for generations, resulting in poorly informed pundits, politicians and voters. Certainly, the few who benefit have enough power to keep the myths in place. But why do so many people accept the myths so readily?
I’ve done my best to select characteristics that most impact our choice of money system. Here are a few of the mind quirks that make all of us vulnerable to pyramids and exponential growth schemes, including our current money system.
Our body chemistry affects our actions and decisions
Our body chemistry is the foundation of our behaviors. Medical researchers have only begun to understand that we are a complex and extraordinary suite of chemical reactions. Current research finds that changes in this chemistry can exaggerate existing behaviors, though they do not necessarily cause them. We are also capable of consciously overriding chemically generated impulses. However, generally, our body chemistry has an impact on our behavior.
We are hardwired to respond to opportunity and danger in a similar way: the blood flows into our arms and legs and out of the frontal lobes of our brains. This is very handy if we need to hunt for food or survive in a physically dangerous world. We are ready to pounce or run as if our lives depend on it. Today, our body responds pretty much the same way, whether we’re faced with danger or an exciting opportunity. We can’t always tell the difference.
We are hardwired to sniff out and respond with adrenaline to low investment-high reward situations. Finding true opportunities is a good survival skill; however, what serves us can also make us vulnerable. Our adrenaline begins to pump at the possibility of easy wealth and then – swoosh – we’re an easy mark. Or if we get in on the deal early enough, we can set aside any ethical and moral considerations and take advantage of the other marks who come after us.
While adrenaline sends extra blood to our extremities which helps us act fast and grab the opportunity quickly, the amount of blood- borne oxygen going to the brain’s frontal lobes drops (where complex, rational, abstract and moral thinking resides). It’s patsy time. Too-good-to-be-true opportunities usually have a time-pressure component: Act Now! Don’t LOSE OUT! The time-pressure keeps the adrenaline flowing and oxygen out of the scam-detecting part of our brain. Our whole body tingles with the expectation of a big reward.
Our news and media, owned by the few who benefit from the system, support this constant adrenaline-pumping, fear or opportunity-based hype, which continually exploits and reinforces this response.
Environment and culture matter because we are social
The culture and people around us
We respond to our surroundings and the people around us almost automatically and unconsciously. For example, yawns are contagious. People dining together will lift their water glasses in unison. We eat more if the people around us are eating more. And we eat more when our food is served on a larger plate. When we recognize what is shaping our behavior, we can sometimes change it. For example, switching from a dinner plate to a smaller luncheon plate can help us eat less.1 2 3
Follow the leader
Authority influences all of us to some degree. This begins when we are children and the mind frame stays with us in some measure for life. At the extreme, think of Hitler’s Germany and the experiments of Stanley Milgram in the 1960s. He found that many people are willing to obey an authority figure and torture, even kill a fellow human when told to do so by an authority.4 These experiments have been repeated in many cultures, times, and places. A remarkably consistent 60–65 percent of people will inflict fatal harm when instructed by an authority to do so. So it should be no surprise that it is relatively easy to maintain a monetary system that does significant harm, when so many in positions of authority say it is a good and worthy system.
Our tendency to be influenced by authority can have life-threatening impacts. For example, medical mistakes are the third leading cause of death in the US after heart disease and cancer.5 Some of these mistakes go unchallenged even when observed, because staff are unwilling to challenge the authority making the mistake. To reduce these numbers, hospitals are putting in place systems to train staff and patients to challenge authority and assure mistakes are caught in time. It is time to recognize this follow-the-leader handicap in the fields of politics and economics, and take comparable action.
The culture we grow up in can function as a guiding and limiting authority. There is a story of a big fish tank. Researchers put a plexiglass divider down the middle and then put a school of fish into one side of the tank. About halfway through their life cycle, the researchers removed the plexiglass divider. The fish remained on their side of the tank, just as if the divider were still in place. The story may be apocryphal but there is an underlying truth.
We tend to gather with like-minded people because it feels safe and comfortable. Like the fish in the aquarium, we may not even consider swimming to the other side of the tank. It is challenging to understand the viewpoints of people with whom we have fundamental differences and no real common experience. We have to stretch our brains to recognize the greatest wisdom comes from aggregating the views of many genuinely independent and different people, and struggle to understand all views. That is how we learn and mature.
For generations the President’s Economic Advisory Council, Treasurer and the Head of the Federal Reserve System have been from Wall Street or from the academic institutions funded by Wall Street. However bright, experienced, and well-intentioned, they are creatures of Wall Street; they have spent their entire careers living and breathing the assumptions of the people who live and work on Wall Street. Their thinking is limited by their groupthink experience. And that is dangerous, as our current situation demonstrates.
We are easily swayed by others
While it is important to look to our body health and chemistry for the foundation of our behavior, we are also clearly influenced by our surroundings. Most obviously, we are swayed in our social behavior. Think of fads. Think of popular style. Think of the Emperor and his New Clothes.
People will agree with others, even when their eyes, ears, or minds tell them the others are wrong. The Asch Conformity experiments developed in the 1950s (and still used today) use seven confederates and one subject all sitting in a row looking at a series of boards with two vertical lines of varying lengths. Each person in the row is asked which of two lines is longer. When the first seven people – confederates of the experimenter who are instructed to give wrong answers – give the clearly wrong answer, the subject struggles but more often than not agrees with the people who had gone before, even though their answer is obviously wrong. About 65 percent of the subjects agreed with the others rather than stand alone in dissent.6
However, when only one other person gave the correct answer, many more subjects also stated the correct answer. This is why it is important to speak up when you think someone is making an incorrect assessment or choice. One person speaking up often represents others who agree, but hesitate to say so.
When we recognize this tendency toward groupthink, we can take steps to assure we have independence and diversity in all our community decision-making bodies – at local, state and federal levels. Only in diversity will we have our assumptions challenged and the widest selection of constructive options available.
We are NOT rational
Most of the economic philosophers of the 18th through 20th centuries made the assumption that humans are always rational from a self-centered perspective. Believing even bad decisions stem from a rational reason, economics philosophers assumed in every market exchange both parties were getting what they rationally wanted. Because everyone was acting rationally, the combined economic behavior would act like an unseen force that arrives at just prices. Early economist Adam Smith, in The Wealth of Nations (1776), coined the term the invisible hand to describe “the unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically.” As long as people are free to act on their rational choices, the marketplace will function to efficient perfection. No need for standards, or regulations…Free the Market and all will be well!
Well, at the belated urging of brain scientists, social anthropologists, and common sense, even economists are now admitting the rational market and its invisible hand are wrong. We are not rational; we generally use reasoning to justify existing ideas and choices, not to make them. We are easily led astray by advertisers, impulses and mind quirks.
We ignore the fact that we are not rational
We have selective attention.
We are susceptible to many illusions. In their entertaining book, Gorillas in our Midst, experimenters Christopher Chablis and Daniel Simons find when people are focused, and particularly when they are experts focused on accomplishing a task, they often fail to see things right in front of them. In one study, pilots practicing landings on simulators fail to see a big plane sitting on the runway. In another study, ordinary people fail to see a gorilla in a video because they have been given a task that requires focused attention.7 This may explain how economists can focus on specific sets of numbers they have been taught to value and fail to see the underlying system and the impact of the numbers on society as a whole.
We justify and rationalize – especially when we are wrong.
We tend to use our rationality to back up what we already believe. We begin with an idea and then look for proof and a rationale to prove we are right. When confronted with facts that do not fit our preconceived idea, we tend to ignore them, because they have no place in any of the file folders of our minds. When we are confronted with undeniable evidence we are wrong, our brains swing into hyperdrive to protect our sense of self; we often dismiss clear evidence if it requires admitting error.
Our blindness to facts that do not fit is called cognitive dissonance. An excellent book, Mistakes Were Made (But Not by Me): Why We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts by Carol Tavris and Elliot Aronson, is full of examples of how, once formed, our ideas are difficult to shift.8 Prosecutors who have found a man guilty are often reluctant to change their opinion even when confronted with irrefutable evidence they were wrong. Dietitians continue recommending certain unhealthful foods despite decades of research showing those foods are slowly killing us. The more we feel invested in being right, the more likely we are to ignore or dismiss counter information, even when confronted with the serious harm our error is causing.
And that is why so many economists, pundits and politicians cling to ideas about money even though the evidence says they are wrong. We can choose to be better than this, to do our best to understand ideas in conflict with our own.
We are learners
Perhaps most important, we are capable of learning and changing. We can learn to step outside our perspectives and see the influences that our upbringing and surroundings have on our thinking. We can shift from judgment to curiosity and choose to be learners. If we’re humble about our own certainties, if we’re willing to read and study from many points of view, we will understand that each person may have an important piece of the whole picture.
We make choices every day and every moment. Will we be mindless sheep following our flock, trusting our leaders will protect us from the wolves? Will we be so busy with our daily lives that we fail to see the gorilla in our midst? Will we be farsighted and wise?