The Banality of Stupidity

Recently I got an awful shock to my already-low assessment of the mental capabilities of my fellow man. I had thought that there were indeed depths to which some intellects could or would not sink - after all, our world functions (barely, but it does), and in any case there are some people who should simply know better than what they say. I thought that at least people would have some knowledge in the areas that they study and work in and would be able to avoid the stupidest most blatant pitfalls - that the average plumber or carpenter would not necessarily know anything about politics (and thus be one of the 40% in Delaware deluded, ignorant, or just plain dumb enough to vote for the witch Christine O'Donnell), but if you ask them about plumbing or woodworking you'd get decent answers. Even in a more nebulous, less well-defined and more debatable expertise like Economics or Philosophy, I would expect a certain level of competence or cleverness, even in the absence of common sense. After all, I'd expect the average freshwater economist to have some grasp of micro and some knowledge of basic models even if they wouldn't understand how to respond to a recession properly, and I'd expect the average Objectivist philosopher to understand Ayn Rand's arguments and positions despite not understanding that said arguments are clearly batshit insane. Well, it turns out I was wrong: working in, and even having power and status in, a profession like finance does not necessarily translate into ability to tell obvious fact from obvious fiction; studying economics does not necessarily translate into something as basic as the ability to distinguish a meaningless sentence from a real argument. I was confronted with a series of baffling mistakes and plain hostility from two people who really should have known better.

I attended a networking event hosted by prominent investment banking firm XYZ (I do not wish to name names, so the investment firm and all parties involved will be referred to by pseudonyms). This was the kind of event where you dress up in suits, get some promotional material, listen to a talk, eat small snacks and chat it up with various employees and officers of the bank. I arrived and all was well. We sat down to hear a speech given by a very high ranking officer at XYZ, a certain Mrs. A. She had, prior to moving to XYZ, worked at another prestigious investment firm ABC until it went bankrupt during the crash of 2008. Her speech was the usual mix of platitudes and pep talk - not particularly noteworthy in any way - until she dropped this bombshell: [I paraphrase for clarity] "The financial crisis of 2008 was an event that was 12 standard deviations away from the norm. I asked around for an analogy when I came here and the analogy I eventually got was that a 12 standard deviation event was like flipping 100 coins and having them land all tails. We will thus never see another crisis like this again".

My piss started to boil. It was crazy, and demonstrated a total lack of understanding and critical thinking. A 12-sigma event, as it is called, is amazingly improbable. That there was even one financial crisis of this magnitude suggests that it is far more frequent than her estimate; the fact that a larger one occurred, not to mention several lesser ones, proves it beyond any doubt. And the assertion that we would never see one again - how on Earth could such a claim be made? Asset price bubbles are hardly uncommon, so where's the basis for this?

Then the floor opened up and the vaunted networking began. I suck at networking. I can never make a good impression, even when I give my best efforts, so I decided to take a risk and ask her about her ludicrous statement. I figured, 'hey, it'll get their attention'. I made a beeline for her and waited for an opening to ask my question.

My question, it must be stressed, was not rude in any way, and I had a real question, not just "you totally failed to comprehend the mathematics and logic behind your false statements". I simply pointed out that the fact that the crisis did happen meant that another one was very possible and asked what steps XYZ was taking to protect itself from the next such crisis.

I absolutely did not anticipate what happened next; I guess I hit a sensitive nerve. Mrs. A immediately began vehemently explaining to me that the federal reserve failed to do its duty, and did not protect ABC when the time came. Aside from the fact that the federal reserve has no obligation to bail out private companies when they go bust, this tirade didn't answer my question in the slightest. I wasn't accusing her of triggering or mishandling the 2008 crisis in any way; she just felt like she had to defend her work in ABC or something. I just wanted to know what lessons were drawn from the experience, but she seemed determined to shift the blame away from where I hadn't put it - I hadn't even raised the issue of what triggered the crisis! Not particularly useful for me to figure out how XYZ actually dealt with the 2008 crisis and how they planned to avoid or weather the next.

During this increasingly agitated speech on the precise mechanics of the 2008 crash (and she got pretty emotional several times), Mrs. A explained that it was not a natural phenomenon. It was (and I quote directly here) a "man-made event". I gleaned from this sentence that she was actually defending the unlikely (not to mention dangerous) notion that recessions of this magnitude were destined to never happen again. I also gleaned that she had not the slightest idea what she was talking about, as it is the most banal and thoughtless explanation I can think of.

Okay, Mrs. A. The crash was a "man-made event", as you say. Great. I have just a few questions: (a) the financial and asset markets are run by people; what, exactly, would a non-man-made crisis have been? A volcano erupting on Wall Street? And (b) how do you back up the implicit claim that because it is man-made it won't be appearing again? Is it thanks to humanity's sterling record of never making the same mistake twice? Not feeling combative enough (unfortunately) to point out problem (a), I pointed out (b): man-made crises can occur multiple times. How are you going to prepare for the next crisis?

'No,' replied Mrs. A. 'Look at the past 200 years of history. There are no examples like 2008's crash'. Uh... right. 2008 was an asset price bubble, lady. Ever heard of the Great Depression? How about the Internet Bubble of the late 90's? Fuck it, all the way back in the 1600s the Dutch had possibly the most ridiculous bubble of all - friggin' tulips rose in price so much that a valuable one could be several times the yearly wage of a working man. Unfortunately, as a not-economist, I was too timid and unsure to point this out. I instead responded with the (equally valid, if not quite as cutting) response: "I don't think it's all that unique, but even if it was, isn't this a hint that unexpected crises can occur? After all, suppose it is unique. Then something totally unexpected caused a major meltdown. So wouldn't it make sense to build in some robustness to guard against unexpected crises?"

To her credit, she then explained something about Basel 3, these accords supposed to prevent things like this. Not really understanding what the complicated international accords meant, what I took away was "we'll leverage less, so maybe we won't be wiped out quite so hard next time". My economist friend later explained that Basel 3 was a step in the right direction but not nearly enough.

However, this leaves us still with the fact that this high-ranking officer in a powerful, prominent financial firm (a) gave a ridiculous forecast based on flawed models to a roomful of students and (b) defended it with the most pathetic, meaningless, limpdick excuse I have ever encountered. She even at some point mentioned that unemployment would be high in the near future and that this would make it very hard for me (and yes, she said "you" while looking at me) to find a job - something which was totally irrelevant since I hadn't asked about government policies. Thanks, lady. Way to promote reasoned discussion here.

But the worst part is this: when she gave her pointless excuse of a 'man-made event' (somehow implying that this was not something they should be expected to safeguard themselves against), my friend, Mr. B, was standing nearby, and he enthusiastically agreed with her. "The more I read about it, the more I understand that it was a man-made event". Yeah sure. At first, I guess, he must've thought that it might be that pesky Wall Street volcano.

Did he opportunistically see a chance to suck up to her, intellectual integrity be damned? Did he simply agree with the authority figure, critical and independent thought be damned? Did he actually come to that conclusion himself, basic intelligence be damned? I don't know, but I don't like any of the choices here, and frankly, I care more about this than about the crazy stuff I heard from Mrs. A. Sure, Mrs. A is a powerful banking officer, and this stupid head-stuck-in-the-sand attitude could well lead to under-preparation for the next crisis. But I know Mr. B personally, and I find it disturbing that he either didn't see or willfully ignored the fact that what she was saying made no goddamned sense. The fact that he actually does study economics makes it even worse.

It proved something I don't want to think about: the banality of stupidity. Just as that Stanford experiment showed the banality of evil - that even normal, well-adjusted people will turn into crazy sadists with the least hesitation - this showed that even the most well-informed, brightest, and reasonable of people can simply accept and even embrace the dumbest, most pathetic assertions at the drop of a hat.