Systems create behaviors
I was sitting in the “amphitheater” at Navajo National Monument, working on a new evening program. In the full light of day, I noticed something I had never noticed before. Every curving row of wooden benches had a narrow ridge of dirt fitting perfectly beneath it, running the full-length. Those ridges made no sense. Who would build them? Why?
I puzzled over that until I realized the answer. Every night, the audience sits on the benches, feet resting on the ground in front of them. But after a while, one gets restless and drags one’s feet back under the bench. Later on, that position grows uncomfortable so one stretches one’s feet out, pushing shoe heels out across the ground towards the bench ahead. Thousands of feet shuffling back and forth each evening scrape the dirt that is in between the benches either back under the bench one sits on or forward under the bench ahead. The benches provide shelter from the scraping feet. For the dirt between the benches, outflow is greater than inflow. For the dirt beneath the benches, inflow is greater than outflow. The dirt “flows” from the “aisles” to under the benches, accumulating into the ridges I saw.
The obviously constructed ridges beneath each bench initially perplexed me because I assumed that such a pattern had to be consciously created. When I realized how it formed and that the pattern did not require consciousness for its formation, I immediately remembered a principle of systems thinking and understood it better than before: “A system creates its own behavior.”
The interactions, the feedback spirals, the goals, all of these parts of a system interact to create behaviors that are not necessarily intended or conscious. The ridge-forming behavior will arise each evening with no conscious direction. It arises within a system of benches being a certain distance apart, the human need to occasionally shift one’s legs, and a hard but scrapeable ground surface.
A similar example of this is a behavior that involves our Chrysalis school bus when we go on field studies. If a teacher is not mindfully prepared, the walk back to the bus can quickly stampede out of control. It starts gradually. Some of the kids, usually boys, move to the front of the line. They start walking faster. The boys behind the lead start to walk even faster to get in the lead, which gets the leading boys to start jogging, and in a few seconds, part of the class has broken into an unstoppable stampede running full-speed towards the bus. (Most teachers handle this by staying at the front of the line but then different kinds of problems shift to the back of the line.)
The reason for the stampede is because the seats in the back (furthest from the driver) are perceived as highest value. Usually the first kids on the bus have first choice of seats so many kids want to get on the bus first to get one of those back seats. Therefore, when one of the walkers moves in front of another, that is seen as a move towards the most valuable seats. If one does not respond in kind, one is ceding that seat to the other. So the second person speeds up which can set off a reinforcing feedback spiral of quickening paces that escalates. I once saw three first-grade boys run full-out for a quarter mile ahead of the class.
If the teacher does not somehow alter this system, this stampede behavior will arise, year after year with completely different ages of kids. It’s not the “kids’ fault”. The problem lies not in the kids but in the structure of the system of “first kids on the bus getting the best seats” that creates the behavior. If I don’t like the behavior, I need to change that system – rather than yell at different kids after the fact each time it happens. The traditional solution is to have all the kids walk behind the teacher. One can also change the value of arriving at the bus first. Change the system; don’t try changing the kids. They are simply responding to the system.
A system I call the Gradient of Wealth has strongly shaped human history. Monetary wealth is the Upper Level expression of the flow of money. For some people, inflow of money is greater than outflow and their wealth accumulates. For others, outflow is greater than inflow and their wealth diminishes. For many of us, our flows of money come to an oscillation around some dynamic equilibrium. Some of us have more of this Upper Level expression; some have less.
More wealth permits one to purchase more of the possibilities that money can buy. Increasing one’s wealth, therefore, leads to more possibilities. This is the seed from which the Gradient of Wealth grows.
Forbes magazine annually publishes a list of the world’s wealthiest people ranked in order of their wealth. Imagine extending the list so that everybody alive is on it, ranked by their wealth. This would create a gradient from spectacular wealth all the way to killing poverty. Like the seats on the school bus, positions “higher” on this gradient are viewed as more desirable. We are taught that if one works hard enough, one can move “up” this gradient of wealth into more possibilities. This creates a direction by which one can orient one’s life and direct one’s energy.
I remember overhearing a co-worker on the phone describing a man she had started dating. “And then we went out on his (slight pause and then heavily emphasized) “twenty-seven foot boat.” The number was obviously important; the bigger the number, the more desirable the man. The gradient of wealth produces lots of number emphases like that because wealth is measured by a number and more wealth can buy bigger numbers. The gradient of wealth is a number line that creates a direction from less to more. One’s position on this number line and trying to move higher along it can provide the motivating direction to one’s life, especially if one lives in a culture that honors and reinforces that goal as worthy of one’s life energy.
I don’t oppose the gradient of wealth; it emerges naturally from the flow of money. What I will be opposing are the consequences that arise when the gradient of wealth becomes the direction by which a culture directs its energy. That is the focus of this chapter.
The Gradient of Wealth has several significant characteristics. One characteristic is that moving “higher” on the gradient grows increasingly expensive. It requires proportionally more wealth to take the “next step higher”. There are several reasons for this. The main one is that you are moving into social circles for whom position on the Gradient of Wealth becomes more important. More attention is focused on it so more effort needs to go into signaling one’s position.
A major way of signaling is with the possessions one buys. Hence, the twenty-seven foot boat. The clothes you wear. The car you drive. The place you live. How close your kids can get to the rock concert stage. All these signal one’s position. For better or worse, one is moving into a social setting that cultivates an increased sensitivity to “finer things”. The feel of fabrics. The knowledge of what hotels, restaurants, and department stores are higher class. Which ones have prices that functionally exclude people lower on the gradient.
Because of this, certain items can become just as valuable for their ability to declare position as their ability to perform whatever their original function was. Nobody needs to spend $60,000 for a Rolex watch to know what time it is. People are willing to pay more for its position-signalling function which increases the profit margin on such items. A high profit margin attracts wonderfully creative people to explore the edge and create yet more trending signals of wealth. If you want to be perceived as someone higher on the gradient, you need to attend to the signals communicated by the things you buy. More money flows, not to what is strictly necessary, but to what will declare one’s position (which feels necessary). This gets fractal. More possibilities of things keep emerging at the upper end. It is never-ending and so increasingly more wealth is needed to hold one’s position higher on the gradient.
Not only does moving up grow more expensive, it also can change the social interactions one has. For example, when one is considering spending money on an item whose price includes the function of signaling position such as a designer dress, one is usually being waited on by someone who understands very well the unspoken desire to be seen as the “finer” person this object signifies one is. That seller will treat you as that finer person – which is gratifying. Therefore, through probabilistic shifts, one is more likely to have positive, possibly fawning, esteem-enhancing exchanges with those selling you fine things.
But, on the other hand, . . .
Back in my museum days, one of the expensive hired consultants gave the museum a list of telephone numbers of wealthy people and required our secretary to cold-call them seeking donations. She hated doing it. Tom Hanks was on the list. What would it be like to be called by a small museum you’ve never heard of hundreds of miles away and be asked for money? It must happen to rich people over and over again from all sorts of organizations. Most of us will never have that experience. I hate being disturbed by robo-calls, solicitation calls, and pop-up ads. It must be far worse for the wealthy. I could understand how experiences like that could accumulate to make you feel that you are surrounded by “takers”. Such interactions within the system of the Gradient of Wealth leads wealthy people to exclusive communities, unlisted numbers, and employees who form a wall between you and the “moochers”.
However, when those same expensive hired consultants would gather us “stakeholders” together to create yet another mission statement, I would hear the donor portion of stakeholders make references to the “little people”. It reminded me of a non-Chrysalis eighth grader I once heard saying cattily of another, “She wears clothes from K-Mart.” The phrase “little people” really offends me because the amazing kids I teach and the parents who love them and do their best for them are the “little people” and they are wonderfully life-sized people.
I imagine that as one moves up the Gradient of Wealth, one enters a realm where people start using the dismissive (and self-congratulatory) phrase of “the little people” and, as a newcomer, one is unsure how to respond so one stays silent, thereby seemingly accepting, and gradually growing use to it and perhaps starting to use the phrase oneself. Phrases like this reinforce “having more wealth than others” as the desirable direction one should have in one’s life.
Another characteristic of the Gradient of Wealth is that we’re always somewhere in the middle. The gradient is never-ending. It recedes off into ever-more speculative numbers. None of us will make it into the region of Russian oligarchs and Saudi princes and heads of drug cartels. So from our perspective, the gradient extends beyond our sight, no matter how high we climb.
Therefore, we will always experience being somewhere in the middle. There will always be wealthier people “above” and less wealthy people “below”. As you move up, more people are below you and less people are above you but you will always be somewhere in the middle of the social circle you attend to. You will never get to the top because in the process of climbing to the top, you will move into a higher social circle and find yourself somewhere in the middle again. One survey asked people of wealth how much they would need to be satisfied. On average, they said twice as much as they currently had. The people with one million dollars thought they would need two million. The people with two million thought they would need four million. The people with four million thought they would need eight million. The “need” is never-ending.
The goal of “having more wealth than others” makes it never-ending because the Gradient of Wealth is never-ending. The goal can never be reached which means there is never a signal to start turning away from one’s goal like there is for steering a car around a curve. One just stays in the turn; it can come to dominate one’s life. One becomes woven into a fabric of financial advisors, business partners, investors all seeking the highest rate of return; they are depending on you like you are depending on them. It’s hard to step away from it. Collectively, this is going to have consequences for the world. But just as I don’t get angry at the kids stampeding back to the bus, I don’t get angry at people striving for more wealth. It’s the system I wish to change.
The most important characteristic of the gradient of wealth is that as one moves higher, one meets more people for whom moving higher is a stronger part of their life’s motivation. It’s very much like the stampede back to the school bus. The kids running at the front are surrounded by the other kids running at the front, not by other kids who enjoy taking their time getting back to the bus. The people who won’t be sitting in what the runners perceive as the most valuable seats are left behind. If the effort of one’s life is towards the goal of getting more than others, then it’s the people remaining around one, the people whose goal is getting more than others, that increasingly set the pace and direction of one’s life.
This grows psychologically dynamic because your peers become your standard for “having more (or less) wealth than”. You all want to have, in the future, more wealth than those around you. It’s nothing personal against them. It’s just the implications of that goal. Maybe, as friends, you can rise together, past others less close but you are all operating on the same goal of “more than others”. And people who do lose, who make the wrong investment, who can’t keep up the interest payments, and drift down in the gradient like injured caribou that can’t keep up with the herd are noticed and hoped it never happens to me. Their fates are the ones that help intertwine the fear of losing with that of “winning every time”. Fear of “being a loser” keeps everyone tied to the game.
My concern is with the consequences that arise when moving “up” the Gradient of Wealth becomes the direction shaping collective behaviors. The heart of this behavior is seeking the highest rate of return. The higher you rise, the more your income tends to come from investments made with your current wealth. The rate of return on your wealth determines your future position within the gradient.
If everyone around you is receiving the same rate of return, there is no change in relative position within the gradient. If you want to move higher than your peers, you have to achieve a higher rate of return compared to them – and they are being aided by networks of advisors and analysts.*
* The book, Flash Boys, by Michael Lewis describes the construction of an as-close-to-straight-as-possible cable from Chicago to New Jersey (at a cost of three-hundred million dollars) in order to shave four milliseconds off the arrival time of stock market orders.
So as one moves “higher”, one seeks “investments” that promise an ever-higher rate of return. Otherwise, you will fall behind. Therefore, there will always be this push, this incentive, to seek the maximum rate of return. This was nicely expressed by a trader at the heart of the Libor scandal:
“The first thing you think is where’s the edge, where can I make a bit more money, how can I push, push the boundaries, maybe you know a bit of a grey area, push the edge of the envelope,” he said in one early interview. “But the point is, you are greedy, you want every little bit of money that you can possibly get because, like I say, that is how you are judged, that is your performance metric.”
“Libor scandal: the bankers who fixed the world’s most important number”
by Liam Vaughan and Gavin Finch
Wednesday, 18 January, 2017, The Guardian
Realize that this person was not one of the super-wealthy. He was one of the money managers. Like kids stampeding for the bus, he is in the stampede with other money managers towards the highest rate of return. If he can obtain a higher rate of return than other managers, he will be seen as smart and attract more of the wealthy into his management, increasing the size of his commissions, helping him move “higher” within the gradient of wealth. People putting their wealth into his management might not know (or want to know) that their money is moving into grey areas. They just see that their rate of return is higher than others, helping them move higher in the gradient. All of this creates probabilistic shifts by which more of a culture’s wealth flows into increasingly grey areas.
Leverage
One of the most powerful ways to achieve the maximum rate of return is through leverage. Leverage can be used when one believes that the rate of return on the investment will be greater than the cost of borrowing money to buy into the investment.
Example
An example of leverage is how mortgages were used during the housing bubble in the 2000’s.
Assume a person has $200,000 to invest, and
the average house sells for $200,000 and
its price is going up 15% a year and
mortgages can be obtained for 5% down and 8% a year.
Not using leverage, a person can buy one house for $200,000,
have no mortgage payments ever, and
make 15% a year ($30,000) on the $200,000 when s/he sells the house.
Using leverage fully, a person can buy 20 houses with mortgages.
The 5% down is $10,000 per house times 20 houses completely commits the $200,000.
The person has an annual 8% mortgage payment of $16,000 per house for a total of $320,000.
However, each house increases in value by $30,000 per year so
the 20 houses increase in value by $600,000 a year.
$600,000 minus $320,000 (for the mortgages) is a profit of $280,000 per year on an investment of $200,000.
That’s a 140% return on your investment.
Leverage boosts your rate of return from 15% to 140%.
However, leverage works in both directions. If the “market” you are leveraged in suddenly goes the other direction, you can be wiped out.
If housing prices start declining by 5% a year,
the person owning the one home would own a home that is declining by $10,000 per year.
That is a decline in net worth of $10,000 per year (5%)
The person with the twenty mortgages, however, would have annual mortgage payments of $320,000 on 20 properties that would each be declining in value by $10,000 per year. ($200,000 per year.) The $200,000 leveraged investment is losing $520,000 a year (260%).
Leverage works powerfully in both directions.
Leverage commits one to a certain direction, making it hard to turn onto a new direction. The global economy, for example, has leveraged so much of its wealth into fossil fuels that to not harvest them could financially destroy some organizations and people. Therefore, they tend to stay the course, even though they know global warming will be disastrous in the longer-range future.
Because leverage cuts both ways, many people with lots of wealth try using complex option strategies to minimize the risk of leverage. But if you have even more wealth, another strategy is to try controlling the world so that things can’t go in the other direction. This can take the forms of funding ad campaigns to subsidizing certain radio and TV programs to helping elect candidates who will, through laws and regulations, help create the future you are investing towards or help suppress any opposition to that future. An example of this was the tobacco industry’s attempt, successful for many years, to sow doubt and denial about the scientific link between smoking and cancer.
A related way to control leverage’s downside is to get the government to cover your losses, passing them on to those “lower” on the Gradient of Wealth like we saw with the collapse of the housing bubble. Those banks deemed “too big to fail” suffered hardly any consequences for the collapse of the housing bubble even though they helped create it by doing the slicing and dicing of mortgages that drew in people who couldn’t afford the consequences. The implication is that if one is “too big to fail”, one can use leverage in a bolder way than others because you won’t suffer the consequences if the leverage goes against you. This freer use of leverage will give you a higher rate of return than is available to others, helping you to become even more “too big to fail” – a reinforcing feedback spiral. This ability, of course, increases the incentive for those who are not yet “too big (or connected) to fail” to push yet harder to acquire enough wealth to break into the “too big to fail” club.
A second strategy for maximizing rate of return is to internalize profits and externalize costs. A common way of doing this is to harvest The Commons. The Commons is a lucrative target because it has been produced “for free” by life over millions of years and is not “owned” by anyone. The Dust Bowl was a classic example of ploughing up and overharvesting, for quick profit, the rich prairie sod that had accumulated over thousands of years and which was lost within a decade. The early mountain men and fur trappers eliminated the beaver that had built and maintained dams that buffered the daily pulse of spring melt-off. Dumping one’s industrial waste into The Common’s clean air and water is another example. Fisheries collapse due to over-fishing; aquifers decline due to over-pumping; these are examples of harvesting a “resource” faster than it can be replenished, thereby diminishing it and the ecological service it provides for all in return for a short-term profit for a few.
The collective drive for highest rate of return almost guarantees that more of our culture’s wealth will, through probabilistic shifts, finance activities like last chapter’s graph of line #4 of a predator killing all of the prey animals it depends on. The money will be seeking a rate of return higher than the Earth can sustain. If a culture allows over-harvesting of The Commons, then the Commons grow “brittle”. Over-harvested forests, for example, shed silt into streams, damaging salmon spawning beds. Less salmon reduces the amount of nitrogen nutrients that are released from the spent salmon carcasses into the stream and bordering forest and the watershed declines in productivity.
Because The Commons are being degraded, this harvesting usually creates resistance and a push for environmental laws to regulate the harvesting. Either the culture can ignore this degradation (a politically-attractive, short-term solution) or the body politic can choose to allocate some of its wealth to limiting the practice or mitigating the damage. *
* Hydraulic miners in the latter part of the California Gold Rush filled the rivers with so much debris that the river channels couldn’t contain the winter floods. Downstream towns and fields were flooded. The California Supreme Court kept finding reasons for ruling in the mining companies’ favor (too big to fail) until agriculture grew into a bigger percentage of the state’s economy than mining. Then (1884), the court declared hydraulic mining a public nuisance and shut it down.
The wealth that has been gathered from overharvesting is often deployed to counter this resistance. Information is suppressed and distortions are propagated so people don’t understand what needs to change. (“Climate change is a conspiracy of scientists.” “Climate has changed throughout history so what’s the big deal?” – See xkcd’s rebuttal to this.) But this leads to a culture that is navigating, not by reality, but by a false façade created to mask the self-aggrandizement of a few. Cultures navigating in this way will grow “brittle”, their citizens handicapped by clouds of confusion rather than being empowered to creatively steer the culture accurately.
If regulations do go through, then those who are doing the harvesting might still be able to externalize these costs by passing them onto the general public which further degrades the culture’s true wealth by allowing cynicism to creep into the public’s opinion of their government.
One of my sadder teaching experiences happened with an eighth grade class that was inherently very environmentally-conscious. I responsively introduced them to the Global Citizens essays of Donella Meadows, one of my heroes. (Some of her essays on political issues of the 80’s and 90’s are dated but most of them are still fresh and upliftingly instructive. This one is a nice introduction.)
The students enjoyed her fresh, humanistic perspective on many of the issues we face. One day I shared with them an essay she had written about the greenhouse effect where she distinguished between leading causes and trailing effects. She stressed the importance of navigating by the leading causes (the growing concentrations of greenhouse gases in the atmosphere). If we navigate by the trailing effects (the changing climate ten or twenty years later), the time lag will confuse and delay us. Like those two boys swerving on the skateboard, we have to learn to turn out of the curve earlier than we realize. At the end of the essay, Daniel noticed the date she wrote the essay. “She wrote this twenty years ago.” With the most despondent, bleakest voice, he said “We’ve known about this for twenty years and we haven’t done anything?” I had to look him in his sad eyes, and acknowledge, as a representative of the adult world whose responsibility is to pass a better world onto his generation, “yeah”.
And that moment with Daniel was fifteen years ago. We have lost more than a third of a century of action since that essay because people who have invested their life in the gradient of wealth are willing to create media campaigns that lie and confuse in order to forestall action that would interfere with their gathering more money.
Great wealth has the power to shape the goals of government. This can create an ethical rot in the mission of government. Governments are also part of The Commons – a thousands of years’ experiment in organizing large groups of people around a certain idea or purpose. Throughout history, wealth has helped shape governments to help harvest the political system for the highest rate of return for a few. This is one of those “grey areas”. If politicians are willing to give tax cuts and subsidies to contributors, then political contributions can become a good investment in its own right. Invest one hundred million dollars and realize a ten million dollar advantage every year thereafter. This leads more wealth into these “investments” that pull public servants off course.
All of this corrupts the body politic; governance is increasingly for the few rather than what is best for the greater whole. To maintain this governance for the few, the greater whole is divided and pitted against one another in “culture wars”. One characteristic of hot button issues like gun control, abortion, and gay marriage is that they are issues that have little effect on the flow of money. Hence they are perfect for distracting people from the underlying pattern of changing the way money flows so that more of it flows to the wealthier end of the Gradient of Wealth and less to the rest. But a long-term consequence of “culture wars” is that the culture loses its sense of togetherness and united strength. Loyalty and community fades. The culture loses its power to create inspired possibilities. More of the culture’s output is the kind that comes from simply putting in one’s time for pay rather than putting one’s whole heart in for the satisfaction of work well-done and participating in something greater than oneself.
Externalizing costs can anaesthetize one ethically to the long-term consequences of one’s short-term actions. Perhaps this is one of the reasons I heard the phrase “the little people” so much. It’s a way to minimize the impacts that one’s harvesting actions are having on the people around one by minimizing the people.
Numbness to ethics creates a psychological dynamic I saw in my Hand Game. If you feel like you can not trust the other to play Open Hand because they have become ethically numb and are out just for themselves, then you feel like you must play Closed Hand to protect yourself. But doing so demonstrates to the other that you can’t be trusted to play Open Hand which forces them defensively into the same set of assumptions that you have become ethically numb. Who is numb? Perhaps neither. Where did it start? Probably in a spiral of interactions that led you both to feel justified in not trusting the other. After all, caveat emptor – buyer be aware. It’s hard to speak up or switch course if no one else around you will. Besides, Adam Smith’s Invisible Hand provides an ethical justification to put yourself first: each person rationally pursuing their own self-interest will, thanks to the “invisible hand” feedback dynamics of the free market, lead to the greatest social benefit, theoretically.
This can lead much of a culture into harvesting more than is needed in order to get it before others do. Money flow shifts probabilistically to more erosive pathways. It’s a self-confirming downward spiral. As this happens, it contributes to once again leading one’s life energy away from helping to create more wealth for the entire system and instead to harvesting for oneself more wealth from the entire system faster than others can.
As these effects take place, a feedback spiral sets in that is the heart of what this chapter is opposing. The feedback spiral is that as these effects occur, it grows increasingly easy to see a world “running down”, decreasing in Possibilities. This perspective confirms the modern assumption that the world is doomed to run down. Therefore, the best one can hope for is comfort and security in one’s own time. “Grab it while the getting is good because it’s not going to last” appears the smart thing to do.
As more of the “little people” are harvested to protect those who are “too big to fail”, an urgency grows throughout the culture to scramble higher, away from the “sacrifice zone”, away from the fear of becoming “homeless”. Economic calm becomes harder to attain for an increasing percentage of the population. Hope fades into despair for many; addictions and suicides increase.
The “having more wealth than“ direction appears smart, worth striving towards. Everybody chanting it creates a trance. Instead of “citizens,” we are now far more often called “consumers.” That label helps en-trance us into thinking that life is just about consuming, getting it while we can. We talk of economic activity as allocation of scarcities rather than as creation of possibilities. We end up with a “maggots on a dwindling carcass” mentality. It won’t be here for long so consume as much as you can so you will be pupating safely in the ground before the rove beetles and starvation set in.
As hope, creative optimism, a focus on the common good, common courtesy, an Upward work ethic, and the natural resources of The Commons fade, the true wealth of the culture declines. If the total true wealth of a culture is declining, then the only way to have more monetary wealth than others is to harvest the wealth of others. Such efforts will concentrate the wealth in the hands of fewer and fewer people.
Before going further, let me stress that this chapter is not a diatribe against income inequality. It might sound like it is but it is not. This chapter is also not a condemnation of billionaires. Remember, systems create behaviors. This chapter is specifically opposing the consequences that arise when a culture organizes its systems around the goal of “having more wealth than others”. A wise culture orients by the Fifth Dimension and organizes its systems around the goal of increasing Possibilities (the main source of wealth) within the world as a whole. A culture that takes its direction from the Gradient of Wealth with the goal of “having more monetary wealth than others” will grow brittle and unsustainable. Such a culture is not wise.
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