 Standing
Solo in the Crowd
Bill Bonner
The
Daily Reckoning
January 25, 2005
The Daily Reckoning PRESENTS:
Mob mentality - not the type of thinking that is regarded highly...but
then again, apparently two heads are better than one - or are
they? Bill Bonner explores...
Ek aur ek guyazah
A Hindi saying, meaning "1
+ 1 = 11"
When we picked up James Surowiecki's
new book, The Wisdom of Crowds, we not only expected to be appalled;
we counted on it. It is much easier to write a review of a man's
errors than it is to praise his merits. Beyond that, we had reason
to expect little. We have come to believe that crowds are full
of dumbbells and psychopaths; it would be a nuisance to alter
such a strongly held opinion at this stage in life. What's more,
we felt that the book would probably provide encouragement to
communists.
No one takes Bolshevism seriously
any more. But unseriously, comically, almost accidentally, it
has taken over most of the world - including the United States.
The cost of paying retirements has been collectivized. health
care has been largely collectivized - both by government force
and by the insurance industry. Risk of all sorts - including
financial risk - have been spread out so much, no one knows exactly
how far they reach. If a man defaults on his mortgage in San
Diego, who will be the ultimate loser? It is hard to know. Risk
is collectivized. And modern corporations are hardly the exploiters
and despoilers of Marxist imagination. Au contraire, public companies
are now owned by "the people" - through millions of
small shareholdings and mutual funds. And they are managed in
such a way that almost guarantees that the capitalists will never
make money. Dividend yields are below 2% - while the inflation
rate is 3.3%. Investors take on the dividend...even though it
represents (assuming the share price remains constant) a net
annual loss of 1.3%. The capitalists no longer exploit the proletariat,
in other words. Instead, the workers exploit the little capitalists.
As evidence for this, we give
you the latest report from GM. The giant automaker and finance
house needs cash. "Liquidity is oxygen to us," said
its CEO. Yet the cost of cash is going up. GM's bonds are getting
marked down to trade at junk levels after the company failed
to hit earnings targets, says the news, because its health care
costs [for employees] were higher than expected. GM, of course,
is a huge collectivity: Owned by American consumers-turned-capitalists.
Operated for the benefit of workers-turned-renters. And financed
by lenders who are beginning to regret it.
There is another reason, by
the way, we were prepared to dislike Surowiecki's book. The man
had written a foolish column in The New Yorker about gold. Not
that that disqualifies him completely from future contributions
to mankind's understanding of the world around him, but it was
a bad omen.
"Large groups of people
are smarter than an elite few, no matter how brilliant - better
at solving problems, fostering innovation, coming to wise decisions,
even predicting the future," says the jacket cover. Did
a large group of people write Shakespeare's sonnets, we wondered?
Did a large group of people invent the beret...or crispy duck?
Will a large group of people help us fix our dishwasher?
It was, of course, a large
group of people who wanted Adolf Hitler in the Chancellor's office
in Berlin. Another large group wanted to see Mussolini in high
office. And what about the multitude of yahoos who cried out
"crucify him!" when asked what to do with the Nazarene?
(We guessed that Surowiecki
did not mean "crowds" at all - but aggregated, independent
individuals, putting their heads together like Strunk and White.)
But now that we have read half the book we breathe a sigh of
regret; the book is not bad. In fact, it is delightfully misleading.
The idea of the book is that
crowds are smart. We never doubted it. "Two heads are better
than one," is the old expression. Actually, two heads are
often better than two. Putting people together with different
points of views, different tastes, different brains, and different
incentives actually can work a kind of magic - multiplying the
talents of the people involved. Surowiecki provides many examples.
We have our own: Laurel and Hardy. Rogers and Hammerstein. Gilbert
and Sullivan. Bogart and Bacall. Simon and Garfunckel. Antony
and Cleopatra. Brad and Jennifer. Lennon and McCarthy. Burns
and Allen. Dow and Jones. Ernest and Julio. Jagger and Richards.
Scrooge and Marley. Bonnie and Clyde. Jack and Daniels.
Ek aur ek guyazah.
Of course, this does not mean
that every time you get a couple of knuckleheads together they're
going to write good music or build an atomic bomb. Get any bunch
of people you want. We will bet that we will be better at guessing
our PIN code - alone - than all of them put together. Nor can
even a hundred of the smartest men on the planet do a better
job of telling us what we want for breakfast than we can do for
ourselves. Nor do you get any extra benefit from having a group
of yes-men sitting around the table. Instead of giving you better
outcomes, they merely reinforce the moronic ideas of the group
leader. Even in decent groups, people tend to get bullied or
bamboozled. Or, they merely follow along with any idea that has
the floor. This sets off a "cascade" of ideas and opinions
that tumbles toward an outcome - either benign or malevolent.
Still, the Bolsheviks and syndicalists
were right about one thing: Collectives work. But the collectivists
always make a mess of things when they insist. The only collectives
that work are voluntary collectives - families, markets, communities,
social groups, religious groups, enterprises - the very things
the collectivists wanted to destroy.
None of this is particularly
new. Adam Smith, Adam Ferguson...and generations of natural philosophers
and economists have worked on these issues for many years. What
is refreshing about The Wisdom of Crowds is that Surowiecki describes
what Hayek called the "spontaneous order," as if he
had just discovered it. He seems astonished - and perhaps disappointed
- that people go about their daily lives and get things done,
without anyone telling them what to do. It is as if he had never
heard of culture, or trust, or fairness, or convention, or tradition...or
any of the millions and millions of small acts of cooperation
that make civilization possible. It makes the book fun to read
- it's like taking a Baptist teenager to a whorehouse; "So
this is what it's all about?" he asks, his face lit up and
his pulse racing.
"Yep," you feel like
replying. "What did you think?"
We have only read the first
half of the book, however. More to come...
Regards,
Bill Bonner
 The
Daily Reckoning
Editor's Note:
Bill Bonner is the founder and editor of The Daily Reckoning.
He is also the author, with Addison Wiggin, of The Wall Street
Journal best seller Financial
Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley &
Sons).
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