Wednesday, September 03, 2008

This Week's Theme: The 3P Economy (Propaganda, Pandering, Posturing)

Do We Actually Want To Be Conned? All Too Often: Yes

Do we actually want to be conned? All too often, the answer is a resounding "yes." Our society places a premium on "street smarts" and being unconnable, but in reality we all fall prey to cons of one sort or another.

For instance: how many times would you drive downtown or to the park or Wal-Mart if a taxi-meter banged a gong and flashed a large LED sign of the cost of gasoline and maintenance every tenth of a mile? After the meter hit $5, you wouldn't feel the same about "running errands," believe me.

Not wanting the true costs of driving tallied is wanting to be conned. We want to be conned into the "affordability" of driving; that last tank of gasoline was "only" $50 and lasted quite a while--or so we want to believe.

And when the charity or the church fund drive approaches you for a donation, if you trust in your church then you willingly suspend your distrust of organizations and willingly believe your money will be well-spent, because if you didn't, then you would not donate.

In a similar fashion, we want to believe that buying real estate with a 30-year mortgage is a "cheap" "affordable" way to own a house--even though the reality is we end up paying three or four times more than the house is worth. Please scroll down and read Mark R'.s comments on the high cost of financing. If every mortgage statement came with 4-inch high bold letters stating how much was paid for financing and how little was paid on principle, it would certainly modify our belief in the "affordability" of 30-year mortgages. (Such long-term loans are a rarity in many countries, for good reason--they're a complete rip-off.)

We also want to be conned that the ideological purity of a candidate means he/she is really going to be honest and trustworthy. Heh. This is called "preaching to the choir" or "playing to the base." Yesirree Bob, I share your rock-solid belief in the sanctity of (insert pet ideological cause/belief) and so vote for me.

Hey, it works, because we want to be conned. The reality that all politicians have fluid values and will vote as compromise, party politics, pork, wheeling and dealing, lobbying, cash contributions and PR dictate. Ideological "purity" and beliefs are what's sold to suckers round election-time.
In some cases, trust and being conned are essentially identical. If you attended a do-nothing staff meeting or three at your favorite charity and saw how little was actually accomplished with your money, then it would certainly erode your trust and your willingness to donate. But without that trust, then whatever good the organization did accomplish with your money would go undone, too.

Let's turn to American master Herman Melville and his underappreciated masterpiece The Confidence-Man for further illumination on the nature of confidence and the con. I wrote this review awhile back but find the book perfectly suited to the topic of confidence, trust and the slipperiness of the con.

Why read a book from 1857 which flopped so badly as commercial literature that Melville stopped writing and ended his career as a customs official? Because this book masterfully explores the entire nature of trust, confidence and cons. Though the setting is a riverboat on the Mississippi River just before the U.S. exploded into Civil War, its insights cross cultural boundaries.

This is not an easy book to read for several reasons. First, it is undoubtedly one of the first "post-modern" novels which breaks from traditional narrative storytelling. ( Another example: Dostoevsky's Notes From the Underground.) The Confidence-Man is a collection of 45 conversations between various people on the riverboat--beggars, absurdly dressed frontiersmen, sickly misers, shysters, patent medicine hucksters, veterans (of the Mexican-American War) and the "hero" in the latter part of the book, the Cosmopolitan.

In typical Melville fashion, you also get asides--directly to the reader, in several cases, as if Melville felt the need to address issues of fiction outside the actual form of his novel. The lack of structure, action and conclusion make this a post-modern type book, but if you read each conversation as a separate story, then it starts to make more sense.

For what ties the book together is not a story but a theme: the nature of trust and confidence. In a very sly way, Melville shows how a variety of cons are worked, as the absolutely distrustful are slowly but surely convinced to do exactly what they vowed not to do: buy the "herbal" patent medicine, buy shares in a bogus stock venture, or donate cash to a suspect "charity."

In other chapters, it seems like the con artist is either stopped in his tracks or is conned himself. Since the book is mostly conversations, we are left to our own conclusions; there is no authorial voice wrapping up each chapter with a neatly stated ending. This elliptical structure conveys the ambiguous nature of trust; we don't want to be taken, but confidence is also necessary for any business to be transacted. To trust no one is to be entirely isolated.

Melville also raises the question: is it always a bad thing to be conned? The sickly man seems to be improved by his purchase of the worthless herbal remedy, and the donor conned out of his cash for the bogus charity also seems to feel better about himself and life. The ornery frontiersman who's been conned by lazy helpers softens up enough to trust the smooth-talking employment agency owner. Is that a terrible thing, to trust despite a history of being burned?
The ambuiguous nature of the bonds of trust is also explored. We think the Cosmopolitan is a con-man, but when he convinces a fellow passenger to part with a heavy sum, he returns it, just to prove a point. Is that a continuance of the con, or is he actually trustworthy?

The book is also an exploration of a peculiarly American task: sorting out who to trust in a multicultural non-traditional society of highly diverse and highly mobile citizens. In a traditional society, things operate in rote ways; young people follow in their parents' traditional roles, money is made and lent according to unchanging standards, and faith/tradition guides transactions such as marriage and business along well-worn pathways.

But in America, none of this structure is available. Even in Melville's day, America was a polyglot culture on the move; you had to decide who to trust based on their dress, manner and speech/pitch. The con, of course, works on precisely this necessity to rely on one's senses and rationality rather than a traditional network of trusted people and methods. So the con man dresses well and has a good story, and an answer for every doubt.

The second reason why Melville is hard to read is his long, leisurely, clause upon clause sentences. But the book is also peppered with his sly humor, which sneaks up on you... well, just like a good con.

Like it or not, sometimes it feels good to be conned.

Readers' comments:

Adam S.
Kudos to your notes on GDP and other fake government numbers.

Along these lines, I would like to draw your attention, and the attention of your readers, if they are not already aware, to the important work being done by Chris Martenson.
The presentation that he has specifically on this subject is: fuzzy numbers

However, there is much more substantial material at his website, worth pondering and chewing on.
In its entirety, it can be found here: crash course

Mark R.

I just read your commentary about lowering the cost structure of the U.S. Economy. The healthcare comments reminded me of how we are all being forced to pay exorbitant costs to financiers, not only of healthcare, but of everything in our world. The cost structure of healthcare is out of proportion to other things because of the way we pay for it.

We have all been convinced (read: scared into believing) that the only way to pay for healthcare is through healthcare insurance, and similarly we are all convinced that the way to finance our lives is through debt. (And by "debt" I mean not only credit cards and mortgages, but the very debt money that is at the root of our system.)

There is no way around the fact that we create an inflated "value" of everything by financing our way through life. We pay for our healthcare by buying healthcare insurance from cradle-to-grave so that we pay a relatively small amount, forever. That is a debt burden. Who makes the big money in this system as currently structured? The insurance carriers do. They are the financiers of our healthcare system. All costs are inflated along the way.

I believe that healthcare insurance is a good thing in general, but honestly, how much are we paying our VERY profitable healthcare insurers? Why isn't healthcare insurance supported in our society as a non-profit institution? (Notice the distinction from government sponsored universal healthcare.) We all pay a little, so that those in need aren't straddled with a huge debt for healthcare bills. Why should an insurance company reap humongous profits to be the financier, while they use our money (called premiums) in the first place?

How do we pay for real estate? Through mortgages, which create an inflated "value" of the underlying property since we can pay over time with money we don't currently have. Who makes profit to the tune of multiples of the underlying asset? The bank who issued the mortgage does. Are people willing to pay about three times for their home if they can get it now and pay over the course of thirty years? Apparently yes. Does it drive the cost of real estate up and up? Yes. Is there an end to that run up? We are living through it now.

I don't see all debt as bad, but perpetual debt growth (read: growth in the quantity of money in our system) is reaching a dangerous point to where our monetary system seems about to collapse. Everything costs too much money! And, the sick twist is that real things (like the bookstore you mentioned whose rent became too high) fail and disappear, in order to support a system of fake money.

As I see it, the benefit that we get by operating in a fiat money world (where central banks and fractional reserve banking allows financiers to create money out of thin air) is that we get a rapidly expanding economy, so that in the span of a human lifetime, we see "progress." The drawbacks are that we have the unnatural pressures of paying ever increasing costs for everything, money expands based on the bubble-du-jour created by a central bank, and we get to experience a painful collapse of the monetary system.

It would be really interesting to see you address the true cost of financing when discussing cost structure in the U.S.

Thanks for your excellent blog. And, btw, I am a doctor which is why I was interested in the healthcare part of your recent musing.

New Book Notes: My new "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on for $10.99. Here is a review of the book:

Charles Hugh Smith's "Weblogs & New Media: Marketing in Crisis" is one of the most important business analyses I have ever read. It is the first to squarely face converging global crises from a business perspective: peak oil, climate change, resource depletion, and the junction of key social cycles will radically alter the business landscape in coming decades.

As an entrepreneur I have been retooling my own business to meet these head on, but have felt hamstrung by marketing's insistence upon positivity even to absurdity and denial. "Weblogs & New Media" helped immensely by providing the conceptual framework I needed to move forward. Within this framework I can begin formulating strategy appropriate for the new global zeitgeist -- namely, trust as the new currency du jour. Moreover, Smith offers insights for building this trust via digital resources that business currently misunderstands and misuses, a criticism that will be familiar to Seth Godin fans but which has implications far beyond traditional marketing goals.

"Weblogs & New Media" is essential reading for any entrepreneur who refuses to drink the business media kool-aid, and who wishes his or her business to remain viable even in times of crisis.

An excerpt from Claire's Great Adventure:

By the time she reached the deck and pulled herself aboard, Claire was breathing hard and sweating from the exertion. A single bulb in a steel fixture lit the forward deck; Crouching down in the shadows, she waited impatiently for Camden, scanning the quiet ship. There was no sign of life; just a clutter of gray bollards, booms and hatches, and a steel staircase up to the bridge with more rust than gray paint. An oval-shaped steel door led into the superstructure, and this door was ajar.

With one last "oof" of effort, Camden pulled herself onto the steel deck and kneeled down by Claire to catch her breath. "This is spooky," she whispered heavily, peering into the weird shadows cast by the sole lightbulb, and Claire nodded. Warily standing up, Claire waved to Aunt May, who now seemed awfully small in the dimly lit expanse of the dock beyond the security fence. A movement far to the right caught her eye, but when she turned to the circles of light beyond the dock she saw neither man nor beast.

Aunt May must have seen her, for the phone rang hollowly just inside the ajar bulkhead door. Forcing herself forward to the door, Claire was greatly relieved to find Camden crouching just behind her. Pushing the door open with one prolonged squeak, the two girls entered a hallway illuminated by one bulb in a dangling wall fixture and crept into a barren office where the third and final ring had sounded.

The mobile phone lay on a table, and without thinking Claire opened it and said, "Aunt May?"
A male voice grunted and said, "Wei?"

At that instant a dog began barking somewhere on the dock, for the sounds of someone clambering noisily up the ladder was suddenly audible. A haphazard cacophony of voices came from the phone, and she heard Aunt May shriek, "Get off the ship!" Dropping the phone onto the table, Claire rushed to the hallway door and peeked out. To her horror, an Asian man lofted himself onto the deck in one easy, muscular move, followed by several other wiry Asian men. One yelled, perhaps to quiet the barking dog, and Claire withdrew in a panic unlike any she'd ever felt.

"Come on!" she whispered frantically to Camden, and then hurried down the passageway past a half-dozen wooden doors. Hesitating briefly, she turned left and came to a dark opening into the bowels of the ship; illuminated by a single bulb somewhere far below, she could see the black outlines of a ladder descending into the depths and little else.

Thank you, Ian M. ($10), for your surprising and gratifying donation to this site. I am greatly honored by your support and readership.

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