America's World War of Choice

A series of painful lessons are enroute to American citizens over the next few decades. You get to choose your leaders (for now...). You get to choose your wars (for now...). You DO NOT get to choose your consequences. You need to be more careful in your choices of leaders.

Let's Not Bury the Lede, Shall We?

Any attempt to analyze America's latest elective military disaster poses a substantial rhetorical risk to both the analyst and anyone bothering to read the analysis. Analysis relies upon logical, rational thought processes in the brain which typically start by assuming a modicum of rationality and worthiness to the act being analyzed. It assumes the aim of the analysis is to identify flaws in the execution of an act or identify corrections going forward to improve likely outcomes.

This attack by the United States has no basis in rationality or morality. It's important to start any analysis of this type of act with the most important facts up front.

Wars should always be a last resort for solving disputes of any kind.

Wars have NEVER ended the way ANY participants in those wars expected.

Wars attempting to project power over a remote land without soldiers to impose and maintain order have never resulted in victory for the entity projecting power.

Unless a weapon is actively raised and / or a munition is on its way, pre-emptively launching a war against an enemy is morally indefensible.

A government that lies to its citizens about the justifications for launching a war has no moral authority to retain power.

There is no way to "win" an immoral war as the instigator.

A Meme-Based, Post-Reality World War

It is crucial to understand the event that was launched on February 27, 2026 for what it is. The joint United States / Israeli attack on Iran has resulted in bombs dropping in multiple countries -- Iran, Israel, Saudi Arabia, Lebanon, Bahrain, United Arab Emirates, Qatar, Kuwait, Oman, Jordan, Iraq and Cyprus. Some of those attacks triggered treaty obligations involving the UK and Germany after bombs hit facilities they operate in affected countries. There is already a war originally involving Russia and Ukraine that has spread to nearby European countries as terrestrial and ocean pipelines are targeted for attacks. We literally have a world at war.

This latest attack was first conveyed to the public via a video post on Trump's social media application rather than official, serious communication channels to either the American public or its elected Congressional officials. Iran has issued fake video posts depicting fictional damage to the USS Abraham Lincoln carrier in a bizarre attempt to fool its own citizens, despite the fact that virtually none have access due to the shutdown of Internet services within the country.

Modern technology is providing near-live video of launches of dozens of million dollar Tomahawk missiles and bomb damage at targets intermixed with real-time video and social media messages from US officials completely contradicting each other on basic questions such as the justification for the attack, what the goals are for the attack, how long the Administration expects the war to last, etc. It is crucial to reiterate this point. It is NOT the case that DIFFERENT officials are giving DIFFERENT statements on these topics where PersonA says A, PersonB says B, PersonC says C. What is happening is PersonA is saying X, PersonB is saying NOT X and PersonC is saying X again with maybe Y or Z. War strategy is being discussed and set in public via competing tweets and public appearances by Cabinet officers trying to catch the attention of an addled President who will not read a briefing book. Utter chaos.

Any media outlet claiming to make sense of this or present talking head analysis to tell us what comes next is completely misleading their audience and the wider public. NO ONE can predict what comes next because the leaders in control have no rational core anchoring the decisions that are being made. When a fuller history of this disaster becomes known in five years or a generation, it will be clear that every crucial decision was triggered by attempts to satisfy the whims of a President with the attention span of a gnat and the intellect to match.

No Legal or Moral Justification

Trump first spoke of the war after it began via a short message recorded from his home in Florida. In a pre-recorded video, Trump wore a bitchin' white baseball cap with USA letters reading a statement off a teleprompter. That first statement included this claim:

 Instead, they attempted to rebuild their nuclear program and to continue developing the long range missiles that can now threaten our very good friends and allies in Europe, our troops stationed overseas, and could soon reach the American homeland. 

Yet multiple Senators and House members who were given a top-secret briefing lasting seventeen minutes on Sunday morning March 1 were told by top Pentagon security analysts that the action was NOT in response to any imminent threat. And no one in the defense establishment was claiming Iran has any capability to reach European countries with missiles of any kind, much less the US mainland.

In contrast, Iran does have missile technology that can reach Israel and that capability is much closer to the true motivation behind this attack In fact, Secretary of State Rubio made a stunning comment in an appearance before Congress on March 2:

The second question I’ve been asked is ‘Why now?’ Well, there are two reasons why now. The first is it was abundantly clear that if Iran came under attack by anyone, the United States or Israel or anyone, they were going to respond and respond against the United States. If we stood and waited for that attack to come first before we hit them, we would suffer much higher casualties . So, the president made the very wise decision. We knew that there was going to be an Israeli action, we knew that that would precipitate an attack against American forces, and we knew that if we didn’t preemptively go after them before they launched those attacks, we would suffer higher casualties.

Of course, this explanation was carefully re-re-re-explained in subsequent hours to minimize any appearance of over-stepping on Trump's verbal diarrhea while simultaneously attempting to erase the obvious strategic and legal implications that the US launched a pre-emptive attack because it feared another client state of America would launch an attack on Iran that would result in Iran attacking US assets in the region. Not exactly an imminent threat meriting a unilateral decision of a President to launch a full scale war under the most lenient interpretation of constitutional powers.

No Rational Security and Intelligence Strategy

The Trump Administration has already demonstrated gross incompetence and indifference in the security and intelligence aspects of this war. The fact that Kuwaiti air defense forces fired upon US fighter jets shows that US leaders were not properly synced with allied command and control on tactics.

After launching the war, the US State Department issued travel warnings to US citizens to avoid virtually the entire middle east. At the same time, the US also issued a notice to existing US personnel in those states that they were completely on their own and that no assistance would be provided for them to get out of harm's way. This presumably includes top intelligence personnel in the region. People's whose intelligence in the coming months and years will be quite valuable. People completely hung out to dry, unprotected.

As the final coup de incompetence, FBI Director Kash Patel, fresh from his trip to the US Hockey Team locker room, returned to Washington DC in time to fire roughly one dozen experts and staff within the FBI with expertise in... WAIT FOR IT... Iranian counter-intelligence. They were fired literally DAYS before the attack. Given Iran's operation of a worldwide network of violent terrorist cells, one would normally presume Iran would have means to trigger attacks on infrastructure, communication networks and similar targets here in the US.

Fears of Iranian regime blowback in the US are not far-fetched. Earlier in January, a pro-Iranian individual drove his car into a group of protesters in Los Angeles who were protesting for the return of the prior Shah's son to power in Iran. A man was shot by police at a bar in Austin, TX early Sunday morning March 2 after he shot three people amid a flurry of shots. That man, a Senegalese national age 53, was wearing a sweatshirt with Iranian insignia.

If there was EVER a time in which a staff of Iranian counter-intelligence resources should be safe from a budget axe or score-settling, one would assume that time would be now. So how carefully was this effort coordinated across our unified "Department of Homeland Security"? I guess we should just put that in quotes. The title is clearly no longer actually descriptive.

No Rational Political Strategy

Trump and Defense Secretary Hegseth were asked separately at different times for estimates on the duration of this war. Both provided completely different answers not only about the duration but the underlying mission. Trump first stated the goal was to eliminate Ayatollah Khamenei but leaving what happens next up to the Iranian people.

Hegseth opened a press appearance by explicitly stating the attack was not about regime change but look at what happened cuz clearly the regime changed. In reality, Iran has continued organized, consistent attacks on oil facilities throughout the region in Saudi Arabia, Bahrain, etc. indicating the February regime is still in control and that Hegseth has no connection to reality.

In a later appearance, Trump was asked again about regime change and filling the void if the current regime did eventually fall. Trump stated that the US had identified several A, B and C alternatives to replace Khamenei but unfortunately, A, B and C were all wiped out with Khamenei.

So what is the actual reality within the Administration? First the goal was simply eliminating the current leader. Then the goal WAS regime change. Then the US had identified preferred replacements but all three preferred replacements were WITH the current leader when he was killed. How much of a regime change would be gained if the replacements came from the same team? About the same amount of change as achieved in Venezuela. NONE.

In another twist direct from the Department of Can't Make This **** Up, the Trump Administration is now making references to involving the Kurds in the fight to topple the Iranian regime. America and the Kurds go way back because America has been playing Lucy and the Football with the Kurds for DECADES. The Kurds are an ethnic population of nearly 30 million people tied to a region loosely scattered across the touch points between western Iran, northern Iraq, southeastern Turkey and northern extremities of Syria. Of course, these countries and the boundaries between them have come and gone and moved hither and yon since the latter 1800s, always at the whims of western powers and their selfish interests in oil and never factoring into account these types of ethnic groups living within those borders.

Since 1979, America in particular has found great use in pitching partnerships with ethnic Kurd fighters in a perpetual game of Lucy and the Football where America creates a disaster for itself (first with Iran after 1979, then with Iraq after 1990 then again in Iraq in 2003) and when the prospect of AMERICAN boots on the ground to control territory becomes intolerable, the idea of "partnering" with Kurdish forces for them to attack the enemy in exchange for a promise of being able to establish their own homeland is pitched. It's never worked out, yet here we are again, looking for another remake of a movie that never was.

In the interest of actual reality, as of March 4 around 3:00pm CST, it appears there will be no immediate regime change. Multiple news outlets are reporting that Iran's power structure seems likely to appoint the departed Khamenei's 56 year old son Majtaba Khamenei as Supreme Leader. Other outlets in India are reporting the decision has already been made. Meet the new boss... Same as the old boss.

No Comprehension of Economic Reality

Prior to attacking Iran in February 2026, the United States was already running yearly deficits around $1.8 trillion dollars per year with an accumulated debt of over $36 trillion dollars. American businesses have lost hundreds of billions of dollars in business for the foreseeable future as Trump imposed tariffs triggered foreign countries to negotiate two-way deals with each other leaving American businesses and American dollars completely out of the loop. Soybean deals? Gone. Wheat deals? Gone. Not reduced. Gone. Other products such as California wine sales to Canada and Kentucky bourbon / Tennessee whiskey sales to Canada have dropped seventy percent.

Trump's authority to collect these tariffs was rejected by the Supreme Court but the court deferred any decision on what to do with already-collected revenue to lower courts. Given the roughly $287 billion dollars collected under the illegal tariffs, this acts like a giant looming accounting adjustment on the US Treasury ledger and a $287 billion dollar question mark seen by investors worldwide. Those worldwide investors are looking at a country that didn't just launch a new expensive war of choice, they're looking at a country that just launched an expensive war of choice from a position of profound economic weakness that faces a multitude of threats:

• rising inflation rates, despite the ruling rejecting existing tariffs
• more inflation en route due to rising oil prices from the Iran war, driving up costs throughout the world
• more inflation en route due to rising oil prices from the Iran war that increase trucking / distribution costs within the US for nearly all goods
• reductions in consumer credit as private equity lending firms begin facing hidden losses in the tens of billions of dollars
• a hype bubble in the AI tech sector that could trigger a trillion dollar collapse in the only firms that have resulted in stock market growth for the past three years
• GDP growth figures that have dropped to an annual rate of roughly 1.4% (dropping from a 4.3% rate in 3Q2025) which reflects a huge slowdown and a rate insufficient to maintain tax revenues to control deficits
• layoffs in tech sectors previously offering some of the best paying jobs in the economy continue on a weekly basis
• housing starts are up compared to prior quarters in 2025 but those percentages are based upon a multi-year low hit in October 2025 and are still far below earlier levels from 2020 to 2023

Launching this war of choice has further alienated every country that previously viewed the USA as a stable ally, both financially and militarily. And the US is heightening this alienation at a time when economic uncertainty may soon require "adult leadership" to avoid meltdowns that could tank the entire global financial system. This is the type of "adult leadership" the US could previously be relied upon to provide and -- as no small compensation for incurring the headaches of BEING the adult in the room -- use to its unique advantages for American businesses and the American government itself.

That world is GONE. That level of faith in the United States will NEVER return.

The Future Costs of Current Incompetence

Given the players currently making decisions, it is pointless to attempt to develop estimates for specific types of costs stemming from this attack on Iran. Looking backward, recent overseas wars tended to cost $1 billion dollars per day in 2026 dollars during the missile and bombing phase, then slow to maybe $190 million to $250 million per day in the extended boots on the ground / car bomb phase of operations.

If the Iran war lasted 365 days with 20 days of "missile war" and the balance "boots on the ground" intensity, the "cost" might be $106 billion dollars. But that assumes a traditional trajectory where the US attempts to impose some sense of order on the ground, if only in an initial attempt to dictate who takes over. It cannot be assumed the Trump Administration feels any obligation to somehow secure basic government operation and public services for electricity, water, and sewer. The US may very well return its planes to the carriers, sail back to international waters and watch the fires burn from afar for the next few years. Active military costs could thus be very small compared to recent history.

Would that be a "win" for America? Hardly. Other indirect costs will more than make up for direct material costs avoided. If the current Iranian regime retains power, the US will have gained nothing while alienating its prior military and economic allies throughout the world, further limiting US trade prospects and reducing interest in participating in the US defense ecosystem. European nations are already declining to be purchasing partners with America and its defense firms on future weapons programs. Why? Partly because they see the future in Ukraine in leveraging far less expensive drone technology over billion dollar fighter jets and twelve billion dollar aircraft carriers. Partly because America has proven itself to be a highly irrational, unstable partner in intelligence, defense or economics.

If the current regime topples and is replaced by chaos, then the economies of nearly every neighboring country will be impacted for the duration of that uncertainty, likely causing energy and economic problems in Asia which will ripple back to the US as massive cost increases or product shortages. But Trump Administration officials seem clueless to the lessons from the supply chain shocks of COVID. If energy issues or military strife halts the supply of chips from China, Taiwan or South Korea, US manufacturing in nearly every sector will halt within DAYS, including manufacturing to replenish all of the weapons fired on Iran.

But... but... but.. but what if the Iranian regime is toppled and the people of Iran with help from the Kurds (remember the Kurds? The militiamen without a country the US has magically discovered each time we needed a local hero to provide local legitimacy to a hair-brained American military strategy in the Middle East?) manage to establish a democracy that makes it safe for entrepreneurs to wallpaper the country with Starbucks, Dollar General and payday lender locations like America?

There is ZERO chance of that happening. Iran has operated as a religious dictatorship since 1979 with no mechanisms in place allowing for multi-party government. Prior to 1979, it operated in a similar secret police mode for twenty six years (with the full support of the US) only without any claim to divinely inspired rule, just sheer will and brutality. There is ZERO social or cultural DNA within the country to support an instant conversion to modern democracy or whatever America thinks it operates domestically.

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This so-called war of choice is just only one of a rash of choices made possible by the worst possible choice American voters could have made in 2024 electing Donald Trump as President and voting for Republican majorities in the House and Senate. There is zero chance that mistakes of this magnitude will stop until all of the forces permitting it are removed from power. Previously, it would be difficult imagining how things could get worse for Americans. There is zero difficulty in imagining it now. The possiblities are endless and completely unchecked.

WTH

Moats and Artificial Intelligence

Since at least mid-year of 2025, engineers and business analysts with expertise in particular fields involved with the development of Artificial Intelligence (AI) systems have been publicly citing concerns with very simple, indisputable, physical constraints that guarantee currently announced spending plans for AI infrastructure cannot be completed per schedules touted by the firms involved. Of course, this means that investment decisions based on these announced spending plans are fundamentally flawed. Those constraints involve all of the following physical limits:

1. shortages of capacity to manufacture the unique GPU chips optimized for AI computations
2. shortages of capacity to manufacture basic DDR memory chips to house ever-larger data sets in memory for faster processing
3. a lack of construction resources and expertise to design and erect dozens (hundreds?) of data centers slated to be required to meet computing demands
4. a lack of AC power generation capacity to supply the additional gigawatts of raw power required
5. a lack of capacity to manufacture the highly customized AC transformers and switching gear required to connect AC generators to the grid at the source and connect the grid to new data centers at the destination
6. a lack of electrical grid capacity to carry the additional AC power already lacking from the generation facilities that don't exist to the data centers that would need it if they did exist

Any ONE of these factors alone is enough to prove the existing self-reinforcing justification for "investing" in AI is pure fantasy. Yet none of these realities has seemed to make a dent with markets. Indeed, as signs of more insanity, two other events on February 12 and February 15 of 2026 are confirming that reality is not sinking in. On February 12, Anthropic announced it had secured an additional $30 billion in equity funding to pay for equipment and power for continued infrastructure growth. Given the share of ownership surrendered for the $30 billion, by normal mathematics, the $30 billion for this chunk equates to a total valuation of $380 billion for the entire company, which is not yet publicly traded. Anthropic made a point in its press release of stating that its revenue has grown from $1 less than three years ago to $14 billion. Of course, nothing is publicly stated about actual INCOME levels.

On February 15, OpenAI announced it was creating a "foundation" to manage the OpenClaw tool just released about a week earlier by Peter Steinberger as an open source project. Upon its release, the tool underwent two emergency name changes due to trademark conflicts then went viral among developers and hobbyists interested in seeing how linking multiple AI systems together with scripting capabilities might speed turnaround times for solutions or eliminate more drudge work. What they found instead was a tool that fully trusted any local connections made to it from its host machine making it WIDE OPEN for hacking. That didn't seem to concern Sam Altman and OpenAI. It isn't clear what OpenAI thinks it is capturing by creating this "foundation" and folding Steinberger in as an employee. Normally, the purpose of such deals is to essentially catch and kill a potential competitor and / or its underlying technology to leverage it internally or prevent competitors from using it.

Both of these news events are confirmation of another aspect of the business model of AI and any large business that AI business leaders are utterly failing to understand and reflect in their planning. The simplest term for this aspect going unheeded by industry leaders is the concept of a moat.

Business Models and Moats

The value of a moat to a castle in medievel times is fairly obvious. It makes it vastly more difficult for invading hordes to get INTO the castle. It also makes it more difficult for those inside the moat to ESCAPE the castle. Moats in business provide the same conceptual protections. The more technical terms for these two functions are barriers to entry and barriers to exit. An established business LOVES barriers to entry for OTHER competing businesses, especially if the business has significant investments (millions?, billions?) in fixed assets that require years of amortization to pay off.

An established business also LOVES barriers to EXIT -- for its current customers (and employees). One way to erect a barrier to exit might be deemed a positive approach and involves making your product so much more efficient, easier to use or inexpensive to operate compared to competitors that your existing customers have no incentive to switch. Of course, a negative approach for creating a barrier to exit is for your product to be so complicated and proprietary that adopting it fundamentally TRANSFORMS your customer's business processes and data in ways that have little synergy with ANY competing product. This drastically spikes so-called "switching costs" that will be incurred if the customer ever gets fed up and wants to switch to ANY other competitor.

The value of such "moats" to providers and the costs of such moats to customers cannot be overstated. In the information technology field, there are two apocryphal statements heard nearly every day in the Fortune 500. One is that no migration project for a company's ERP / HR / Financial planning systems has a) ever completed on time, b) ever been completed on budget and c) ever delivered remotely close to 100% of what it promised. And this is for systems that might require three years of planning, tens of millions of dollars in one-time development and consulting fees and will still cost millions of dollars per year to license to keep running, even if nothing is allowed to change from that point on.

Of course, the other apocryphal saying in information technology circles is that virtually no Chief Information Office ever remains employed through an ERP / HR / Financial system migration. Why? Because the users of these systems are the most powerful executives in the company and they inevitably become frustrated by the poor functionality and soaring costs of touching these systems and someone must be sacrificed when reality sets in.

Moats and AI

The concept of moats -- barriers to entry and barriers to exit -- is crucial for investors, politicians and the public to understand in the realm of AI for one key reason. The AI realm has no material barriers to entry or exit. Even those who don't explicitly analyze the position of firms from this formal strategic perspective are likely making decisions which still assume such moats exist and will provide the expected protections and support a competitive advantage for those that spend first and spend the most.

Nothing could be further from the truth.

Barriers to Entry?

In terms of barriers to entry, CEOs of the top firms involved with AI are all behaving as though the following sequence of events is guaranteed:

• they spend C billion in capital building out infrastructure for P units of processing
• that C level of upfront capital will cost O billion in recurring operations expense
• customers adopt their solution and generate U level of usage equating to R units of revenue
• if the amortization on C and recurring opex spend O are covered by the R level of revenue, the customers they attracted will stick around and the business model will (eventually) pay off
• since the capacity P already exists and the revenue R is already flowing to them, no other business will have the incentive to also invest C up front to try to win over those customers and the associated revenue R

That sequence SOUNDS logical. Whether consciously considered or not, such thinking seems to perfectly bypass normal skepticism and fear that should be present when someone wants to spend billions of dollars on something. Surely, there's no way a company can spend $50 billion dollars on five data centers this year and have them become worthless next year. They were worth $50 billion last month when you finished loading up the racks and powering on the servers. The gear is all still there. Surely, it's still worth closer to $50 billion than zero, right? Right?

This thinking is seriously flawed. First, there is no guarantee a competitor will ALSO need to shell out the same up-front capital C that an incumbent did. Why? Because every incumbent is betting on the same "brute force" approaches for training AI systems by feeding them ever larger bodies of electronically ingestible data. This assumption is flawed in many ways. First, the total volume of "real" electronically ingestible data has already been reached. Any numeric increase in petabytes of "new" data ingested for training is likely AI generated data, not original human generated "data." This means these brute force AI efforts are already eating their own tails and poisoning future rounds of training with "data" of highly dubious quality and provenance.

Second, this approach assumes there are no other algorithms for modeling information and training systems that do not require exponential increases in training set size. AI executives should already understand this assumption is flawed based upon the Deepseek system created in China and released in January of 2025. That system matched most quality measurements of OpenAI's release at the same time but required only about five to ten percent of the training corpus and only required about five or ten percent of the compute to run the final model.

Customers of AI systems have no loyalty to the firm that spent the most and spent it first. All other things being equal, customers will use whichever AI solution solves their particular problems either the fastest or at the least cost. And that is why barriers to exit are so important to understand.

Barriers to Exit?

The initial discussion above regarding moats in business used examples in the realm of "ERP" systems for Fortune 500 firms as an example of a business sector with highly effective moats. ERP systems are extraordinarily complex and difficult for upstarts to develop without years of accumulated understanding of business requirements in payroll, HR, financial planning, operations management, etc across multiple business sectors (manufacturing, retail, shipping, services, etc.). Such systems are hard to implement because of the complexity and variety of models required to house data within them and transform it to share with other systems. This not only makes the product difficult to clone for competitors, it also makes it very hard for the customer to leave an incumbent vendor and drop in something else without great risks to business continuity and high costs.

AI solutions being promoted to corporations have no such barrier to exit. Ironically, AI systems lack such barriers to exit because of the very nature of their primary "API", the prompt screen, that relies on the ability to parse "plain language" and derive far more complicated expectations from it. This merits some examples and explanation.

Existing systems are typically tied together using complex web services to rigidly structure information for transmittal then convert back to internal models for further processing. For example, information about a Certificate of Deposit purchased through a brokerage at a distant bank might look like this when described to a relational database

 CREATE TABLE `cds` (
  `cd_id` int(5) NOT NULL AUTO_INCREMENT,
  `status_id` int(3) DEFAULT NULL,
  `brokerage` varchar(30) NOT NULL,
  `cdbank` varchar(30) NOT NULL,
  `cusipid` varchar(15) NOT NULL,
  `confirmationid` varchar(15) NOT NULL,
  `depositamount` decimal(9,2) NOT NULL,
  `balanceamount` decimal(9,2) NOT NULL,
  `annualpercentagerate` decimal(5,3) NOT NULL,
  `termmonths` int(3) NOT NULL,
  `compoundmonths` int(3) NOT NULL,
  `withholdrate` decimal(5,3) NOT NULL,
  `purchasedate` date NOT NULL,
  `settledate` date NOT NULL,
  `maturedate` date NOT NULL,
  `balancedate` date NOT NULL,
  `autorenew` varchar(1) DEFAULT 'N',
  `manualrenew` varchar(1) DEFAULT 'N',
  UNIQUE KEY `cd_id` (`cd_id`),
  KEY `purchasedate` (`purchasedate`),
  KEY `settledate` (`settledate`),
  KEY `maturedate` (`maturedate`)
) ENGINE=MyISAM AUTO_INCREMENT=162 DEFAULT CHARSET=utf8mb3 COLLATE=utf8mb3_general_ci 

but might look like this when converted to text to send in a request from one system to another in JSON (JavaScript Object Notation):

{
    "cd_id": 161,
    "status_id": 2,
    "brokerage": "Fidelity",
    "cdbank": "Northeast Bank",
    "cusipid": "DS1240098",
    "confirmationid": "#B10PHDD",
    "depositamount": 40000,
    "balanceamount": 40000,
    "annualpercentagerate": 0.0595,
    "termmonths": 12,
    "compoundmonths": 3,
    "withholdrate": 0,
    "purchasedate": "2025-02-16",
    "settledate": "2026-02-29",
    "maturedate": "2027-02-19",
    "balancedate": "2026-02-16",
    "autorenew": "N",
    "manualrenew": "Y"
}

This is a particularly simple example because every field name is identical between the database table definition and the JSON field name used for a web service payload. In real world scenarios, the web service might have to convert between conflicting names for every one of those fields in both the request and response directions, requiring significantly more requirements discovery, development and testing work. For modern systems, there will be handfuls of service endpoints for literally HUNDREDS of crucial business data objects requiring this type of painstaking integration work. These types of hard-coded "application programming interfaces" (APIs) and the costs associated with mediating between them act as a massive barrier to exit for a company that has already paid to link complex systems together.

Vendors for incredibly complicated, expensive systems KNOW this and rely upon it to keep existing customers trapped. Vendors know this not only protects existing revenue, it gives them additional latitude to raise prices every year or every contract period because the customer is reluctant to jettison the system. The customer isn't reluctant to jettison the system because they LIKE it or that it DOES everything they need it to do, they just loathe the thought of spending tens of millions all over to swap it out for something else.

AI systems have no such barrier. To the extent they deliver on their promise to accept plain language requests for complicated tasks and do the background heavy lifting, they overcome these barriers to exit. But the AI provider itself is providing this essentially unrestricted API to the user who can ask it to talk to any other system and sort out the details. This leads to two crucial conclusions.

The first conclusion is that by their very nature, AI systems result in "switching costs" that are nearly zero. If a major customer purchases services from AIProviderX and uses X to integrate ten systems together, the users at that customer can just as easily supply the same prompts to the system from AIProviderY, have it generate similar if not identical integrations, then switch their general AI consumption from X to Y. And compared to olden days (five years ago) when such integrations might have taken three years to implement, these AI integrations could presumably be devised, tested and implemented in a few months, then switched on nearly instantly.

That first conclusion leads to a less obvious but perhaps more financially disastrous risk for AI providers. The fact that an AI provider's demand could drop to nearly zero in the bat of an eye is bad enough. Making that volatility worse is the fact that virtually every AI vendor is selling their services on a USAGE basis with monthly minimums and caps. AI services are NOT being sold per older enterprise software licensing terms that are typically based upon either a) the number of user "seats", b) the number of employees whose data is under management by the system or c) the annual revenue of the customer. Those older models provide great revenue continuity for providers. Selling AI services in increments of 1,000 tokens or 1,000,000 tokens (when one task can consume hundreds of thousands of tokens) means REVENUE can literally vanish overnight if the customer switches to another provider.

Adding Yet Another Gotcha to the Pile

It's important to state the implications to the business models of the firms leading current AI development efforts in very stark terms. The current approach betting on brute force spending to increase capabilities and "capture market share" is perhaps the WORST business model to adopt. It's a business model

• with astronomically high fixed capital costs
• with capital assets that optimistically have a 5-7 year lifespan
• with few barriers to entry for competitors
• with few barriers to exit for would-be customers
• and cash flows with nearly zero predictability of short term revenue

Based on the list at the start of this piece, this is now the sixth serious sign of the level of delusion in markets regarding AI technology and the firms pushing it. Will investors figure this out? Stay tuned.

WTH

A Grand Unifying Theory: Takeaways

This post is one of six posts in a series on this topic. The full list of posts are linked here for convenience.

A Grand Unifying Theory: Overview
A Grand Unifying Theory: Creativity / Productivity / Specialization
A Grand Unifying Theory: Trade / Money / Banking
A Grand Unifying Theory: Groupthink / Power
A Grand Unifying Theory: Current Case Studies
A Grand Unifying Theory: Takeways

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The models described in this analysis are ridiculously simplified compared to the real world. Their purpose was not to attempt a 100% accurate explanation of the current state of the world or its state in the future. Instead, the goal was to provide at least some plausible explanation of how key forces interact with one another over time to produce results that may differ greatly from what was desired, promised or intended. Applying these explanations to current events provided a way to cement the understanding and minimize concerns over hand-waving or cherry picking examples to justify conclusions.

Ultimately, theories serve no purpose if they cannot be used to predict future events and influence those events in ways that improve society. The key takeaways from these theories that must be applied going forward are set out here.

Creativity, Monopolies and Wealth Inequality

Throughout history, it has always been the case that at any point in time, there are always certain economic endeavors which become HIGHLY rewarded in the larger economy producing great wealth for those involved in those endeavors. It has also been the case that, at each of those points in time, those capturing out-sized wealth from those endeavors attempted to convince everyone else that they EARNED that wealth and should be allowed to continue capturing that wealth or "progess" would be impaired. The analysis involving creativity, productivity and specialization showed how those forces contribute to wealth but also showed that human progress cannot be accurately predicted and shifts from sector to sector as part of an iterative cycle.

Because of that feedback cycle, there will ALWAYS be some new technology emerging that provides the next leap in productivity and profitability that will supersede the incumbent monopolies. That isn't an argument for allowing existing monopolies, it's an argument that no business or sector merits reaching monopoly status in the first place. Allowing monopolies not only fails to ensure the continued economic success of such monopolies in their sector but existence of monopolies WILL harm society in the short term by over-charging and under-supplying existing needs and WILL harm society in the long term by starving other sectors of needed resources to allow development of the next big thing. A benevolent monopoly has never existed in the recorded history of mankind.

Monopolies in the modern data-driven industrial world are particularly dangerous because they place enormous economic power into the hands of private corporations whose behavior exhibits all of the groupthink flaws described previously and distort risk-taking decisions made by those corporations. Concentrating great economic power into a tiny fraction of society simplifies the process of corrupting government which already operates under its own groupthink patterns and distorted incentives made possible by gerrymandering and revolving doors between public service and private sector rewards for the right votes favoring the powerful.

Breaking up economic monopolies is essential to restoring democracy and correcting wealth inequality.

The Only Viable Path is Forward

The introduction to this analysis described two solution paths likely to be suggested as fixes to all of the current ills of the world. Those paths were labeled as:

• Rollback -- Rolling the clock backwards decades to some magical, mythical time where everything was simpler and everything will return to "normal".
• Course Corrections -- Making a few minor corrections and "investing in the future" will correct the most crucial problems allowing everything to move towards some better state.

Neither of these paths is viable. Both would somehow revert to a prior state of existence from which all the current rules in play originated. We now know those old rules and norms didn't prevent the de-evolution into the current state we face so attempting a major rewind or minor tweak to revert to any prior state solves nothing. In the case of the United States, these current experiences may not have been foreseen or intended as outcomes from our current Constitution of 1789 or the original Declaration of Independence in 1776 but they stem DIRECTLY from DECADES of effort by special interests who learned to manipulate and paralyze the government we have to yield these results. In sarcastic software terms, at this point these consequences aren't bugs, they're features of the system and the ultra-wealthy and corrupt politicians who serve them like these features. They will resist any attempts to eliminate these features for anything helping those not already holding the power and wealth.

A prior post reviewing the book We the People by historian Jill LePore summarized the problem facing the United States this way:

LePore's core point in writing the book is to convey that amending a constitution is the only way to keep it alive. Many conservatives would like Americans to believe that all of the existing amendments and any new proposals are corruptions of the original, "pure" and perfected Constitution and that all of our troubles stem from straying away from that original perfect text. Of course, reverting to 1787 would eliminate nearly two hundred and fifty years of racial / social progress and economic / environmental protections. The truth is that amending the Constitution is required for the country to move forward and attempts to amend the Constitution should be viewed with hope, not fear.

The current United States Constitution is irrevocably crippled by undemocratic stipulations regarding representation and improper powers being abused by the Executive Branch. No improvement in the long term direction of the United States is possible without a new constitution. The founders of this country didn't expect ANY constitution to last more than twenty years. They didn't fear constitutional conventions. They expected them. Americans today should demand them, at both the federal and state levels.

Think Calculus, Not Arithmetic

The larger goal of this analysis was to illustrate a technique of thinking through complex problems and systems by zooming in, then out, then across, then in, then out over a variety of forces people may think about individually but may seldom consider as a set. No issue of any consequence in a modern economy can be explained in a single dimension only involving a single variable or decision. The flip side of this point is that no human is capable of devising an accurate model for the real world nor would they understand one if someone else magically claimed to do it for them. But that doesn't mean that analyzing two, three or even four factors SIMULTANEOUSLY is pointless. Even if a simplified model is incapable of predicting an EXACT outcome of a proposed policy, the model can provide insight into how the change will alter the outputs. If a simple analysis says changing X by twenty percent will improve Y by ten percent but a politician or business is promising Y will change by two hundred percent, questions need to be asked and answered. Either the simplified model is wrong or someone is lying. Are they just ignorant? Or do they have a vested interest in boosting spending on X?

Another way of stating this lesson is to think in terms of calculus (a field of math that analyzes the rates of change between variables) rather than simple arithmetic. Economists can argue for decades over a simple demand curve, arguing over exactly where horizontally or vertically the curve should go on the price and quantity axes. They can argue over the precise shape of the graph (straight line or curve? slope?). But if anyone participating in the debate argues that the demand curve slopes UPWARD (reflecting that the quantity demanded increases to the right as prices increase), then everyone knows that regardless of any NUMBER coming from that economist, that economist doesn't understand the basic THEORY of supply and demand. Any NUMBER suggested by that economist is therefore pointless to consider.

Politicians, executives and special interests presenting simplistic, one-dimensional descriptions of problems and solutions cannot be trusted. Citizens should not tune out discussions involving complexity, they should seek them out. The mere complexity of a proposal isn't a guarantee of validity either but if the person advocating the proposal can speak to the complexity and explain the interactions between the variables their proposal addresses, they are less likely to be intentionally misleading the public.

False Precision

The idea that Jack Welch got away with manipulating quarterly earnings at General Electric for nearly two decades and became "America's CEO" never ceases to amaze. By the end of Welch's tenure in 2000, the firm was worth $600 billion dollars and had operated businesses in every sector imaginable over that term -- nuclear submarines, generators, home appliances, light bulbs, television networks, locomotives, jet engines. But for most of that tenure, GE's actual quarterly numbers for earnings per share matched its prior forecasts to the penny. Ponder that. It is impossible to find two economists who will forecast the same number on any financial statistic in the economy much less have even one of those economists get the estimate right yet a firm operating at nearly the same scale in nearly the entire economy managed to forecast its earnings correctly for nearly twenty years?

Should anyone have believed it at the time? Absolutely not.

In the present time, anyone showing up to argue a position that has numbers calculated to the decimal point and simple straight-line graphs pointing up is lying through their teeth. In a $32 trillion dollar economy, few statistics can be measured to more than two decimal points so anyone showing up with figures such as $3,141,592,653.50 has spent too much time carrying insignificant digits and not enough understanding the problem they have converted into a formula. And no one should listen to anyone providing forecasts down to the penny for any policy being proposed in current debates. A business begging for a $100 million dollar tax abatement because they will produce $4.79 million in additional salaries for a local community yearly? Don't get distracted by the precision. Ask the business under oath to show the math.

Any entity providing forecasts for specific economic or demographic statistics that contain false precision is succumbing to Excel syndrome (it was calculated in a spreadsheet so the number must be correct) or is attempting to mislead the audience with false precision. In some contexts, the presentation of such numbers may very well constitute fraud.

Investing Versus Gambling

The exponential growth in so-called cryptocurrencies is the most obvious current danger stemming from a failure to understand the difference between BANKING and INVESTING. This is because cryptocurrencies themselves are attempting to blur the line between the intended function of a CURRENCY and the intended purpose of INVESTING. An INVESTMENT is a transaction between two parties where both knowingly consummate a transaction which exchanges current and future values over some arbitrary period of time which exchanges a significant RISK between the parties. An investor who buys a new stock issue or a new bond issue of a corporation is surrendering CURRENT value to that corporation in exchange for a promise of future payback, either in interest payments and principal for the bond or in dividends and a higher future share price that can be captured by selling the shares later. Both parties understand that the longer the period of the bond (or the arbitrarily infinite period of stock ownership) generates risk and both assume the prices involved reflect that risk.

In contrast, BANKING is focused on optimizing the storage of existing wealth by providing security and convenience of access WITHOUT exposing that wealth to undue risks. A depositor placing $10,000 in a savings account paying a nominal 1% interest rate in a world of 4% inflation is essentially paying the bank 3% to protect that money. When the bank loans some of that $10,000 to another customer for a car loan at 9%, the bank is essentially taking a risk on the car loan to make some additional income off the $10,000 to further defray the cost of physically operating the bank, hiring tellers, oiling the hinge on the vault, etc. But the risk taken with the car loan by the bank and the risk taken by the depositor are FAR LESS than risks taken with INVESTMENTS.

When "investors" are buying cryptocoins as an "investment", they are speculating on the value of what they are calling a currency which defeats the purpose of trying to use the cryptocoin as a currency. Having the price driven up through speculation isn't allowing the cryptocoin to act as a store of value -- they WANT it to go up in value, even in the short term. The problem is that if a cryptocurrency can go UP significantly in the short term from speculation and hype, it can FALL in value significantly over short periods and thus FAIL at serving as a store of value.

In an environment of limited regulation on business in general and financial businesses in particular, individuals saving for their own futures require far greater literacy about how banking works, how different types of investing address risks and how nearly every transaction will extract money from and transfer risks to the least-informed participant in a transaction. Never confuse investing with gambling.

The Dangers of Decentralized Power

The section on groupthink and power theorized that organizations are likely to drift away from official stated goals or goals of individual members as the organization grows in size and becomes more difficult to control. Well, if allowing too much centralization of power and economic influence leads to monopolies in business or corrupt, unresponsive leadership in government, then surely decentralizing power and economic control would be good, right?

Wrong.

Government, law enforcement and the judiciary is a good example where too much de-centralization of power is creating harm in society. The harm stems from two problems created by de-centralization. First, decentralization duplicates hierarchy which requires more people to fill roles in those hierarchies. But what if the supply of people with those particular skills (mayor, controller, alderman, police chief, public works commissioner, judge) is limited? What if low tax rates restrict the amount of money available for pay and the entity cannot pay market rates for these skills? In this climate of low pay, those jobs are likely to be filled by workers checking at least one of these boxes:

• they are not qualified for similar positions of authority / responsibility in the private sector, or
• they can use that position of power and authority for their own financial gain, either directly to their own businesses or those of family and friends, or
• they simply want to exert power over others or abuse power for sadistic purposes

I live in a county with over NINETY individual municipalities. Each with a mayor and aldermen who exert influence over local policing, zoning and real estate development. Many of those have individual police departments, a city manager, a controller, etc. The pay may be low and the overall economic power of these people may be limited, but ultimately they still influence policing which can impact the freedom of people not just in their community but anyone driving through. Is that level of local autonomy necessary? Is it actually increasing safety?

As a final example of the trade-off between overly centralized and overly decentralized power, consider the murder of Letcher County, Kentucky judge Kevin Mullins by his own sheriff Shawn Stines on September 19, 2024 in the judge's chambers. Local officials quickly found the shooting was triggered after Stines suspected the judge of being involved with allegations that a deputy in that sheriff's department and others were operating an extortion ring between the county court and the jail that traded improved bail / probation terms for females in exchange for sex. The sheriff seems to have concluded this system was abusing his own daughter. Subsequent reporting has confirmed dozens of women in the county have been exploited for years by this group, including this judge. This type of abuse of power is much likelier to occur when everyone is habituated to believing "more government" is bad, "less government" is good and no one needs state or federal officials looking into their operations.

The opposite of a problem is seldom a solution. The opposite of a problem is likely to just create another problem. The world doesn't need MORE government. The world doesn't need LESS government. The world needs the RIGHT level of government with the RIGHT controls in place to be accountable for serving the public.

WTH

A Grand Unifying Theory: Current Case Studies

This post is one of six posts in a series on this topic. The full list of posts are linked here for convenience.

A Grand Unifying Theory: Overview
A Grand Unifying Theory: Creativity / Productivity / Specialization
A Grand Unifying Theory: Trade / Money / Banking
A Grand Unifying Theory: Groupthink / Power
A Grand Unifying Theory: Current Case Studies
A Grand Unifying Theory: Takeways

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Each of the prior sections in this series have provided limited examples along with each segment of the theory to better show how that concept behaves exponentially and interacts with related forces. However, with all of the components of the theory having been introduced for vocabulary, it is useful to take all of those elements and use them to analyze recent events to better illustrate how these forces multiply and interact. These concepts were chosen in the first place because of their applicability in so many scenarios so it isn't difficult to identify real-world examples where these factors are at work.

Investing Versus Fraud: Technology

Corporate executives often speak of "innovation" as a physical knob on the corporate dashboard that can be dialed up to spur productivity when the company begins lagging its competition or dialed down to boost profits when things appear to be going well and executives need to hit targets for bonuses. Executives for firms in "hot sectors" further emphasize this "innovation" their firm is providing merely by operating in a hot sector as justification for limiting or eliminating regulation on their business. We don't want to regulate X, that would stifle innovation, they say.

The prior section discussing creativity and productivity included a visual reflecting how overall "creativity" and learning to foster productivity might be thought of as a range of sectors all expanding outwards over time, collectively pushing out the horizon of knowledge into further frontiers. That discussion also described why growth in knowledge in any particular area faced upper limits due to shortcomings in communication and limits on the ability of any one human to absorb new information. Despite those limits, it is common to see bubbles in "investment" in particular technologies. It may be logical to assume that if research into a topic is producing improvements in some technology, that providing more funding into that topic will yield MORE improvements. That may be true but the improvement will never be linear from zero to infinity. Those upper limits kick in and cap the target area but also show other areas falling behind due to under-investment.

Even though these limitations should be obvious, bubbles are common in every economies at the onset of every new technology. Bubbles happened with steam locomotives, with oil, with telecommunications, with the Internet. And now a bubble is driving Artificial Intelligence investments. But based on all of the analysis presented here, a different question should be asked.

Do the trillions targeted for spending on Artificial Intelligence constitute investing in innovation or something else?

Based on this analysis, it is no surprise that the answer to that question is that the trillions targeted for AI do not constitute investment, they instead constitute gambling and fraud. The pattern of "investments" touted by OpenAI, Oracle, CoreWeave and Nvidia (and to a lesser extent Google and Microsoft) exhibit outcomes that should be very familiar after discussing fractional reserve lending. Any time you create a closed loop among a set of parties then allow a portion of money coming in (revenue) to go out as loans that result in more money being spent within that closed system that count as revenue which allow more lending, you are essentially operating as a bank. These firms are recording revenue by signing circular deals to provide future services and product to each other. The circular flow triggers the exact same multiplier effect as banks lending money with a reserve ratio of say 10 percent.

As a result, what might have started with $5 billion in contracts to build X amount of physical data center capacity has gone through this circular multiplier and resulted in over $1 trillion dollars in nominal contracts over the next five years to deliver data center space, power and compute. These contracts have exhausted nearly every electrical utility's ability to add power generation anywhere in the country, they have tied up supplies for not only GPU processors but basic NAND memory chips used by the entire computing industry, and driven stock prices for these firms to Price/Earnings ratios that make the 2000 Internet bubble look quaint in comparison.

Do any of these executives believe $1 trillion in infrastructure can be constructed in five years? No. Do any of them have a business model that shows they will collect enough revenue to pay for $1 trillion dollars in debt? No. So why are they doing it? Because in the short term, these circular contracts literally ARE behaving like bank loans into a closed ecosystem that is magnifying each deal and creating more fictional demand that starts the next iteration. And once the iterative loop starts, they are reluctant to publicly halt the mania because the flow cannot be stabilized to zero growth or loss, it can only GROW exponentially (making them short term money) or DECAY exponentially (costing them money if they hold their own stock).

As just ONE of many hypothetical examples of what is wrong with allowing one sector to dominate "research" and capital spending, imagine the trillion dollars being funneled to AI does NOT result in a Utopian generalized AI technology. It is equally likely that a needed breakthrough required to improve computing capabilities required progress in material sciences and semiconductors that required basic research in physics and chemistry -- research that was crippled or eliminated as every technology investing firm chased the easy play with Nvidia, OpenAI, Google, Microsoft, Amazon, Oracle and CoreWeave.

Or maybe the next best idea to advance AI technology actually involved continued research into brain physiology related to language processing to develop a different model for relationships between pieces of information and concepts. With a trillion dollars chasing chips and semiconductor fabrication plant construction, it would be very likely that sort of biomedical research did not get the funding it deserved in order to contribute to a better solution.

The Gold Standard

There might be no more loaded term in economics and general society than the term gold standard. It is used as the ultimate compliment for anything else that is thought to be the best in its field. The epitome of perfection. In actual economics, those who seriously promote a return to the gold standard as part of re-creating some prior economic utopia of stability and equity are misunderstanding (or misrepresenting) history and conveying a profound lack of understanding of all of the concepts addressed here regarding productivity, specialization, trade, money and banking.

Gold standard advocates misrepresent history when claiming that tying a given economy's currency to a fixed amount of gold avoids financial disasters. Many economies DID operate within gold standards (or silver equivalents) over the past centuries of relatively modern economic thought yet experienced crippling economic failures every ten to twenty years or so stemming from speculation, improper lending and other random events which pointed out the depth of insanity in a market at a point in time. Conforming to a gold standard didn't eliminate the speculation and it didn't ensure depositors got their prior value of money out of a bank during a period of duress. Attempting to impose a gold standard only constrained the economy from growing after a collapse or resulted in price mismatches for goods that impaired trade with other countries.

In modern economic times (the last one hundred years), industrialized economies locking their currencies together through fixed exchange rates to gold do not succeed at preventing their governments from doing stupid things that destroy their domestic economies. Instead, fixed exchange rates provide additional avenues for the ill effects of bad domestic economic strategies to spread to other economies. If a country is impairing its ability to pay back its public government debts owed to investors in other countries or private debts of its businesses to foreign investors, a floating exchange rate for its currency would result in its exchange rate DROPPING which would serve as a sign to investors that problems are looming, allowing them to more quickly adjust risk assessments and lending decisions. If the country's currency is held at a fixed rate, those problems are being masked from the wider international investment community, encouraging continued investment which then spreads those looming risks into other countries.

This is exactly what happened between 1925 and the beginning of WWII when Britain, Germany and France all resumed currency policies pegged to gold. Doing so more closely tied their economies to that of the US, which had become the largest holder of gold during WWI due to a flood of lending to Allies. When US markets tanked between 1929 and 1932, that drag was transmitted to these countries which already had distinct problems.

It is easy to recite examples from history that refute the suggestions that tying fiat currencies to a gold standard prevents fraud and economic calamity but that's not the same as explaining WHY a gold standard doesn't actually solve problems. The WHY explanation requires reiterating two of the core requirements of any currency:

3. The token or symbol must be difficult to forge so members of the community are confident the person presenting it actually performed work at some prior point representing that much value
4. The token or symbol chosen CANNOT be so difficult to create that it cannot be created at rates that keep pace with the growth of population and value being produced in the economy

As has been the case with many of these theories, they are easier to illustrate with extreme cases. Using sand as a currency would fail requirement #3 because sand exists in virtually infinite quantities throughout the world and it is difficult to distinguish one variety from another if mixed together. But imagine a society that chose to use plutonium as a currency. Plutonium certainly satisfies requirement #3 since it is impossible to synthesize out of thin air but plutonium DOESN'T satisfy requirement #4. Plutonium doesn't even exist in nature. Plutonium must be created by mining uranium then subjecting the uranium to chemical processes that require multi-billion dollar plants and millions of dollars in energy to create a single ounce and once created, it cannot be safely stored or transported for use in transactions.

But imagine an economy whose population is growing 5% yearly and whose total output (value) of goods and services is also growing exactly 5% yearly. Since output is growing in lock step with population, the ratio of value to consumers is constant so even with zero change in productivity, prices would remain stable. But remember, actual UNITS of products and services did grow 5% so to count up the value of that additional 5% of QUANTITY produced requires 5% more units of money in the economy. If the central bank issues 5% more in bills of the currency, that gap is filled and prices remain flat as expected.

Now imagine that same economy tying its currency to gold (or some other magic metal) with a fixed rate of exchange. Under a gold standard, individual currencies can only increase their total value of bills in lock step with the growth in total mined gold. If total gold increases 5% over the year, then a local economy that physically produced 5% more goods will be able to have 5% more of its bills to reflect those additional quantities and the PRICE of those goods will remain unchanged. But if total gold supply does NOT increase 5%, that local economy that created 5% more goods will have 0% more bills to reflect their value. That will drive local prices denominated in that currency up 5%. Inflation! And that inflation stems from factors that local economy cannot control. Of course, economies with gold to mine and existing gold holdings see the prices of goods from every other economy tied to a gold standard FALL making those goods cheaper for them.

The takeaway is that adoption of a gold standard can unduly benefit economies that control outsized shares of total gold reserves but adoption of a gold standard by economies lacking gold can not only IMPAIR their growth but actually trigger CONTRACTION regardless of how productive and fiscally prudent that economy is.

The prior discussion of inflation already addressed the macroeconomic impact of DECLINING prices -- they encourage saving (which can be good for individuals) but increased saving across all members of an economy SHRINKS the economy and tips the operation of the economy from the upward spiral to the downward spiral. In the context of gold standard debates, there isn't some rule of natural law and physics that says confirming to a gold standard is bad for an economy. However, in the real world, the supply of new gold is not predictable year to year and is obviously not evenly distributed across all economies participating in trade. When the costs of physically mining gold vary or the total supply of new gold fluctuates wildly due to local conditions or global politics, any economy tying its currency to a gold standard is subjecting its local economy to fluctuations that have nothing to do with its local productivity, the actual WORK value of its goods and services produced, or any other policy choices made by that society.

Cryptocurrencies

The thinking driving the popularity of cryptocurrencies since Bitcoin emerged as the first notable example in 2009 reflects some of the same faulty logic as that used to support implementation of a gold standard, with some other unique political and technical twists. As with the rationales provided for a gold standard, it is worth developing a basic understanding of the similar fallacies behind cryptocurrencies to avoid being misled in policy debates about the role of cryptocurrencies in an economy that is both modern and secure.

Debunking support for cryptocurrencies again starts with re-stating the capabilities that any currency must provide in order to serve as money in a modern economy.

1. It must be widely accepted as a means of facilitating a transaction ("legal tender")
2. It must hold value predictably over an arbitrary period of time -- not forever but hopefully for days, weeks or months ("store of value")
3. The token or symbol must be difficult to forge so members of the community are confident the person presenting it actually performed work at some prior point representing that much value
4. The token or symbol chosen CANNOT be so difficult to create that it cannot be created at rates that keep pace with the growth of population and value being produced in the economy
5. The token should be physically convenient to use in commerce -- money using stones that weigh 3 tons a piece are not convenient for commerce between communities

Right off the bat, existing cryptocurrencies fail for requirements #1 and #5 because they not only require a computer or smartphone to interact with the "ledger" scattered across the globe, the persons attempting to spend or collect them as part of a transaction require Internet connectivity. Internet access is NOT a given in many authoritarian regimes as a matter of protecting the regime but Internet access cannot be assumed as a given purely for a variety of technical reasons. An unexpected software fault could cascade across multiple networks or multiple data centers and prevent access to servers providing ledger functions. A lower level, more catastrophic, fault in a power grid could completely cripple all connectivity, preventing the use of cryptocurrencies for transactions even in emergency situations.

Cryptocurrencies also exist in a unique state that poses another challenge acting as legal tender. The concept of "legal tender" is a very abstract phrase for a more direct, crass term -- coercion. As stated in the prior analysis about money, adoption of any arbitrary money within a community likely requires some amount of coercion within that society in order to get a suitable share of the entire community to USE the money for daily transactions. There's no magic percentage that has to be reached for a given choice of money to become viable but it seems intuitive that that share cannot be only 5 or 10 or 15 percent of the population or even 5/10/15 of the portion of the population engaging in trade. Social coercion can help but government coercion is far more effective. Officially stating that a given choice of money is "legal tender" for all debts requires sellers to accept the money for purchases. If the money is refused, the government can pursue civil or criminal charges to encourage adoption.

Cryptocurrencies have a unique problem in that they are, for the moment, stateless. They don't exist in any particular physical location, they aren't issued by any particular government and no particular government can deterministically alter its fiscal decisions in any way that would influence the worth of a cryptocurrency. So if a dispute about the integrity of a cryptocurrency arises or its value as expressed in terms of other traditional currency suddenly fluctuates drastically and suspiciously, which government has any motivation to back that cryptocurrency and essentially coerce people into continuing to accept it? NONE.

Cryptocurrency fans like to focus on the theory that a decentralized, stateless currency is superior to any traditional fiat money issued by a government or a central bank because no one can just "fire up the printing presses" for a cryptocurrency like they can paper bills. The problem with the lack of any centralized authority to manipulate a cryptocurrency is that there's a flip side to that supposed benefit. A cryptocurrency with no central AUTHORITY controlling it means no authority has any RESPONSIBILITY to protect it amid turmoil. Cryptocurrencies are instant orphans in any true financial meltdown. When the next global market failure occurs and the real purchasing power of currencies across the globe plummets in lock step, NO GOVERNMENT will be focusing first on protecting the value of any cryptocurrency or even ensuring online access to them. It's somebody else's problem, by definition, which means it's nobody's problem to fix.

So if cryptocurrencies are incapable of satisfying all of the demands of a legitimate currency and acting as money, what do cryptocurrencies actually represent? To a large extent, they represent a target for use in purely speculative gambling, hoping on a continued rise as more people are attracted to the rising price (not the underlying utility). Cryptocurrencies are literally the poster child of an asset driven by the perpetual hope of a greater fool coming around the corner.

Investing Versus Fraud: Derivatives and Private Equity

The multiplier effect created by fractional reserve lending isn't the only means available in the financial sector for capturing exponential wealth while also magnifying potential losses to multiples of an original investment. Buying stocks on margin, purchasing options on commodities and stocks and synthesizing new bets on other people's financial contracts (derivatives) are all means of potentially making large amounts of money or incurring losses that vastly exceed original investments.

Unfortunately for the larger population, "creativity" within the financial sector seems preoccupied with devising schemes to exploit leverage for making money and there appears to be no "OFF" position to this particular switch. Beginning in the summer of 2025, quarterly financial filings of public firms and unexpected implosions of privately held firms demonstrated that a new form of fraud has been perfected since roughly 2015 and involves banks, hedge funds and the third member of the unholy trinity of finance, private equity firms.

The easiest way to convey the nature of the fraud is first think of a pay-day lender and an individual needing credit to afford an urgent car repair. In a pay-day lending scheme, the lender takes a huge risk by supplying the loan amount but balances it by charging a very high interest rate. Even if the borrower cannot pay the principal back, as long as they can pay the interest, the payday lender will roll over the loan to the next week or month. But the payday lender IS still exposed to non-payment risk of the original principal.

Instead of the original payday lender taking that risk and holding it for an extended period, imagine the borrower goes to ANOTHER payday lender and borrows a larger amount from them to pay off the original payday lender (interest + principal). With this scheme, no single payday lender holds the risk of that particular borrower for a very long time and since it might appear that the borrower paid off the prior balance, their credit might not reflect the fact they still cannot afford the car repair. The borrower keeps paying higher loan origination fees each time but never makes progress retiring the debt and all of the payday lenders are making money.

This simplistic round-robin payday lender example is very akin to financial dealings that have been taking place between banks, hedge funds and private equity firms for the past decade, possibly longer. The existence of this process became visible beginning in the summer of 2025 after surprising bankruptcies of large companies (parts conglomerate First Brands, used auto conglomerate Tricolor) controlled by private equity firms brought to light that these firms had recently landed new loans sometimes only WEEKS before filing for bankruptcy. The private equity firms involved in some of these deals -- Blackrock, The Carlyle Group, Bain Capital, KKR -- and banks involved in the loans -- JPMorgan Chase, Jeffries, Fifth Third -- are some of the biggest institutions in their field. Where was the due diligence?

The apparent answer is that as this model evolved and began increasing short term profits, all of the banks and PE firms adopting the model just began assuming any particular risk would be shuffled off to the next "payday" lender so risks were small. What's the point of completing due diligence if the loan will roll over to another firm in twelve months?

What none of these parties understood was that this practice was extracting profits for them but bleeding the target dry over a period where large economic forces were undermining the entire business model of the borrower, magnifying their cash drain. But the PE investors didn't understand that. They don't really care about cash drain while executing their core business model. Their goal is to BE that cash drain. They're not trying to save the borrower and turn it around, they are simply trying to extract its cash.

The banks didn't think about that either because they didn't look at the cash flows, they expected to offload the loan in a short period of time, either by it being re-financed somewhere else or being bundled into a derivative and sold off like another McMansion mortgage. And hedge funds who invested in the bonds backing these loans were looking for high interest rate returns and assumed they could hedge any risks through derivative bets. All of this provided liquidity to businesses whose ACTUAL financial performance merited no such liquidity, all because other parties had perfected a means to extract profit from it.

While being distracted by all of those rationalizations, the banks, PE firms and hedge funds involved also failed to realize that keeping these zombie companies alive was also extending the life of failing management teams at these firms who also had personal interest in maintaining executive roles while also potentially looting the companies as well with lavish expenses. Since no one was properly auditing the books of these firms before lending, the rogue behavior of the management team added to the unpredictability around the firm's ultimate failure, surprising everyone.

This pattern is not merely financially ill-advised, it is undoubtedly criminal fraud. With most lending, a debtor and creditor have significant latitude to renegotiate loans amounts, terms and interest rates as circumstances evolve. However, this lending model hinges upon deferring recognition of core insolvency so some of the particpants can continue extracting fees from loans which absolutely cannot be paid back. It's another variant of fractional reserve lending with one extra dangerous twist. Here, the multiplier effect originates from the PE firm's choice to re-finance the "payday" loan for the operating business. If the loan is funded through "investors" in the PE firm, no bank is involved so there is no minimum "reserve" the PE firm must satisfy, as long as they can attract capital. Banks may participate and provide some of the loans but bank participation in this lending becomes only a fraction of the multiplier that ultimately results. The extent of the danger from these loans is INVISIBLE to the larger market because most of these PE firms are privately held and don't publish quarterly results.

When the bank lender, the PE firm and the operating entity X have all made horrendous decisions, their primary motivation may become one of simply deferring recognition of reality or to dump the bad asset (the individual loan or the company stock) on an unsuspecting "investor."

The criminality behind this pattern stems from the fact that the model is purposely blurring a distinction between "lending" and "investing." In most contexts, these terms involve money and risk and are blurred together in most minds. Someone deciding between buying corporate bonds and Treasury bonds treats both of those alternatives as investments just like stock purchases. For discussion here, there is a crucial distinction to be made.

When a party makes a LENDING decision, a risk is being accepted in exchange for a future profit. However, the lender expects to be taking a relatively small risk and demands a smaller fee (interest) for that risk. But the lender is going to minimize the risk by learning as much as possible about the risk by understanding the borrower's raw income, existing debts, cash flow from their business, market risks for that business, etc.

When a party makes an INVESTING decision, a risk is also being accepted in exchange for a future profit. But the magnitude of that risk is vastly larger than that of a loan and the source of the profit made by the investor doesn't come from fixed payments (ignoring dividends) from the investment, the profits come from OWNING a share of the actual business. The amount of profit possible for the investor isn't capped at the initial investment, it can accumulate to be many times the original investment. But in exchange for that opportunity, the investor accepts that the value of their investment could fall to zero unless they sell it to someone else first.

This PE lending scheme purposely blurs this distinction by

• trying to capture income from higher interest rate loans to marginal borrowers
• while trying to take advantage of the assumption of due diligence associated with credit evaluations for loans
• while expanding the source of funds for these loans via equity sales
• while avoiding actual audits to validate the underlying integrity of borrowers

In short, this scheme is injecting derivative levels of risk into a sector of finance that normally expects very little volatility and far higher predictability. Once this mechanism began iterating on itself with its "multiplier" effect, all of the parties participating develop a shared interest in propping up the bubble. They all hope they can shuffle a bad loan to one more party before the music stops but they're all unwilling to give up the short term profits being pocketed from the scam. In other words, this is the mortgage and derivatives failure of 2008 all over again.

Prior to the 1980s, the "investing" vehicles posing the highest risk for the destruction of value were commodities / futures and margin trading. Trading of commodities futures dates back millennia but even America's modern commodity trading dates the establishment of the Chicago Board of Trade in 1848. Commodities trading stemmed from a legitimate need within economies to spread the risk associated with weather-induced fluctuations in crops and stockyard supplies to ensure farmers and ranchers had steadier incomes year to year and ensure food manufacturers could smooth out supply issues to continue delivering food products to consumers. Futures trading thus wasn't an attempt to CREATE new forms of risk then gamble on the outcome, it was created to QUANTIFY existing risk to allow a larger market to balance it across a wide number of participants for the benefit of all participants.

As of 2026, the landscape is vastly different. The exact paper value of all derivative swaps in the US market alone is unknown but thought to be around (gulp...) $400 trillion dollars. This in an economy of about $32 trillion dollars GDP, government debt of roughly $36 trillion, consumer debt of $19 trillion and corporate debt of $14 trillion. Essentially, the financial sector ran out of ways of extracting income from the dollars required to create $32 trillion in REAL value so it invented new types of financial gambles to attract "investment" that essentially amount to BETS on existing stocks and bonds or even BETS ON BETS on existing stocks and bonds and the "value" of those primary and secondary bets now exceeds the value of the REAL economy by a factor of 12.5.

The private equity lending debacle unfolding right now is just the latest financial scam tied to runaway, exponential forces stemming from poor financial regulation and fraud. Like every similar exponential bubble in financial history, it won't end with a polite announcement and a slow, multi-year contraction to some prior level of sanity. Once everyone realizes the bubble is out of raw material, it will collapse nearly overnight and trigger massive disruptions throughout the economy.

WTH

A Grand Unifying Theory: Groupthink / Power

This post is one of six posts in a series on this topic. The full list of posts are linked here for convenience.

A Grand Unifying Theory: Overview
A Grand Unifying Theory: Creativity / Productivity / Specialization
A Grand Unifying Theory: Trade / Money / Banking
A Grand Unifying Theory: Groupthink / Power
A Grand Unifying Theory: Current Case Studies
A Grand Unifying Theory: Takeways

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It seems logical to assume the ultimate behavior of a collective of humans would be some sort of weighted average of the behaviors and goals of the individuals in that collective. If a group of one hundred people split 52/48 between tendency A and tendency B, it seems logical that the collective would "tend" towards A a majority of the time, maybe a super-majority of the time depending on decision making rules. If there is uncertainty about the exact split of those in that collective, it seems obvious that modeling the behavior of those individuals more accurately somehow would improve the accuracy of predictions about the behavior of the collective.

Reality seems to support vastly different conclusions. A collective with an arbitrary split of 52/48 between A and B might actually exhibit a significant skew in direction C, in a third dimension not predicted by merely analyzing A and B. This divergence has nothing to do with the stated purpose of the organization, be it business, political, social or legal. It stems from innate aspects of humans working within ANY sort of hierarchy, regardless of why that hierarchy has been adopted or imposed. Understanding this divergence is vital to understanding the nature of solutions that must be pursued when attempting to correct for bad behavior after calamity strikes or correcting behavior before calamities are created.

Groupthink: None of Us Is As Dumb As All Of Us

The author of this entire series hereby stipulates that this portion of the analysis has the least grounding in any concrete scientific or quantifiable measurement. It is thus the section most guilty of hand-waving and "pop-psychology" methodology. However, any time that a complex problem can be simplified to fit on a Despair poster and sell thousands of copies, there's a nugget of truth to be unearthed and polished up. In this case, these observations are based on over thirty years watching managers at all levels in their native habitat, the corporate organization chart. Those observations make it clear that the divergence between INDIVIDUAL tendencies and GROUP tendencies stems from these key factors:

• differences in human affinity to hierarchy and power
• the complexities made possible through specialization and its resulting hierarchy - complexities that grow exponentially with the size of the organization
• differences in financial and social incentives offered to people based on position and status

In prior sections of this analysis, discussions about productivity and human creativity stated that human interaction with others accelerates learning by sharing experiences which can improve rote productivity or lead to improved processes that improve productivity. Here, an argument is being outlined that assumes working with others IMPAIRS productivity by triggering unexpected interactions that drain effort away from formal goals and expend it in directions none of the individuals supposedly want individually. Three factors make this possible.

Affinity to Hierarchy -- This parasitic drain stems from imposing hierarchy upon a collection of people who will have different individual tolerances for and interest in such hierarchy. Managing one's relationship with that hierarchy and attempting to influence one's role in that hierarchy becomes another task in the day of each member of the collective. Those who seek a sense of structure will devote time to syncing themselves to whatever direction can be gleaned from the hierarchy. Those that seek power and status will devote time attempting to advance their position. Those turned off by hierarchy will attempt to minimize their interaction with the collective and perform as much of their work independently as possible.

Hierarchy and Complexity -- Even for people with no particular aversion to hierarchy, larger organizations with more complex hierarchies make extreme complexity more manageable, but the complexity can never be completely eliminated. Large organizations creating complex goods and services require processes unique to the organization that have nothing to do with the service or product being delivered. This becomes its own area of specialization that can be VERY abstract, making information about such work prone to misinterpretation. Unfortunately, this complexity can also make it easier for bad actors to hide bad actions behind the complexity, delaying recognition of actions that require correction due to quality issues or outright malfeasance.

Incentives -- If the range of individual feelings toward hierarchy is wide, the range of incentives influencing the BEHAVIOR of people at different levels of a hierarchy is stupendous. Arguably, these widely varying incentives drive most of the unpredictable variance between goals of individuals and actual outcomes from an organization. Those familiar with the work environment in Corporate America are familiar with the trope about "executive hair" and how those in "Mahogany Row" tend to conform to certain stereotypes about appearance and dress. These sartorial similarities absolutely PALE in importance to the similarities in more critical areas of communication tendencies and risk-taking.

On the surface, senior leaders usually APPEAR to be very calm, deliberative and conservative in their interactions with nearly ANYONE in the organization. This veneer of inscrutability is thought to reflect confidence, leadership and decisiveness (if not infallibility). In reality, in many corporate settings, pay incentives are so extreme that leaders exist in a vastly different bubble than average people in the same organization. The stakes for the next "win" are so high that leaders certainly have an incentive to swing for the fences to achieve that goal but their pay is already so high at its minimum that their worst case scenario (failing, getting fired, getting a golden parachute) is still one hundred times better than the life outcome of nearly anyone else. Leaders in this situation do NOT have the same incentives to avoid DOWNSIDES as everyone else and consequently, such leaders are predisposed to accepting higher risks with extreme "personal NPV" for them, even if the "collective NPV" for the business is much worse.

The real problem with this incentive structure is it affects the promotion process because risk takers don't want a layer of management beneath them constantly reminding them of potential downsides. They want people to take orders, rally the troops and take the hill. This creates a self-selecting feedback loop in the organization that filters downward, layer after layer, hire after hire and begins altering the culture of the entire organization.

An Anecdote

The prior analysis made a case that the goals and outcomes from an organization of individuals cannot be accurately predicted by knowing or controlling the goals and motivations of those individuals. There is an even more important corollary to this initial claim. The corollary is that if the behavior of an entire organization cannot be PREDICTED by knowing and controlling the goals of its individuals, it can also be assumed that the behavior of the organization cannot be CHANGED by even conscious attempts to "change the culture" by hiring new members, even at senior levels. The organization itself isn't human and doesn't care WHO is in charge. The organization itself has its own "inertia" beyond the control of the humans within it.

Here's a possibly long but hopefully enlightening anecdote to illustrate this concept.

A third of the way through my career, at the end of the 2000-era Internet bubble, my employer imploded and I landed a new role at another firm in town in roughly the same industry as before. The new job started in October of 2001 and I had two weeks time off to decompress from the prior firm that ended with a whimper and get dialed in for the new role. I had worked previously for a large telecom firm then the small Internet firm that tried to operate as a creative, entrepreneurial startup but nothing prepared me for the culture shock I encountered from the first day at employer #3.

I arrived on my start date at the HR office at 8:00am, assuming the new boss would be there to escort me to my office and begin doing on-boarding paperwork, getting a laptop, etc. Nope. The HR person didn't even show up until 8:40. The new VP boss didn't show up until 8:54am. He escorted me to his section of the building but conducted three other conversations with people he encountered in the halls and elevator along the way, treating me like an annoying runaway dog being dragged back to the family yard. No sense of professionalism towards a new hire and rude to not only me but everyone he encountered in that six minutes.

Within an hour on that first day, I was pulled into a CRUCIAL meeting. It seems the company had partnered with another company to actually operate the gear delivering services to roughly forty percent of the entire company but that company was declaring bankruptcy and had posed an ultimatum. Give us some bridge money to keep your stuff alive while you try to migrate it to your own stuff or don't pay us anything, "go dark" on December 1 and lose all of your customer revenue until you can turn up your own network with whatever customers are still willing to stay with you after dropping their service.

The "leaders" in this meeting including my boss were collectively flummoxed as to which alternative to take. They were completely at a loss as to how to even model the problem from a financial and calendar perspective. Being unsure of how input from a first-day employee would be received among ten corporate VPs, I said nothing in the meeting. As I walked out with the new boss, I outlined how the problem could be modeled to clarify the decision for execs:

• identify all key locations
• identify cost of new OC3 or larger circuits
• identify equipment intervals for new gear
• identify time required to pre-build new network configurations for new year
• identify revenue/sub and subscriber counts at each locations
• calculate revenue lost between go-dark and our expected turn-up date
• identify keep-alive bridge costs between go-dark and our expected turn-up date
• calculate the difference: if revenueloss > bridgecost, pay bridge cost

He and a peer VP working the problem with him heard this and said, great, mock it up and we'll review that in the next meeting. It took me about 20 minutes to model the structure of the model and sanity check it with mock figures and another day to find people with access to appropriate figures and get those numbers plugged in (remember, I'm a Day One employee who knows no one).

On the day of the next CRUCIAL meeting, I expected to email one of the VPs the spreadsheet and expected one of THEM would actually drive the projector in the boardroom and talk through the explanation. Nope. As I provided the quick summary to them on which variables to flip back and forth to better highlight the contrast between the alternatives and how they varied in different markets, they said we don't know how to do that, you bring your laptop to the meeting and drive the screen and talk through the analysis.

So on day three or four of my job, I sat in the boardroom with the CEO, a few SVPs of operations and finance and probably ten other VPs talking through the model and explaining to them that given uncertain delivery intervals of replacement gear, uncertain intervals for delivery of new circuits to the new gear and the likely churn of customers to competitors if a go-dark approach was chosen, it made sense in most markets to pay the bridge costs, keep the customers lit while expediting our internal network turn-up.

In reality, ANY of the executives in that room should have possessed the basic "feel" of that business to think through those options verbally and come to the best decision without a meeting. But even with a spreadsheet prepared to outline that train of thought, none of them had the basic Excel literacy to scroll up and down in the spreadsheet, much less the acumen to make a multi-million dollar decision based upon the content without being spoon-fed the analysis.

Only a few days after that, work began to plan the connection of our gear to new backbone circuits to other carriers. Engineers in one region were concerned about how to incorporate the new circuit while keeping the prior circuit connected for an overlap period. In network circles, this is a relatively straightforward process of configuring "peer" connections using Border Gateway Protocol (BGP) and configuring ranges of your IP space to "advertise" as available to that upstream provider while keeping other ranges internal to your network. They seemed stumped so I told them, "I know BGP pretty well, export your current configuration file, hide the current passwords and mail me the file and I'll take a look."

They did. I took a look. The name of the router was fw1 (it should have been something like frtwtxbb01). The current configuration had no BGP configuration whatsoever. It had a static "default route" entry in another routing protocol (OSPF) not normally used on peer connections between Internet carriers that pointed all traffic out one port on the router. This was a router serving (at that time) about 120,000 customers. With no dynamic rerouting of traffic. No filters preventing leaks of private IP ranges to other networks. No policies to reject accidental advertisements of private IP ranges from upstream providers. Astonishingly amateurish.

I was with that firm for twenty plus years. Over that time, the CEO office changed hands five times. The SVP positions probably churned out every six or seven years on average. VP slots often changed every three to four years. Yet despite that turnover at the senior leadership levels, there are elements of that original 2001 culture I encountered my first day -- hitting me like walking into an invisible wall -- that persisted to the day I left. And many others who hired on over this same period reported the EXACT same jarring Day One experience upon joining the firm. The rudeness of leaders. The ignorance of leaders. The arrogance. The surprising lack of proficiency among technical roles. Home-grown tools and spreadsheets for tracking projects, costs and future budgets involving BILLIONS of dollars that changed every year but never proved more suitable for their stated purpose for anyone who had to populate them or make decisions off them.

The company remains the corporate management equivalent of the Salvador Dali painting, The Persistence of Memory. Things look normal after a quick glance but then you notice the melting clocks dripping off the table and hanging in the trees.

Power and the Persistence of (Bad) Culture

The mix of high churn in leadership roles with stagnant (often toxic) culture described above seems completely incongruous. The odds would seem extremely low that a multi-billion dollar firm could encounter THAT much leadership churn without any of them making ANY dent in ANY of its systemic cultural problems. One might think that purely based on averages, half of those leaders would have brought in some "best practice" and maybe HALF of those would have taken root and become reflected in the culture twenty plus years later. In fact, those working in the company that entire time would come to the exact opposite conclusion. Long-timers would conclude the company as an organization essentially developed an immunity that killed off any new directive or process that conflicted with established patterns and the inertia of those toxic patterns exceeded the power and influence of even the CEO of the company. (And this is assuming each of those new leaders entered with the absolute best of intentions and competence. Reality suggests otherwise.)

How does this organizational immunity to improvement develop?

Here are likely contributors to this phenomena:

• Flavor of the Month -- Churn at senior levels is nearly as toxic as stagnation with weak talent. Frequent role changes convince lower tiers to ignore the next new thing and wait for the new guy to churn out rather than adopting requested changes.
• C-Grade Players Don't Attract A-Grade Players -- "Leaders" who swap senior positions every three years might be doing so to avoid looming accountability for major bad decisions. They're not "A" players, they're "C" players. When these mercenaries quit one firm and join another, they often hire their C-tier buddies and bring them in as well, further lowering the quality curve within the new company.
• Slouching Towards the Mean -- The sheer size of large organizations guarantees their cross-section of employees / members will tend towards societal averages in every measure. A firm employing ten people specializing in a unique technology can hire above the norm and keep certain character traits out of the firm. A firm operating 200 retail locations open 16 hours a day across forty states is going to have an employee base that much more closely mirrors all of the pathologies found in the overall population. These pathologies WILL find occasional expression within the company and often trigger many of the odd outcomes that weren't formally stated by anyone as a goal.
• Hidden Truces Thwarting Accountability -- Senior leaders often declare informal truces with competing leaders whose organizations SHOULD act as checks on each other to preserve autonomy. Let me do what I want with my financial systems and I won't second guess your IT spending plan in front of the CEO.

That is how a COLLECTION of individuals operating as a single entity can exhibit a specific behavior that no INDIVIDUAL member of the collective claims to support, even if some members of the collective hold positions explicitly designed to THWART that behavior. The other forces at work within the collective jointly exert more inertia allowing the behavior through indirect influence than any individual can identify and counteract.

This clash between these collective secondary forces versus individual actors holds true beyond corporate environments. It holds true in any sufficiently large organization -- charities, educational institutions. governmental bodies, religions, unions...

Organizational Power and Society

If the strange immunity of organizations to the exercise of power within them by their leaders makes sense, it has profound impacts for society. First, once an organization begins exhibiting patterns of abusive behavior (monopolistic practices for businesses, wasteful extravagance for charities and universities, captured gerrymandered-to-death political bodies, abusive treatment of believers in the case of religions, etc.), the INSTITUTION will take actions to defend and perpetuate ITSELF despite what any member or leader claims to do to correct the issue.

Because of that first point, organizations that begin fighting off external efforts to correct perceived internal problems will devote increasing shares of internal resources to the defensive battle rather than whatever might have been the original "mission" of the organization. This dilution of focus can materially alter the glide path of the entity, with dire consequences in the longer term.

Even if punitive financial or criminal penalties are assigned to the entity or specific members, the culture that allowed those actions to take place will likely persist, The explicit form of offense targeted by the correction might never happen again, but those lower level innate characteristics that allowed it to occur are still in existence and may lead to different actions with similar negative consequences to still occur.

This pattern also means that no outside entities attempting to coerce an offending organization into altering its behavior can take solace in having personal relationships with that organization's leaders as a lever for forcing change. The leaders you know at that organization may be as upstanding as you could ever wish for and as well-intentioned as you could hope for but if their organization has systematically engaged in bad behavior, you cannot confuse the HUMANS with the ENTITY. The ENTITY is likely the root problem and deserves no mulligan or do-over.

It's also important to point out that this pattern is in no way based on the original intended purpose or original actual behavior of an organization. The pattern defined here is driven solely by the size of an organization, the resources it grows to control and these "ricochet" effects of human reactions to operating within hierarchies.

The real conclusion from these observations is that for some organization offenses, NO amount of penalty can eliminate the "organizational DNA" that permitted a fault to occur and might allow similar faults in the future to occur. For some organization problems, no single change in leadership will be capable of changing the culture. The inter-related incentives and secondary impacts are too complex to understand and unwind and the "muscle memory" of the organization itself is far longer than the muscle memory of any subset of employees.

That means that for some problems faced by some organizations, those problems are unsolvable as long as the organization continues to exist in its current form. In the case of a corporation that gambles heavily and triggers a market collapse, that means that firm should be literally eliminated from existence. For a monopoly abusing market share to cheat customers or stifle competition, that means breaking the company up, not simply hitting it with a billion dollar fine. For a government whose "control levers" have become completely controlled by uber-wealthy private interests or by the parties themselves rather than the public...?

That's a topic for the concluding entry in this series.

WTH