Fabius has an interesting post today where he notes that we have tried 16 remedies for our deteriorating financial condition, all of which fall into the “too little, too late” category.  To paraphrase his conclusion, the financial environment is operating inside our OODA loops.  This isn’t anthropomorphism but a shorthand way of saying that financial conditions are changing more rapidly than we can understand what’s going on and craft effective actions.  The effects, however, are similar to those produced by a human antagonist:  confusion and disorder, which can lead to loss of cohesion and ultimately collapse (see, for example, chart 132 of Patterns of Conflict).

How did we get ourselves into this condition?  It isn’t lack of gray matter — Ben Bernanke was a professor and respected academic at Princeton and Hank Paulson was a standout in one of our most competitive professions.

Typically, problems like these are, as Fabius hints, caused by a failure of Orientation, more specifically, failure to keep Orientation, or in the case of groups, a common implicit orientation, well matched to the dynamic and unfolding environment.  Bernanke and Paulson know what to look for, so how did this happen?

A clue appears in an opinion piece by Thomas Frank in today’s Wall St. J.:

Over many years of ascendancy, conservative Republicans have filled government agencies with conservative Republicans and proceeded to enact the conservative Republican policy wish list — tax cuts, deregulation, privatization, outsourcing federal work, and so on.

And as a consequence of these policies our conservative Republican government has bungled most of the big tasks that have fallen to it. The rescue and recovery of the Gulf Coast was a disaster. The reconstruction of Iraq was a disaster. The regulatory agencies became so dumb they didn’t even see the disasters they were set up to prevent. And each disaster was attributable to the conservative philosophy of government.

Before proceeding, I want to admit that I consider myself quite conservative and firmly believe that 28 years of largely liberal Democratic rule would likely have produced equally dysfunctional, albeit different, results.  With that out of the way, note the phrase “they didn’t even see the disasters they were set up to prevent.”  This is a key symptom of a disease of the OODA loop called “incestuous amplification.”

It’s the same phenomenon you may remember from holding a mike too close to the speakers — a feedback loop that escalates out of control.  In the OODA loop, it’s the feedback from Orientation back to Observation, where Orientation controls Observation, where what we believe controls what we see.

Why does this happen?  One common cause is an internal focus, which often manifests as a loyalty check to a powerful leader or to the institution itself.   Another is an unshakable faith in an ideology.  In either case, what becomes of overriding importance is maintaining fidelity to the leader, institution, or ideology.  Data that doesn’t fit is either explained away, recalibrated, or not observed at all (“they didn’t see …”).  In groups, peer pressure from other true believers reinforces the effect.

The result is an Orientation that doesn’t accurately represent the changing external environment, and actions coming from such an Orientation are often inappropriate, ineffective, or late.   Just like what we’re seeing today.

It’s quite amazing, if you look at the comments on Fabius’s site, how many people are more intrested in ideological purity — most often of the “free market solves all problems” variety — than in trying to mitigate what could become a cataclysmic shock to the international economic system of which ours, and this bears repeatng, is a part.  Should we enter a period of bank failures (e.g., your VISA card doesn’t work) and 25% unemployment, the political fallout is impossible to predict — “socialism” may seem quite innocuous compared to what emerges from the other side.

Incidentally, 25% was the max unemployment at the height of the Great Depression (1933) and that figure doesn’t include farmers.  There are many people alive today who remember that time.

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