Axiomatic Nonsense
Last week we wrote about consciousness and the underpinnings of symbols. This week we look at some symbols that stubbornly fail to degrade, meanings that are so engrained in unthinking non-consciousness that they silently pervert training materials and the prevalent non-thought. As so often, it starts with noticing that the world is not so uniform as institutions like to make out, that one size rarely fits all. To begin, let’s peer through the somewhat dirty lens of finance…
Diversity of values
Back in the day I was, for a few years, a director of a social enterprise called Fair Money. It was designed, partly, to demonstrate in practice and on the ground what service could mean to financial services companies. We worked with an industry pro on the brand promises of various banks and insurance companies and looked at how little anyone managed to implement of the brand promise put out there to attract customers.[1]
At the time there was something called the Thoresen Review to try and improve regulation of the dreadful exploitation of customers indulged in by the banks. The review, of course wanted to define what good advice looked like, so the committee worked to develop some principles. We had the good fortune to have an extended meeting with the vice-chair of the review, and we walked through some of the financial choices he had made during his own life and career.
For instance: while he was paying for private education for his children, he was relatively strapped for cash even on a whacking good salary, so he borrowed money to fund insurance policies for a few years. If you appreciate anything about financial planning you will know that borrowing to invest is something that no advisor will recommend, and indeed the Review this chap was vice-chair of came down firmly to say this is always bad advice. Would he make the same decisions again — yes certainly.
What this little vignette says is: context, context, context. The same decision will go different ways depending on who makes it, why they make it, when they make it, and what the various layers of bigger picture are. You absolutely cannot say that this is a good decision and that is a bad decision, even when you are able to do the complex calculations of money and expected return.[2]
The notion of financial prudence is a chimaera, always and everywhere. Which does not mean that many, many people make decisions that are really, really bad for them. And it certainly does not mean that financial advisors have always and everywhere helped people make decisions that are bad for them and just coincidentally good for the advisors and their firms.
Nitty gritty values
One of the pillars of financial advice is “know your customer”. There is all sorts of legislation in place to try and make sure that advisors actually know a little of the context of their customers. Getting this basic information into a standard record gets pride of place when you talk to an advisor. It’s called the “fact find”.[3]
Fair Money did not give financial advice, because we were not allowed to under this type of regulation. We called what we did financial coaching of vulnerable clients to avoid them being taken advantage of by financial sharks. We came to specialise in coaching people who owned their own homes but could not afford to maintain them. You can imagine.
We took the view that we needed to know what people really cared about. For instance, an elderly person might be desperate to hand their property to their heirs unencumbered by any financial charges on it, even if it were in a state of disrepair to make it uninhabitable. And our experience was that we had to listen to people’s stories before asking them about their savings. We decided that all the information needed in a fact find would come out in these conversations, but not necessarily in the first or second conversation. We just had to catch it when it did.[4]
When you design and sell financial products you tend to impose a world view and set of values like saving money and having flexibility. What people actually wanted to do would have made a financial product designer cry. People are different, and what they care about is different, and if you try to shoehorn them into a product you will lose what it is they wanted in the first place. This is why financial services companies so rarely provide any service. They want to design a product, validate it, and then flog it. They do “research” to establish that there is a “market”, for something and then they use their muscle to exploit that market. They never go back to see the wreckage of people’s lives.[5]
Two quick anecdotes to show how this lack of access to customer values produces severe incompetence.
At the bottom end, I had a housing client who was in debt. She was a care worker but sometimes couldn’t afford the petrol to get to work. She had many small standing orders and direct debits on her bank account each of which triggered a penalty charge every month so that she was paying half her earnings in bank charges. I went with her to her Abbey National branch and spoke with the manager with her to sort it out. He said that only Head Office could deal with that sort of issue over the phone.
At the top end, I spoke with a manager at Handelsbanken, who pride themselves in always taking local decisions. This guy (while at NatWest) had had a mortgage customer with a quarter-million-pound mortgage who had inherited some money and wanted to pay off half the mortgage. Having explained that the way to do that was to pay off the whole mortgage and take out a new smaller one, the centralised computer-generated decision was not to grant the new smaller mortgage!
Business models
These issues stem ultimately from the underlying business models and especially to dishonesty about them. When I started studying for financial advisor qualifications, the materials required me to believe that banks take in money from savers and lend it out to borrowers. This is a lie, now accepted as a lie by the Bank of England thanks to the excellent Andy Haldane. Banks create money from nothing as debt and rent it out.
The implications of banks creating money is that they have a large effect, usually not beneficial, on local economies. They determine what gets invested in and of course they have their own value set, heavily skewed by the lies in their business model. One of the main things they have done in recent decades is simply to inflate asset bubbles such as property prices. They simply extract maximum rent from something that benefits no-one, except in a casino-like manner. (I am a beneficiary!)
Facebook is still very much in the news. Their business model is to steal their users’ data and sell it to people who are not acting in their users’ interests. They sell it to people who want to distort the electoral process, they sell it to billionaires who want to wreck existing trade deals and regulations to make a quick buck out of the chaos. The lie about it to themselves and to politicians because they can do no other: I do not believe this massive conflict of interests can be resolved.
When you look at the business model you can see that the question of the values of users and what users would like to happen in the way of service simply don’t enter the equation. If your brand promise is a lie, all you have left is predatory delay.
For the record, Prof Steve Keen says that the UK financial services sector is four times the size it needs to be to do its work and we are paying for that twice: once directly in the cost of services and once indirectly in the displacement of real economic activity. Put this positively: if these financial institutions understood the needs of their customers they would be a quarter of their current size. The most damning example is the pensions industry which takes far too large a slice of people’s retirement savings.
And to amplify the notion of rent as used above: what Adam Smith meant by the free market was not an absence of government intervention but the absence of rents and the distortions they cause. Banks and Facebook are all rent-seeking organisations that thoroughly distort the free market.
Fecund economies
Economies, local and particular economies, thrive when they are allowed to and when people engage with them in a creative way. We cannot say what an economy needs next but we can always say when a local economy is being held back. Lack of investment capital for things that the banks don’t understand (because they haven’t been done before!) is one factor. But a deadening “education” that insists that things are already known, lack of affordable accommodation, public trading restrictions and the like can easily prevent an economy developing.
The join we are looking for is that unless people can express their different values and pursue their weird ideas, there is no scope for creative responses. We have talked about this being a question of variety: the head office of Abbey National cannot possibly understand the circumstances of their cash-strapped customer in west London. No-one at Facebook can understand the ethical red lines of their customers in a homeschooling group in Birmingham. The problems just pile up at the door of the customers because of the power differential. This is no different to sending poachers to penal colonies in Australia. There is creative work to be done, and value to be generated in doing so, but the power structures are in denial.
Axioms and hypotheses
We get nowhere with rational debate nowadays. The evidence doesn’t count because so much of what is put forward as evidence comes from tendentious places that this blog tries to nail. So much evidence is not in good faith. I saw a comment from a Nobel prize winning economist the other day commenting on the food guidelines that we bemoan so often here. He said that much of the guidelines were taken to be axiomatic such as “fruit and vegetables are good for you”. When mistakes are made and then embedded in axioms then the debate cannot move forwards.
From this perspective we need to get much better at couching statements as hypotheses. It is my hypothesis that banks are bad for the UK economy. It is my hypothesis that the financial sector in the UK is far too big to be a productive part of the economy. It is my hypothesis that the institutions that generate food guidelines are completely captured by the food industry. It is my hypothesis that the food guidelines themselves are largely to blame for the epidemic of long-term health conditions.
Take the lie that banks lend what savers deposit with them. Given its pivotal place in the training notes mentioned above, this is probably already axiomatic in the people who generated the training material, and if they are successful in getting people to swallow their nonsense in a thoughtless way it will become axiomatic in the next generation of financial advisors too. Things that become embedded in that way become a huge problem to shift and correct. We don’t have mechanisms in society for working out all the things that need to change when something that has been embedded as an axiom is found to need to change.
Prof Steve Keen is very clear that the ECB and Mario Draghi do not have a valid economic model and do not know what they are doing. In particular they don’t think that credit plays an important role in the behaviour of economies. Strangely of course if you can’t see credit you can’t see rent either.
We desperately need institutions robust enough to say: here is what we are trying to manage, here is our hypothesis about what we can do to manage it, and here is how you will know whether the hypothesis is valid or not. All the major institutions we moan about in these blogs fail this test in spades. Education: hopeless basket case. Health: corrupt up to its eyeballs, Stalinist. Natural England: dominated by vested interests and big landowners. The BBC: don’t make me laugh.
Maybe we should just start with working out what these institutions think is axiomatic. Like education is about being able to pass exams. Then at least we would not be wasting our breath trying to have a debate. Undermining those axioms, changing the consciousness that supports them, that’s liable to gain more traction.
[1] Not only brand promises to customers, of course, but to employees as well. One of Philip’s students on the flying trapeze worked at a large international banking group and resigned rather than inflict motivational posters on her colleagues… (Though given her senior role, he was never entirely sure why putting posters in the lift had been delegated to her!)
[2] And this is where people go horribly wrong. They think that they can drive consistently good decisions off the data and the calculations. As one of Philip’s clients said only today, give the same piece of data to two of his execs and they’ll argue for opposite decisions. Context.
[3] As you’ll have come to expect, the name masks the reverse reality. The mandated “fact find” often finds nothing useful, let alone the relevant facts. Indeed, a mandated anything is liable to veer so far from the changing context because, even if it once was fit for purpose, it inevitably calcified/ossified/uselessified, sometimes rapidly.
[4] Indeed, Philip had a client in the north west who is in the business of advising and lending to people elderly people in just this situation. They were caught up in the tension between imposing standard processes (as championed by compliance) and recognizing that their best advisors had wide-ranging (non-standard) conversations with their clients, catching the pertinent facts as they came up.
[5] You will recognize this pattern as the ‘externalisation’ of costs, risks, and damaging occurrences.
