Thursday, October 22, 2009

Serial Drivel: Someone new to take over for James C Cooper

I stumbled upon this post from Real Clear Markets via ZeroHedge. A quick aside: I have a love hate relationship with ZeroHedge. They produce some great research but they also engage in yellow journalism without real well thought out analysis as well. A la Hearst, this drives a lot of people to their website. For now the balance is well on the former but this link to RCM was clearly the latter.

The author of this piece is John Tamny. It took some extensive searching to find out who the author is. His signature says he is an economic adviser to two companies but not recognizing the companies, please forgive my ignorance, I continued looking about the intertubes. I found this:
Prior to his present work, Mr. Tamny worked at the Cato Institute, and before that in private wealth management for Credit Suisse and Goldman Sachs. Mr. Tamny received a BA in Government from the University of Texas at Austin, and an MBA from Vanderbilt University's Owen Graduate School of Management. He lives in Washington, D.C.

Now I have an MBA, so I definitely understand the value of the degree, but putting up an MBA grad with a Government undergrad versus a Nobel Prize winning economist, well... maybe he will be agreeing with Mr. Krugman.

1st the headline has Paul Krugman's name and the word myth. This immediately sends off warning bells in my head. I generally follow on economic matters, (not so much political)
Brad DeLong’s Krugman rule:

Rule #1. Paul Krugman is always right.
Rule #2. If you think Paul Krugman is wrong, see Rule #1

Here is an excerpt from the article.
As Krugman put it in the
New York Times, "The truth is that the falling dollar is good news." Krugman's reasoning here is that a weak dollar makes it easier for U.S. companies to export. A nice thought at first glance, but what Krugman ignores is that we can't export unless we're importing, and a weak dollar makes imports more expensive. Trade always balances.

Supposedly, according to John's logic, trade always balances. He seems to posit that imports and exports form an identity, similarly to the idea that National Savings must equal Investment and Net Capital Outflow. I couldn't find any literature anywhere that states this is so, perhaps it is a black swan.

Let's examine this a little further. Let's imagine a steel conglomerate who mines its own ore, processes it and then sells it to the highest bidder. A falling dollar makes this conglomerate's goods cheaper. It sells the goods in the export market and then has euros, or yen in exchange. Now here is where John's logic may come into play. Since it has the yen, it then needs to decide whether to purchase something from Japan or sell the yen to gain dollars which it can pay its employees. The latter is where the fungible nature of money comes into play. However, it seems John believes that it can only be the former. I wonder if he has a model or a chart to back up his assertion.

Back to the article: So while a weak dollar might in the near-term make U.S. goods attractive, the globalization of production means that the costs of the myriad imported inputs that go into the creation of U.S. goods will eventually have to rise. Inflation steals the benefits of devaluation...

So I took the change in dollar's nominal exchange rate and compared it to inflation (computed via CPI) in the United States to see if I could come up with a correlation.

There is a very weak correlation of +0.2, meaning that it can explain 20% of the variation. However, it is in the wrong direction. The plus sign indicates that as the dollar's value increases then inflation occurs, and when it devalues this becomes disinflationary. That cannot be correct, right?

Let's look at a common way to gauge commodity price inflation versus the dollar via oil prices.

Very interesting. Correlation= 0.3. This means that as oil induced inflation was striking the globe the dollar rose to counteract the effects of inflation. From 1973 to 1999 as the oil rose in price so did the dollar, the story at the time was that Europeans and Asians would have to bid up dollars to make their oil purchases. . Seems plausible.

From 2000 to 2008 the correlation rose in reverse -0.8. So as oil price has risen the dollar has fallen in value. Now it is in reverse from the previous period. Although, ostensibly the mechanism has not changed, these same areas of the world are not bidding up the dollar to make their oil purchases. So which is it? Not much can be ascertained.

So let us look somewhere else. Perhaps China, we import a lot from them, right?

In the Blue we have the US$/Yuan and the red line is the price level for imports from China. So we have a 21% rise appreciation of the yuan [restated a 21% devaluation of the dollar] from 2004 to 2007 to a 7% appreciation of the price level. Then the Yuan stopped appreciating, and yet even though apples-to-apples same yuan as the exchange rate hold steady due to their sterilization of dollar purchases, the price level fell making the total change in import price level from 2004 to 2009 3%. 21% devaluation equals 3% rise in prices.

If you accept this argument it seems to be a devaluation brings about a very, very slight increase in prices for Americans including American exporters.

As my friend Walter Sobchak said "Donny, you are out of your element."

John then transgresses into how this import induced inflation affects all manners of the US financial and capitalistic system. He makes a litany of errors confusing real and nominal prices, what capital is and is not, what investment is and is not and finally what saving is and is not. However, you can stop reading because as it has been made abundantly clearly in this essay the foundation John rests his argument upon is made up not only of sand, but quicksand at that.

If there is anything you should take away from today it is this:
Rule #1. Paul Krugman is always right.
Rule #2. If you think Paul Krugman is wrong, see Rule #1

Oh and if you are interested, while I was searching for John's credentials I found these nuggets of wisdom that may make you avoid his opinion. (All were found on the 1st page of Google's search results for his name.)

Lifecycle of bad mortgages, surprisingly uncorrelated

I found this chart at Barry Ritholtz serially excellent website The Big Picture and of course it made me think, a lot.

At first I was just watching the categories swell up as people who took on debt they could not really afford just could not make the monthly payments any more. Then, I wondered about people who just stopped paying once they realized that the house was worth less than the mortgage contract they were paying for it.

Then I realized something else, that the categories are a function of time as well. First there are the thirty days late, which eventually leads to 60 days late, then 90+ days late [that plus sign will be key], then into foreclosure and finally real estate owned [bank owned.]

Now, of course, one category does not guarantee a transition to the following category. One could have a medical emergency, need the cash for a surgery and then hover in 30 day late category. However, there should still be an amount of correlation for the categories. As the 30 days late category rises, so too should the 60 day category and 90 day. In fact as the arrows show all categories do show a positive slope.

In fact, one should expect to see a pig-in-the-python effect. Look at the graph below, a demographic graph of the United States population, and imagine it on its side.
For some reason I cannot animate it. Please click here to see the chart move.

Imagine the 30 days late are the baby boomers. You can see the large effect [pig] they have as they move from the head to the rear of the distribution [python.] We should see the same for the mortgages. Not a perfect correlation because as I said above there are ways to save yourself from the foreclosure route. But...

Instead what I see is really a throughput problem. Let's look at the graph again with some new arrows.

As you can now see I simplified to just two arrows, 30 days late and 90+ days late. I discounted the seemingly aberrational June month for 30 days late. I then started the arrow for 90+ days late at a lag of 4 months because obviously these mortgages would pick up only after the initial delay in payment. What is happening is that the 30 and 60 day loans are making it to 90+ days and then sitting there. Slowly, the foreclosure and REO process is picking up but those two steps are slowing the assembly line down.

So the key issue for investors to consider is the plus. If you are going out an looking for a house right now, you must be cognizant that the banks own tons of houses that are in the 90+ day delinquent status and would be foreclosed upon except the banks do not have the manpower or willpower to further the process. Additionally the 30 day late loans are still rising meaning that even more houses have yet to find the pool of 90+ days late. If the house you are looking at has multiple bidders I would walk away, especially if they are bidding with cash.

Wednesday, October 21, 2009


David Rosenberg of Gluskin Sheff has been railing against the markets expecting a V-shaped recovery. So I went to the CBO to see what a V-shaped recovery would look like and it is below.

Basically from where we are at we would follow the red arrow and see growth rates of over 6.4% to return the economy back to its trend.

Here is where the document is a little suspect as it predicts the return to trend within 5 years which seems to be, um, a tad, convenient. I guess my argument would be more with the angle of the L.

Regardless, the CBO still sees an L-shaped recovery.

So what does the equity market know from reading the economic reports that the CBO does not know?

Personal Savings Rate

I have found it an amusing example of not seeing the forest from the trees. I have heard pundits arguing about where the personal savings rate will move from here. Then I see a chart similar to this proposed.

So it is easy to see that savings rate has jumped but will probably be back to trend soon. However, what trend is probably the most relevant idea. Here is a second chart.

So which is it? A trend of savings around in the 4% range or is it in the high single digits?

Public Relations: the Conclusion

I must say that I really enjoyed the documentary and you can watch it for free courtesy of Google. [The related videos will lead you through the four parts] The question though is how is this seemingly anthropological look at public relations relevant today? For this I will outsource to David Einhorn writing in his investment newsletter. [It is a PDF]

As I see it, there are two basic problems in how we have designed our government. The first is that officials favor policies with short-term impact over those in our long-term interest because they need to be popular while they are in office and they want to be re- elected. In recent times, opinion tracking polls, the immediate reactions of focus groups, the 24/7 news cycle, the constant campaign, and the moment-to-moment obsession with the Dow Jones Industrial Average have magnified the political pressures to favor short-term solutions. Earlier this year, the political topic du jour was to debate whether the stimulus was working, before it had even been spent.

Paul Volcker was an unusual public official because he was willing to make unpopular
decisions in the early ’80s and was disliked at the time. History, though, judges him kindly for the era of prosperity that followed.

Presently, Ben Bernanke and Tim Geithner have become the quintessential short-term
decision makers. They explicitly “do whatever it takes” to “solve one problem at a time” and deal with the unintended consequences later. It is too soon for history to evaluate their work, because there hasn’t been time for the unintended consequences of the “do whatever it takes” decision-making to materialize.

The second weakness in our government is “concentrated benefit versus diffuse harm”
also known as the problem of special interests. Decision makers help small groups who care about narrow issues and whose “special interests” invest substantial resources to be better heard through lobbying, public relations and campaign support. The special interests benefit while the associated costs and consequences are spread broadly through the rest of the population. With individuals bearing a comparatively small extra burden, they are less motivated or able to fight in Washington.

David has in four short paragraphs perfectly surmised what it took me 4 separate blog postings. I will concede, I dug further into the psychology of the transmission mechanism of psychoanlaysis being applied to the link between product and consumers and how it has evolved over time not only in that link but how politicians now use the same mechanism to connect politics[product] to voters [consumers.]

On a regular basis I read financial news and am incensed by how it is spun. I talk at length with former business school professors and we vent together. However, when I talk to some one like a parent or a colleague in the law profession, I only receive glazed over eyes.

There are two factors at work: A) information overload B) esoteric nature of the finance industry.

I have already posted at length about information overload. My money quote that I keep chanting in a mantra is: it was Herbert Simon though who posited a long time ago " an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it..." This is very similar to the idea that by reducing people to desires you can stop them from thinking about how policies are affecting them. Dancing with the Stars, 30Rock, Celebrity news all stop people from thinking about how they just donated 2,300 to Government Sachs and its colleagues to pay out, at Goldman alone, 23 Billion to its employees.

The esoteric nature of finance. So any normal Joe who did not graduate with a finance degree, MBA or an economics degree, is involved in her every day life that revolves not around finance, but what ever it is that pays the bills. Everyone can have an opinion on whether on not to raise taxes, or pursue certain domestic policies but not everyone will have an opinion on Negative Amortizing Interest Only Mortgages, or Collateralized Debt Obligations.

Thus, my hope is that my new arsenal of information on public relations and spin that I will be able to better engage my non-finance friends and family to better explain why the issues are important to everyone not just the people with vested interests in finance and financial policy.

Call it for what it is. It has more names than Satan. Call it plundering. Call it pillaging. Call it extortion, Call it fraud. Call it racketeering. Call it the financial raping of the middle class. Call it criminal. Consider the following. Middle class never consented to this financial rape. They vehemently protested it when the gov’t first proposed a $700 bailout of the financial system called TARP in Septermber 2008. Yet what did Congress and our government do? They went ahead and did it anyway. This boils down to one thing, taxation without representation. Our votes do not matter anymore.

Be outraged. Do not go softly into the night. Scream into the tempest. People voted in Obama for change, if you feel he has not effected it, then you must create your own.

The Waning Threat of Deflation versus Two Easy-Money Pieces

I swear I had to read the latest James C Cooper piece in BusinessWeek twice just to be sure what I was reading. So I thought about doing a comparison to various academics and their current surveys of economic conditions, one was Paul Krugman's latest piece. This would provide a look to see where consensus was and where it was not, so I could gauge which argument(s) I found to have a more solid foundation.

James, an
alumnus from NC State where he received his bachelors and masters degree, shows that Personal Consumption Expenditures declined from a year ago by 0.5% or 0.0005. He attributes most of this to the drop in gasoline prices. Here is the table from the BEA release.

Click to enlarge

As you can read from the chart his argument is correct. The index declined 23.7% in the energy good/services subcategory in the same time period.

However, now we can contrast this with Mr. Krugman's, with a BA from Yale in Economics followed by a PHD in Economics from MIT, evidence. He looks at the similar indicator formed from the Consumer Price Index. It also has a total value and one excluding energy and food prices because of their noted volatility. However, in this version instead of removing food and energy totally, he chooses to trim the data, that is remove the most volatile price movements to get to a "core" price movement. Here is the chart.

Click to enlarge

Here we can see the quarterly data from the 1st and 2nd quarter plus the data from September. So you can see the total annualized CPI for the three periods, in order, are: 1.5%, 3.3% and 2.0%. However, if you trim out the volatile prices, depending on the amount trimmed you usually what is basically a horizontal asymptote and those are: 2.3%, 1.0% and 0.5%, a clear downward trend. In fact if you look at James's chart it shows the same information, that both core and the more volatile are in a downward trend. So we have to separate pieces of data that suggest inflation will not be a concern moving forward.

The title of the chart even states in full caps CORE INFLATION WILL CONTINUE TO DRIFT LOWER. So rationally you could think that Mr Cooper and Mr Krugman are on the same page.
"This suggests that disinflation is proceeding rapidly. And a falling inflation rate, possibly even deflation, means that a zero interest rate is less expansionary than it seems."

James, however, entitles his piece The Waning Threat of Deflation?!?!

It seems to me and anyone looking at these charts that are provided as evidence that deflation is on its way.

James bases his assertion on a few observations: inventories may have been cut too deeply along with capital spending (investment) and payrolls. He argues that inventory restocking, the actual fall of capital stock which affects the denominator in capacity utilization therefore utilization rates could increase faster in a recovery, and the fact that 6% productivity is unsustainable, thus new employees will need to be added. I would argue that the latter is the most important in James's arsenal as Consumption provides 70% of GDP, however a person cannot be a consumer without a job.

Luckily, just this morning I was reading a post by James Hamilton, a PHD and Masters in Economics from UC-Berkley, about unemployment and inflation. He found that by running a model of two year average of inflation and inflation expectation he could arrive at a very high correlation. Here is his chart.
Click to enlarge

His chart shows that inflation is still falling off a cliff and until unemployment turns, not just the stemming of jobless claims but actual growth of jobs that inflation will continue to fall. From his words,
"but the forecast of the model for the average inflation rate between 2009:Q4 and 2011:Q4 is -0.5%." Again reiterating that without jobs no growth of GDP is sustainable, thus no inflation.

Finally, there is my new favorite graph. Median Duration of Unemployment. That is to say unemployment is not a bad thing per se, there is a natural creative destruction as employees from a dying industry like paper sales move to a more dynamic industry like alternative energy or health care. Unemployment is bad however when the economy cannot quickly move applicable skill sets, like sales of paper to sales of solar panels. Both require knowledge of a product and industry so they should be quick substitutes but when the economy is not doing this task people stay unemployed for long bouts of time. This, of course, impinges on growth. Let us see what the current outlook looks like.

Highest ever since it has been tracked.

The Fed has to act as training wheels for the US economy. It must support and guide the economy into growth but even as growth resumes it must not remove it stimulus too soon or relapse will occur. I do not believe Bernanke will remove stimulus until unemployment falls below 7%.

So in conclusion, I am not certain what James's article is about at all. He states that inflation will allow the Fed leeway to raise rates but does not specify how inflation will be brought about except for plausible stories without an econometric model to show how inflation will be transmitted. Merely stating that an inventory build or utilization rate climbing by decreasing the stock of capital does not guarantee sustainable growth based on an organic recovery. One of the major lessons for Bernanke as a student of the Depression was that the removal of stimulus in 1936 and 1937 caused the economy to crash in 1938. Then again James was the chief economist of the American Forest and Paper Association.

Tuesday, October 20, 2009

Public Realtions Part IV

I thought I might piece together parts III and IV but when I reviewed my notes Part IV is the largest by far. There is a lot of ground to cover to reach the conclusion. I will also do one last post on how these ideas are affecting society today.

The most salient point from the previous post is that, "the most important thing in anyone and everyone's lives was to be fulfilled and that was all that really mattered."Of course, it was the job of capitalism to foster the fulfillment of its consumers. If we remember back to the original post though it was understood that this was merely a function of social control. Where this process takes an even more dangerous turn, and a suboptimal one at that, is when politicians use these same psychoanalytical techniques to run their campaigns.

There is a great segment when septuagenarian Edward Bernays appears on the David Letterman show and states people will believe me more if you call me doctor. Bernays initial ideas were that it was good to reach out and stroke the deep emotional yearnings of individuals to make them more confident, powerful and fearful so that they may be controlled.

Now in Great Britain Matthew Freud gave public relations a make over and it became glamorous. Mr Freud was able to engage in very similar activities that Bernays pioneered in the inter-war period. He worked to place ads in interviews with celebrities and also by "purchasing" the editorial pages of the press. The press was outraged and thought this was a corruption of their profession, but still the pages of the editorial sections were filled with pictures of products and specific mentions of the product in the text. It was a part of a sweeping changing in the UK to allow business to take over the role of government in fulfilling the needs of the people and was seen as a new and better democratic process.

Across the pond in America, Reagan was moving against against the government's role in fulfilling its people's need by targeting programs to support welfare. His pitch was that individuals did not need to throw their hard earned money away to people who did not want to work.

Both of these are examples of how focus groups were changing the game for politicians. It was now accepted that people did like to be a part of groups but also retained their individual characteristics. This individual had been trained by Corporate America to make demands for their hard earned dollars. Now with their votes these same consumers could, as they did with business, make politicians cater to their demands. The 1980s was leaving the left side of the political spectrum behind as the left's focus had always been on bettering society for all. In a very similar fashion to what Stanford Research Institute proclaimed the left in Britain was polling well on helping save the community. People openly stated in polls that they would vote for the left. Yet their self interests lay with the proposals that the conservatives were making. Ultimately, as predicted, the conservatives were with whom the voters cast their lot.

Then came the Clinton campaign. The campaign made extensive use of polling of swing voters and tailoring their message to fit their beliefs. The campaign found that voters only wished to support taxes for programs that personally benefited them, so the campaign responded with a middle class tax cut promise. This promise was going to be funded by cutting defense spending (the peace dividend) and raising taxes on the rich. Clinton won election in 1992. However, he quickly found out that the budget deficit was worse than feared and the bond market would not support additional borrowing to fund the tax cuts. The stymied executive office instead tried a new tact to lift the public by appeals to genuine ideals of society and community. Needless to say, the voters felt betrayed. In 1994 Bill Clinton's party was swept out of office in the both houses of the legislature, who ran on a platform of tax cuts funded by cutting welfare programs via the Welfare-to-Work initiative. It seemed certain that Clinton would be a one term president.

Clinton hired Dick Morris to save his "butt." Dick proposed that a transformation of politics needed to be undertaken and to treat voters like consumers, answering to their whims and fulfilling them. Surveys were sent out to identify swing voters and then personal questions were asked of the swing voters to determine their lifestyle. Policies were then enacted that would make the swing voters feel more secure in their lifestyle via "small bore" politics. Traditional issues were dropped in favor of minutiae like the v-chip or school uniforms. Also Clinton's leisure time would be spent doing activities that appealed to swing voters such as hunting or fixing up his home. This created a divide between Clinton's wonks and Dick Morris.

The wonk's argument in the White House went something like this:

What's the point if you have no mandate to be re-elected?

What's the point of having a mandate if you cannot get re-elected? Isn't the point getting re-elected?

In a show of deference to power, suburbanites were now controlling the domestic policy of the United States. However, it should be noted that this new form of democracy was pandering to the unthought about and primitive desires that satisfy individuals. It was discussed before that having people's desires be in control is not the same as having rational people in control. That this is just a guise to control the masses via their own whims.

Britain followed suit with the Tony Blair campaign. The feeling in the UK at the time was now that individuals were not exploited by the free market. Instead that the free market caters to individuals and fulfills their needs. However, this also hollows out the political channel as a means of power and leaves a larger slice of power in the hands of businesses and entrenched interests. Bernays proclaimed in his Democra-city that this new form of democracy was superior because the power was not swayed by politics or ideologies. The argument against this idea was that this was a democracy that controlled its citizens by reducing its active citizenry into passive consumers who are delivered "feel-good" treats.

It should also be noted that what works for business may not be the best manner to conduct political actions. Politics can now be described as a bewildering maze of desires because people's opinion changes at the drop of a hat just like in business, "the (product) market had forever changed from needs-based to a market of unlimited and ever changing desires."Fine, that is why there is Adidas, Reebox, New Balance, Nike, etc. However, for politicians there is no way to plan an agenda because the dynamic changes drastically and schizophrenically. An example of this was the railroads in Great Britain. During a campaign people were polled as to how important this issue was to them. The answer was not at all. Now after a series of accidents, delays and poorer service the politicians are being blamed for not investing sooner.

So instead of having an honest conversation people only want more public services and to pay less. There is no leadership where a politician can say, "Here are my beliefs, we should cut this service and I will cut taxes that fund this service. I pledge to do this wisely and judiciously. If you believe in this idea and in me, than you should vote for me." Or the converse, "We should offer this service to you and people like you in the community and it will cost more in taxes to do so. I pledge to use the money wisely to achieve these ends. If you believe in this idea and in me, than I should have your vote." However, what the political system is instead producing is a fear of having a rational discussion with the masses about a politician's coherent political opinion.

The final plea of the program is for individuals to think beyond themselves and how they have been trained by business. That people are more than "feel-good" machines and not slaves to their desires. If we are these things and cannot move beyond these ideas then it would be best to dissolve the government and allow businesses to sate our desires. As individuals move away from their consumer side, politicians will have to engage them with a rational deliberation that respects the individuals abilities to form rational opinions on what is best for society.

Public Relations Part III

The third section of the film shows the move away from repression of the self. Wilhelm Reich moved in opposition to Freud's view that humans are violent, uncontrolled, war-like, raging infernos of emotions. Reich believed that suppressing the original impulse inside a human is what causes the distortions that creates a violent, uncontrolled, war-like, raging inferno of emotions. He was ostracized and marginalized by the psychoanalytic community. He eventual was jailed and died and so the Freudians thought they had won.

However in the 1960s people began to learn how businesses were using focus groups as a way to lower their psychological defenses and felt they were being manipulated. This idea especially became prevalent around the era of the Vietnam war. The people were recoiling from the idea that as consumers they were being kept docile so the government could wage war in Vietnam. They now wanted to reject the idea that their feelings and identities were expressed through their product choices. So they fought the law and the law won. The biggest event was the actions at Kent State where four students were murdered by the National Guard. To remove the policeman from inside their head the people would need to internalize their actions and make changes on a personal level. Thus, they embraced Wilhelm Reich and the Freudians lost.

Fritz Perls and the Eselan Institute stepped in to teach people to engage in semi-public self revelations to take control of their inner demons. Through ownership of who a person truly was they could enact self control. This of course went too far when they held racism seminars and when they turned a nun convent into a lesbian convent. It did bring about a change in how consumers behaved and with the help of the pill, the sexual revolution.

"Freedom's just another word for nothin' left to do.
Nothin' ain't worth nothin' but it's free."
~Grateful Dead cover Me and Bobby McGee

Mass production needed social conformity to be executed. People instead were leaving behind the cookie cutter ideas of the Protestant work ethic and the save for a rainy day. Now consumers would live for the moment. At the core of the idea was a new form of self expressionism. Now Werner Erhard stepped in to take the torch from Eselan and began mass producing individuals. The seminars he held proposed that people could be anything that they wanted. When you peeled away the layers of societal conduct and mores and arrived at the core of a human being there was nothing. "It was empty and meaningless but it was empty and meaningless that it was empty and meaningless... all the rules and constrictions were gone and all that remained was nothing. This is very powerful idea because it is freedom." From this tabula rasa you could create and invent a life by yourself instead of using school and family and friends to shape you. You could now be what you want to be. The most important thing in anyone and everyone's lives was to be fulfilled and that was all that really mattered. Thus, the political movement died along with an idea of society because only the individual mattered.

Now with this void of how to express yourself capitalism steps in to help people become what they wanted to be. Instead of top down from Madison Avenue to you. Instead it would come from bottom up, from you to businesses, via the Stanford Research Institute. Using ideas from Abraham Maslow and his hierarchy of needs, businesses could now track the desires of self-actualizers (the highest level in the hierarchy.) They would then segment these self-actualizers and make customized solutions for these individuals via lifestyle marketing. The rise of computers, logistics and supply chain management made it possible for businesses to do smaller runs with more customized options for consumers. Stanford found that if the product agreed with the values of the self-actualizers they would purchase the product no matter what they consciously stated their actions would be. Unfortunately, this also worked with politicians as well.

At the time when individualism was being stressed ever more by the population, along came Reagan and Thatcher to try to remove government influence and allow the people to make decisions. It was thought that socially conscience people would not vote conservatively. Inside the campaigns of Thatcher and Reagan their respective wonks disagreed with the directions the campaigns were taking. It did not matter. Stanford was correct and both Conservatives won elections.

This also marked a new era for the focus group. Instead of producing a product and then figuring out the way to make people buy it, restated as enticing people to buy a limited range of goods, now focus groups would create the ideas for goods. It would then be produced for them. Business took the creed of the self-actualized individual and agreed with it and then helped her achieve her goal. Non-conformity which was viewed as a threat now became a huge opportunity because the market had forever changed from needs-based to a market of unlimited and ever changing desires.

The Gervais Principle, Or The Office According to “The Office”

I am reprinting this in its entirety because it is amazing and I want to never forget it. However, if you like it you should probably click the link to the original posting.

by Venkat on October 7, 2009

My neighbor introduced me to The Office back in 2005. Since then, I’ve watched every episode of both the British and American versions. I’ve watched the show obsessively because I’ve been unable to figure out what makes it so devastatingly effective, and elevates it so far above the likes of Dilbert and Office Space. Until now, that is. Now, after four years, I’ve finally figured the show out. The Office is not a random series of cynical gags aimed at momentarily alleviating the existential despair of low-level grunts. It is a fully-realized theory of management that falsifies 83.8% of the business section of the bookstore. The theory begins with Hugh MacLeod’s well-known cartoon, Company Hierarchy (below), and its cornerstone is something I will call The Gervais Principle, which supersedes both the Peter Principle and its successor, The Dilbert Principle. Outside of the comic aisle, the only major and significant works consistent with the Gervais Principle are The Organization Man and Images of Organization. (p.s. Slashdotters: I just posted a welcome/intro to this blog and some responses here).


I’ll need to lay just a little bit of groundwork (lest you think this whole post is a riff based on cartoons) before I can get to the principle and my interpretation of The Office. I’ll be basing this entire article on the American version of the show, which is more fully developed than the original British version, though the original is perhaps more satisfyingly bleak. Keep in mind that this is an interpretation of The Office as management science; the truth in the art. Literary/artistic critics don’t really seem to get it (Slate’s Dana Stevens, for instance is content to merely to pigeonhole it as “one of the funniest, saddest, wisest TV comedy series of all time.”) I’ll have some passing comments to offer on the comedy and art of it all, but this is primarily about the truths revealed by the show, pursued with Dwight-like earnestness.

From The Whyte School to The Gervais Principle

Hugh MacLeod’s cartoon is a pitch-perfect symbol of an unorthodox school of management based on the axiom that organizations don’t suffer pathologies; they are intrinsically pathological constructs. Idealized organizations are not perfect. They are perfectly pathological. So while most most management literature is about striving relentlessly towards an ideal by executing organization theories completely, this school, which I’ll call the Whyte school, would recommend that you do the bare minimum organizing to prevent chaos, and then stop. Let a natural, if declawed, individualist Darwinism operate beyond that point. The result is the MacLeod hierarchy. It may be horrible, but like democracy, it is the best you can do.

The “sociopath” layer comprises the Darwinian/Protestant Ethic will-to-power types who drive an organization to function despite itself. The “clueless” layer is what Whyte called the “Organization Man,” but the archetype inhabiting the middle has evolved a good deal since Whyte wrote his book (in the fifties). The losers are not social losers (as in the opposite of “cool”), but people who have struck bad bargains economically – giving up capitalist striving for steady paychecks. I am not making this connection up. Consider this passage from OM (I haven’t yet gotten to this part in my ongoing series about the book):

Of all organization men, the true executive is the one who remains most suspicious of The Organization. If there is one thing that characterizes him, it is a fierce desire to control his own destiny and, deep down, he resents yielding that control to The Organization, no matter how velvety its grip… he wants to dominate, not be dominated…Many people from the great reaches of middle management can become true believers in The Organization…But the most able are not vouchsafed this solace.

Back then, Whyte was extremely pessimistic. He saw signs that in the struggle for dominance between the sociopaths (whom he admired as the ones actually making the organization effective despite itself) and the middle-management Organization Man, the latter was winning. He was wrong, but not in the way you’d think. The Sociopaths defeated the Organization Men and turned them into The Clueless not by reforming the organization, but by creating a meta-culture of Darwinism in the economy: one based on job-hopping, mergers, acquisitions, layoffs, cataclysmic reorganizations, outsourcing, unforgiving start-up ecosystems, and brutal corporate raiding. In this terrifying meta-world of the Titans, the Organization Man became the Clueless Man. Today, any time an organization grows too brittle, bureaucratic and disconnected from reality, it is simply killed, torn apart and cannibalized, rather than reformed. The result is the modern creative-destructive life cycle of the firm, which I’ll call the MacLeod Life Cycle.


A sociopath-entrepreneur with an idea recruits just enough losers to kick off the cycle. As it grows it requires a clueless layer to turn it into a controlled reaction rather than a runaway explosion. Eventually, as value hits diminishing returns, both the sociopaths and losers make their exits, and the clueless start to dominate. Finally, the hollow brittle shell collapses on itself and anything of value is recycled by the sociopaths according to meta-firm logic.

MacLeod’s “Loser” layer had me puzzled for a long time, because I was interpreting it in cultural terms: the kind of person you call a “loser.” While some may be losers in that sense too, they are primarily losers in the economic sense: those who have, for various reasons, made (or been forced to make) a bad economic bargain: they’ve given up some potential for long-term economic liberty (as capitalists) for short-term economic stability. Traded freedom for a paycheck in short. They actually produce, but are not compensated in proportion to the value they create (since their compensation is set by sociopaths operating under conditions of serious moral hazard). They mortgage their lives away, and hope to die before their money runs out. The good news is that losers have two ways out, which we’ll get to later: turning sociopath or turning into bare-minimum performers. The losers destined for cluelessness do not have a choice.

Based on the MacLeod lifecycle, we can also separate the three layers based on the timing of their entry and exit into organizations. The sociopaths enter and exit organizations at will, at any stage, and do whatever it takes to come out on top. The contribute creativity in early stages of a organization’s life, neurotic leadership in the middle stages, and cold-bloodedness in the later stages, where they drive decisions like mergers, acquisitions and layoffs that others are too scared or too compassionate to drive. The are also the ones capable of equally impersonally exploiting a young idea for growth in the beginning, killing one good idea to concentrate resources on another at maturity, and milking an end-of-life idea through harvest-and-exit market strategies.

The Losers like to feel good about their lives. They are the happiness seekers, rather than will-to-power players, and enter and exit reactively, in response to the meta-Darwinian trends in the economy. But they have no more loyalty to the firm than the sociopaths. They do have a loyalty to individual people, and a commitment to finding fulfillment through work when they can, and coasting when they cannot.

The Clueless are the ones who lack the competence to circulate freely through the economy (unlike sociopaths and losers), and build up a perverse sense of loyalty to the firm, even when events make it abundantly clear that the firm is not loyal to them. To sustain themselves, they must be capable of fashioning elaborate delusions based on idealized notions of the firm — the perfectly pathological entities we mentioned. Unless squeezed out by forces they cannot resist, they hang on as long as possible, long after both sociopaths and losers have left (in Douglas Adams’ vicious history of our planet, humanity was founded by a spaceship full of the Clueless, sent here by scheming Sociopaths). When cast adrift in the open ocean, they are the ones most likely to be utterly destroyed.

Which brings us to our main idea. How both the pyramid and its lifecycle are animated. The dynamics are governed by the Newton’s Law of organizations: the Gervais Principle.

The Gervais Principle and Its Consequences


The Gervais Principle is this:

Sociopaths, in their own best interests, knowingly promote over-performing losers into middle-management, groom under-performing losers into sociopaths, and leave the average bare-minimum-effort losers to fend for themselves.

The Gervais principle differs from the Peter Principle, which it superficially resembles. The Peter Principle states that all people are promoted to the level of their incompetence. It is based on the assumption that future promotions are based on past performance. The Peter Principle is wrong for the simple reason that executives aren’t that stupid, and because there isn’t that much room in an upward-narrowing pyramid. They know what it takes for a promotion candidate to perform at the “to” level. So if they are promoting people beyond their competence anyway, under conditions of opportunity scarcity, there must be a good reason.

Scott Adams, seeing a different flaw in the Peter Principle, proposed the Dilbert Principle: that companies tend to systematically promote their least-competent employees to middle management to limit the damage they can do. This again is untrue. The Gervais principle predicts the exact opposite: that the most competent ones will be promoted to middle management. Michael Scott was a star salesman before he become a clueless middle manager. The least competent employees (but not all of them — only certain enlightened incompetents) will be promoted not to middle management, but fast-tracked through to senior management. To the sociopath level.

And in case you are wondering, the unenlightened under-performers get fired.

Let me illustrate the logic and implications of the principle with examples from the show.

The Career of the Clueless

In Season Three, the Dunder-Mifflin executives decide to merge the Stamford and Scranton branches, laying off much of the latter, including Michael Scott. His counterpart, the competent-sociopath Stamford branch manager, whose promotion is the premise of the re-org, opportunistically leverages his impending promotion into an executive position at a competitor, leaving the c0mpany in disarray. The Dunder-Mifflin executives, forced to deal with the fallout, cynically play out the now-illogical re-org anyway, shutting down Stamford and leaving Michael with the merged branch instead. The executives (David Wallace and Jan Levinson-Gould) are obviously completely aware of Michael’s utter incompetence. But their calculations are obvious: giving Michael the expanded branch allows them to claim short-term success and buy time to maneuver out of having to personally suffer longer-term consequences.

Jim’s remark on the drama is revealing. Comparing Michael to his exiting sociopath peer he says: “Whatever you say about Michael, he would never have done something like this,” a testament to Michael’s determinedly deluded loyalty to the company that will never be loyal to him. We can safely assume that Michael’s previous promotion to regional manager occurred under similar circumstances of callous short-term calculations by sociopaths.

So why is promoting over-performing losers logical? The simple reason is that if you over-perform at the loser level, it is clear that you are an idiot. You’ve already made a bad bargain, and now you’re delivering more value than you need to, making your bargain even worse. Unless you very quickly demonstrate that you know your own value by successfully negotiating more money and/or power, you are marked out as an exploitable clueless loser. At one point, Daryl, angling for a raise, learns to his astonishment that the raise he is asking for would make his salary higher than Michael’s. Michael hasn’t negotiated a better deal in 14 years. Daryl — a minimum-effort loser with strains of sociopath — doesn’t miss a step. He convinces and coaches Michael into asking for his own raise, so he can get his.

A loser who can be suckered into bad bargains is set to become one of the clueless. That’s why they are promoted: they are worth even more as clueless pawns in the middle than as direct producers at the bottom, where the average, rationally-disengaged loser will do. At the bottom, the overperformers can merely add a predictable amount of value. In the middle they can be used by the sociopaths to escape the consequences of high-risk machinations like re-orgs.

The Career of the Sociopath

The example of the “fast-track the under-performing” part of the principle is Ryan, the intern. He tests himself quickly and rapidly learns and accepts that he is incompetent as a salesman. But he is a born pragmatist-sociopath with the drive, ambition, daring and lack of principles to make it to the top. So rather than waste time trying to get good at sales, he slips into a wait-watch-grab opportunist mode. But he isn’t checked out — he is engaged, but in an experimental way, probing for his opening. The difference between him and the average checked-out loser is illustrated in one brilliant scene early in his career. He suggests, during a group stacking effort in the warehouse, that they form a bucket brigade to work more efficiently. The minimum-effort loser Stanley tells him coldly, “this here is a run-out-the-clock situation.” The line could apply to Stanley’s entire life.

Stanley’s response shows both his intelligence and clear-eyed self-awareness of his loser-bargain with the company. He therefore acts according to a mix of self-preservation and minimum-effort coasting instincts. The same is true of everybody else in the loser layer with the exception of the over-performers: Dwight and Andy (and in his earlier incarnation as a salesperson, Michael).

The future sociopath must be an under-performer at the bottom. Like the average loser, he recognizes that the bargain is a really bad one. Unlike the risk-averse loser though, he does not try to make the best of a bad situation by doing enough to get by. He has no intention of just getting by. He very quickly figures out — through experiments and fast failures — that the loser game is not worth becoming good at. He then severely under-performs in order to free up energy to concentrate on maneuvering an upward exit. He knows his under-performance is not sustainable, but he has no intention of becoming a lifetime-loser employee anyway. He takes the calculated risk that he’ll find a way up before he is fired for incompetence.

Ryan’s character displays this path brilliantly. When Michael’s boss and dominatrix-lover Jan suffers a psychotic descent into madness, her boss, the uber-sociopath David Wallace, has no great hopes of a good outcome. Setting up yet another band-aid move, he calls up Michael for an interview to take up Jan’s spot. But when the rest of the office learns of Michael’s impending interview (during Michael’s farcical attempts at using a Survivor style contest to choose his successor, which predictably, only Dwight takes seriously), the true sociopaths act. Jim and his sociopath girlfriend Karen instantly call up David and announce their candidacies for the same position. Unknown to them, Ryan, the intern-turned-rookie has also spotted the opportunity. The outcome is spectacular: Ryan gets the job, Michael loses, Karen gets the Utica branch, and Jim — who still has not yet completely embraced his inner sociopath — returns to Scranton. We learn later — as the Gervais principle would predict — that David Wallace never seriously considered Michael more than a temporary last resort. Much later, in a deposition during Jan’s lawsuit against the company, he reveals that Michael was never a serious candidate.

The Career of the Loser

The career of the loser is the easiest to understand. Having made a bad bargain, and not marked for either clueless or sociopath trajectories, he or she must make the best of a bad situation. The most rational thing to do is slack off and do the minimum necessary. Doing more would be a clueless thing to do. Doing less would take the high-energy machinations of the sociopath, since it sets up self-imposed “up or out” time pressure. So the coasting-loser — really not a loser at all if you think about it — pays his dues, does not ask for much, and finds meaning in his life elsewhere. For Stanley it is crossword puzzles. For Angela it is a colorless Martha-Stewartish religious life. For Kevin, it is his rock band. For Kelly, it is mindless airhead pop-culture distractions. Pam has her painting ambitions. Meredith is an alcoholic slut. Oscar has his active gay lifestyle. Creed, a walking freak-show, marches to the beat of his own obscure different drum (he is the most rationally checked-out of all the losers).

If you leave out the clear marked-for-clueless characters like Dwight and Andy, you are left with the two most interesting characters in the show: the will-he-won’t-he sociopath-in-the-making, Jim, and the strange Toby. Toby is a curious case — intellectually a sociopath, but without the energy or ambition to be an active sociopath. More about these two later.

The Emergence of the MacLeod Hierarchy

Dastardly as all this sounds, it is actually pretty efficient, given the inevitability of the MacLeod hierarchy and life cycle. The sociopaths know that the only way to make an organization capable of survival is to buffer the intense chemistry between the producer-losers and the leader-sociopaths with enough clueless padding in the middle to mitigate the risks of business. Without it, the company would explode like a nuclear bomb, rather than generate power steadily like a reactor. On the other hand, the business wouldn’t survive very long without enough people actually thinking in cold, calculating ways. The average-performing , mostly-disengaged losers can create diminishing-margins profitability, but not sustainable performance or growth. You need a steady supply of sociopaths for that, and you cannot waste time moving them slowly up the ranks, especially since the standard promotion/development path is primarily designed to maneuver the clueless into position wherever they are needed. The sociopaths must be freed up as much as possible to actually run the business, with or without official titles.

So Ryan floats directly to the top, where he does what is expected of him — lead a bold strategic gamble by building an online sales channel operation (which Dwight competes with in a brilliantly Quixotic episode). As with any big strategic move, the operation has its risks, and fails. And here we find that Ryan is still not quite experienced enough as a sociopath. He foolishly goes the Enron route, attempting to cook the books to avoid failure, and is found out and arrested. A true master sociopath like David Wallace would instead have spotted the impending failure, promoted a Michael to take over (who would obviously be so gratified at being given a new white-elephant title that he would not have seen disaster looming), and have him take the blame for the inevitable failure. Completely legal and efficient.

But Ryan isn’t done yet. In the last season, he played himself back into the game, and as of the last episode, had started a college football gambling fund that sounds suspiciously like the LTCM trading strategies of Messrs. Black, Scholes and Mertens.

The Organization as Psychic Prison

Which brings us to the other major management book that is consistent with the Gervais Principle. Images of Organization, Gareth Morgan’s magisterial study of the metaphors through which we understand organizations. Of the eight systemic metaphors in the book, the one that is most relevant here is the metaphor of an organization as a psychic prison. The image is derived from Plato’s allegory of the cave, which I won’t get into here. Suffice it to say that it divides people into those who get how the world really works (the sociopaths and the self-aware slacker losers) and those who don’t (the over-performer losers and the clueless in the middle).

This is where Gervais has broken new ground, primarily because as an artist, he is interested in the subjective experience of being clueless. For your everyday sociopath, it is sufficient to label someone clueless and work around them. What Gervais managed to create is a very compelling portrait of the clueless, a work of art with real business value.

Here is the ultimate explanation of Michael Scott’s (and David Brent’s) careers: they are put into a position of having to explain their own apparent, unexpected and unexamined success. It is easy to explain failure. Random success is harder. Remember, they are promoted primarily as passive pawns to either allow the sociopaths to escape the risks of their actions, or to make way for the sociopaths to move up faster. They are presented with an interesting bit of cognitive dissonance: being nominally given greater power, but in reality being safely shunted away from the pathways of power. They must choose to either construct false narratives or decline apparent opportunities.

The clueless resolve this dissonance by choosing to believe in the reality of the organization. Not everybody is capable of this level of suspension of disbelief. Both Ricky Gervais (David Brent) and Steve Carrel (Michael Scott) play the brilliantly-drawn characters perfectly. The most visible sign of their capacity for self-delusion is their complete inability to generate an original thought. They quote movie lines, lyrics and perform terrible impersonations (at one point Michael goes, “You talking to me?” a line he attributes, in a masterful display of confusion, to “Al Pacino, Raging Bull“). For much of what he needs to say, he gropes for empty business phrases, deploying them with staggering incompetence. When Michael talks, he is attempting, like a child, to copy the flawless buzzspeak spoken by sociopaths like Jan and David Wallace. He is oblivious to the fact that the sociopaths use buzzspeak as a coded language with which to simultaneously sustain the (necessary) delusions of the clueless and communicate with each other.

It is not just the sociopaths who conspire to sustain Michael’s delusions. So do the checked-out losers, sometimes out of kindness, and sometimes out of self-interest. In one particularly perfect summing up, Oscar describes the impending “Dundees” award ceremony (a veritable monument to the consensual enablement of Michael’s delusions) as “like a child’s birthday party, he is having a lot of fun, and you just have to go and play along.” (I may be misremembering the exact line)

But Michael isn’t entirely a puppet. Buried under layers of denial is a clear understanding of his own, hopeless, powerless life, which makes him marginally more clued-in than say, Dwight. His response is frenetic and desperate manipulation of the drama of false validation that has been set up for his benefit. Some of this is with the knowing consent of his enablers. Like experienced improv-comics, within limits, the rest of the Office follows the rule of agreement in the Theater of Michael (in a brilliant piece of meta-commentary, in one episode we get to see Michael at his own impossibly bad worst in his real improv class, where he ruins every single sketch).

But Michael’s grand narrative requires constant, exhausting work to keep up. He must amplify and rope in even the most minor piece of validation into the service of his script. When, in a moment of weakness, Jim shares a genuine confidence with him, Michael is so thrilled that he turns the moment into a deep imaginary friendship, practically becoming a stalker, even mimicking Jim’s hairstyle. At the other end, he over-represses even the slightest potential dent to his self-image. His is a thin-skinnedness gone crazy. Reality is sealed away with psychotic urgency, but to do so, he must first scout it out with equal urgency. And so, when Jim (in the first true sociopath move of his career) engineers a private meeting with the visiting David Wallace to carve out a promotion, Michael first tries to break into the meeting. When politely turned away, he instantly switches scripts and pretends he is too busy and that he is the one who can’t attend. And then he sneaks into the meeting room anyway, first with various excuses, and finally by hiding in a Trojan-Horse cheese cart.

This sort of ability to work hard to sustain the theater of his own delusions, half-aware that he is doing so, is what makes Michael a genuine candidate for promotion to the ranks of the Clueless. Dwight is interesting precisely because he lacks Michael’s capacity for this pathological meta-cognition, and the ability to offer semi-believable scripts that others can at least help bolster. Dwight is not talented enough at cluelessness to ever be promoted.

Is There More

You bet. We haven’t even scratched the surface. Dwight, Jim, and Toby each deserve an entire essay. Michael and Ryan probably deserve one each as well, in addition to my quick sketches here. And there are other principles, lemmas and sundry theoretical constructs. But I’ll hold off. Maybe there aren’t as many Office watchers among this blog’s readers as I imagine. You guys tell me if you want more.

I’ll conclude with one thought: Gervais deserves Nobel prizes in both literature and economics.

Monday, October 19, 2009

Public Relations Part II

The second installment of this series was not nearly as impressive as the first. Then again, only The Godfather Part II and The Empire Strikes Back really ever made something of batting second in the line up, so it was not unexpected.

Basically this episode tracks the rise and fall of psychoanalysis. It shows how Anna Freud built upon her father Sigmund's ideas and decided that instead of just presenting why people behaved in the manner in which they did, she would be able to better these people through analysis and understanding. These inner drives would be controlled by conforming to the rules of society, these affirmations would then strengthen the ego to control its irrational counterpart, the id.

This of course turns out to be a bad idea. Anna's original patients suffered mental breakdowns, alcoholism and one committed suicide in Anna's house. These ideas also lead the CIA to brain wash people and also for Marilyn Monroe to commit suicide after living with her psychoanalyst's family. This created a crisis for psychoanalysts, in that society began to question why psychoanalysis had become so prevalent and powerful.

Underlying these set backs was still the notion of control of the masses and shaping good democratic citizens. After WWII and the fear in the elite of the irrational man, psychoanalysis centers were created all over the country. Some were marriage guidance counselors and other were social workers who would advise families and individuals about what normal behavior was and how to control the latent danger that was inside them. The analysts themselves never questioned that their techniques could do anything but good, not understanding that there would be trade offs between the latent feelings inside their patients and the new model citizen ideas they were trying to instill.

Two of the biggest developments in the post-war environment were the focus group and banana republics.

Focus Groups

Ernest Dichter created the Institute for Motivation Research where he proposed and enacted psychoanalysis of products. His idea was to use the self image of the customer and her underlying motivations could be talked about freely just like in a psychoanalysis session. He would then analyze and understand the true non-verbalized motivations of the consumer, be it sexual, psychological or sociological issues of status and power. Thus, the birth of the focus group.

The first big break through was with Betty Crocker and their line of instant consumer foods. When consumers were surveyed they affirmed that the would appreciate the convenience of the food but at the point of sale they would not actually buy the instant mixes.

During the psychoanalysis of the focus group Dichter understood that the women actually felt guilt about the ease and convenience of the product, that is they wanted to make the process easier on themselves but they would feel guilty about it. So Dichter added a participation element with a symbol. Even though the product would taste just as well with a freeze dried egg already mixed into the mix, he proposed Betty Crocker remove the egg and let the house wife add it herself. By mixing in the egg, this added participation for the wife and let her believe she was offering a gift to her spouse. Sales subsequently soared.

Psychoanalysis started working with businesses to make connections, like Betty Crocker, with their customer. The analysts believed that the products would sate inner desires and add elements of commonality amongst members of the community. Further, as the consumers identified with products and built a self-identity around them this would improve self-image and make the consumer feel more secure in their choices. Thus, all of society would be improved as consumers were self-actualized by products. However, again no one asked if it was wrong to give people what they wanted by breaking down their psychological self-defenses.

Bernays and the Banana Republics

The Cold War. America already had a fear of Communists dating back to the Bolshevik Revolution but now they had the bomb and America's politicians needed public relations to control America's psyche. At first the politicians wished to minimize the threat, but after Bernays was brought in this idea was reversed. He decided to use the threat as a control device. By instilling fear in the populace politicians could offer guidance from above. Bernays masterstroke this time was with United Fruit and Guatemala.

United Fruit's interests in Guatemala were being threatened by a popularly elected social democratic government. Bernays framed this government as a threat to American values and further that this threat was at America's doorstep in the Western hemisphere. Bernays had journalists flow to Guatemala to meet the recently ousted, not from a coup but from elections, former political leaders. These politicians called the new government Communists and a United Fruit conspired riot broke out, calling for freedom. Finally, a group started by Bernays back stateside insinuated that the Soviets were using Guatemala as a Soviet outpost and launching point into the Americas.

The CIA acted swiftly in creating a coup d'etat. This involved a terror campaign and the dropping of bombs on Guatemalan citizens. United Fruit organized Soviet literature that was found in the capitol building as the elected government officials fled the country. All of this was done under the guise that the interests of business and democracy were in the interest of the masses. Bernays again talked of engineering of consent because people could not handle the truth and so he forced people to choose what he wanted them to choose.

Wrap Up
There was a backlash that people were maladjusted. New voices cried that the sickness of society, if there was such a thing, was at the societal level and not internally. The brands, gadgets, products created to sate desires ultimately lead to empty prosperity. The social norms that were prescribed to the maladjusted citizens include terrible ideas. How can the thoughts of societal norms include intolerance, economic inequality and civil rights for the few. I leave you with these same ideas ML King decried in a speech given at Western Michigan in 1963 about Social Justice.

There are certain technical words within every academic discipline that soon become stereotypes and cliches. Modern psychology has a word that is probably used more than any other word in modern psychology. It is the word "maladjusted." This word is the ringing cry to modern child psychology. Certainly, we all want to avoid the maladjusted life. In order to have real adjustment within our personalities, we all want the well-adjusted life in order to avoid neurosis, schizophrenic personalities.

But I say to you, my friends, as I move to my conclusion, there are certain things in our nation and in the world which I am proud to be maladjusted and which I hope all men of good-will will be maladjusted until the good societies realize. I say very honestly that I never intend to become adjusted to segregation and discrimination. I never intend to become adjusted to religious bigotry. I never intend to adjust myself to economic conditions that will take necessities from the many to give luxuries to the few.