Status-Driven Syndrome

Organizational consensus can form around terrible policies

Yesterday, I wrote that The more titles an organization has, the more it will select for people who really care about titles.

I want to elaborate on the problems this can cause. While re-reading Not What They Had in Mind, my long paper on the 2008 financial crisis (which I want to summarize in a future post), it occurred to me that there are parallels between the way an incorrect consensus emerged and was vigorously defended then and the way something similar happened with COVID. And I think that one can make a case that another policy disaster, the Vietnam War, shared similar policy dynamics.

My thesis is this:

1. Some organizations, especially government agencies, tend to select for individuals who prioritize status-seeking over the search for the best answers.

2. A successful status-seeker operates by intuiting where the organization’s political consensus will wind up. Like a heat-seeking missile homing in on a target, the striver senses how the internal debate is leaning, especially with the key decision-maker if there is one. Once a strategy is adopted, the successful status-seeker will defend the consensus ruthlessly. That the consensus could be forming around the wrong policy does not concern the status-seeker.

3. The coalition that supports the consensus policy will put up a defense of it that employs political hardball rather than intellectual rigor.

Those three tendencies make up what I call status-driven syndrome. I will illustrate it using the three examples I mentioned above.

Vietnam

The fundamental misconception was that the war could be won using “just enough” force. We would show the Communists that we were serious, and that would be sufficient. (I worry that the Biden Administration has that same idea with regard to Iran and its proxies, and that it will force Israel to adhere to such a policy.)

This “just enough” force concept made for a comfortable consensus for decision-makers, even though it proved incorrect. “Just enough” turned out to be inadequate. The Johnson Administration kept trying to incrementally raise the pressure on the enemy. The cumulative effect of these incremental increases in troop counts and bombing runs was to greatly increase the cost of the war, without a corresponding increase in progress.

I assert that it is not surprising that the men who made it into high-status positions knew how to play the game of organizational politics better than the game of winning a war. Robert McNamara, McGeorge Bundy, and other members of the Kennedy-Johnson foreign policy team approached the war stupidly and reactively. But they were brilliant at suppressing dissent. Men who dissented were cut out of the policy-making cadre not because they were wrong, but because they were inconvenient to the high-status players.

What is interesting about Vietnam is that the consensus team lost control of the narrative. McNamara and company, who enjoyed fawning press coverage until the war started to go badly, had their reputations tarnished by David Halberstam and others. In our other two examples, we will see that this loss of control over the narrative was avoided.

The 2008 Financial Crisis

Almost to the moment that the crisis was upon them, the heads of the nation’s top banking agencies were confident in the regulatory structure that they had created. They thought that it combined an increased scope for banking competition with better incentives for safety and soundness.

My Not What They Had in Mind paper dissects what was wrong with their thinking. I will not get into the nuts and bolts here. For that, you can wait for my forthcoming summary essay or read the paper itself.

Suffice to say that the crisis owed a great deal to subtle unanticipated consequences of regulations that were intended to promote financial stability. Moreover, the response consisted of ill-considered bank bailouts and desperate fiscal “stimulus.”

The agency heads, most notably Federal Reserve Chairman Ben Bernanke, had impeccable reputations. Bernanke had mastered the status game. But he did not understand how mortgage securities worked, how regulatory changes had driven their expansion, or how their risks could create havoc on Wall Street.

A difference with Vietnam is that the establishment managed to keep control of the narrative. The crisis was blamed on alleged deregulatory excesses of the Reagan era, rather than on the actions of Bernanke and other current agency heads. Their regulatory mistakes, which I believe were truly at fault, went unnoticed.

Many low-status members of the public could intuit that the huge dose of government spending used to treat the crisis mostly benefited bank shareholders and other special interests. But the well-educated class bought the narrative that Bernanke and his fellow agency heads were saviors.

Bernanke’s status was maintained, and indeed enhanced. It helped that personally he is very nice, even-tempered, and well spoken. The mainstream economics profession rallied behind him. He received fawning press coverage.

COVID

I do not have to remind you of what the policy consensus got wrong. Telling everyone that the virus could be spread on surfaces, so that you had to disinfect everything. Closing outdoor parks. Closing schools. Telling people that getting a vaccine meant that you could not spread the disease.

Once again, I would argue that status-driven syndrome was at work. Dr. Fauci does not necessarily have any expertise to offer when it comes to respiratory viruses. But, boy, can he play the status game. His efforts ensured that those who questioned his approach were marginalized. He arrogantly brushed off any suggestion of improper funding of dangerous research on viruses. He stifled dissent on his misguided policies. He made himself into a media rock star.

The efforts to stop the spread of COVID “disinformation” (i.e., dissenting views that in some cases turned out to be correct) were much more successful than the efforts to stop the spread of the virus itself. Of course, this is what the status-driven syndrome model would have your expect.

The way I see it, some of the dissenters over COVID policy were more strategic and more successful than I was when I challenged the consensus on the 2008 financial crisis. My sense is that a lot more people have heard of The Great Barrington Declaration than Not What They Had in Mind. But the press and the educated classes are still mostly in Dr. Fauci’s corner.

The Moral

We are never going to be able to tell human beings, “You have to do what’s right. You mustn’t concern yourself with status.”

We are never going to be able make government agencies immune to status-driven syndrome. Policies are going to be made by consensus, by people who have gotten to where they are by being skilled at the status game. What you have to hope for is that incentives align to lead the agency toward good decisions.

In the examples above, leadership might have made a difference.

President Johnson naturally gravitated toward the “just enough force” approach for fighting in Vietnam. In contrast, President Eisenhower was inclined to stay out of Vietnam when the French abandoned it in 1954.

President Bush listened to his powerful Treasury Secretary, Henry Paulson, who along with Bernanke took charge during the financial crisis. Had Bush had the skills to probe, he might have seen that Paulson was driven more by who he liked and disliked from his Wall Street days than by any real knowledge of finance.

President Trump chose to rely on Dr. Fauci, when there were much better choices available. These included Scott Atlas, who was in the Administration but was outmaneuvered by Dr. Fauci and Dr. Birx.

At an institutional level, regular readers know that I have proposed the model of a Chief Operating Officer and a Chief Auditor to try to improve incentives in government. I never said that COO/CA is flawless, but I insist that it is better than what we have now.