The Blind Spot of Economic Thought

Saturday, March 7th, 2009 | Uncategorized

The crisis of our time is not about a financial bankruptcy (which is part of the symptom). the crisis of our time is about an intellectual bankruptcy (which has more to do with the underlying root issue): the bankruptcy of contemporary economic thought. not only was the entire mainstream of economic thought caught by surprise when the meltdown started to happen in Fall 08. even now, several months into the depression economics, we are still at a loss. millions of words. talkshows. and detailed expert analysis. yes, we know a lot about all the details. but what do we really know? what do we really know about what is going on and what is going to happen and what is required of us to do now?

when i watch the current conversation i am almost in disbelieve how narrow the analytical economic frameworks are that we apply to understanding the current situation: more markets was the mantram yesterday. more government is the mantram today (although the obama administration still does not dare to use the N word–nationalization–which probably only means that the nationalization, which is going to come anyway, will come a little later, a little less voluntarily (that is, forced upon by circumstances) and a lot more expensive (trillions more).

what strikes me is how conventional the economic thought is that the current public discussion (including the Obama economic team) is applying to the situation. no one doubts that stimuli packages, re-regulation and temporary nationalization of banks are necessary. but is that all we can do? this still sounds like a 20th century mindset (markets vs. government) applied to a 21st century type of challenge (meltdown). what we will probably find out soon is that this no longer works. we cannot be successful by applying 20th century mindsets to 21st century problems. we need to approach problems of our age in new ways. in ways that illuminate the blind spot of contemporary economic thought: collective awareness based leadership.

conventional economic thought and policy assumes that the awareness (and preferences) of econmic actors are given. but in reality we know that this is not true. all real world deep change work revolves around helping communities and people to wake up to and start operating from a highler level of awareness (and self) which then gives rise to new types of collective creativity and action.  that is the missing piece not only in the current approach to the crisis, but also in our way of making sense of what is going on. and that is the line of thought that our Presencing Institute iniative on transforming capitalism will bring into the conversation over the next couple of months (see Theory U, chapter 19, as a first outline).

the interesting thing is that even in the heartland of conventional economic thought–like The World Bank–you find today a real openess towards these questions and issues. why? because we deal with massive institutional failure and we simply have to rethink economic theory and institutional designs not only from a Field 1 or Field 2 perspective (that is, ego-system awareness) but also from a Field 3 or Field 4 perspective (that is, eco-system awareness). the biggest blind spot today is how we can create Field 3 and Field 4 innovations in infrastructures that faciliate ecosystem awareness, collective leadership action and profound social innovation across all systems levels? we know how to do it in smaller settings. but how does that apply to the macro and mundo scale of societal renewal today?

what do YOU see going on in your environment? how do you see people make sense of the current depression economics? where do you feel drawn to re next steps?


24 Comments to The Blind Spot of Economic Thought

Ralf Lippold
March 8, 2009

Dear Otto,

Thanks a lot for bringing this issue on the table.

What we currently in and what we see as the crisis are just the effects of the actions taken in the past.

It is like a bad coffee, where you think the café owner has done the bad job. Firing him would help nothing, if the water was filzy, the coffee beans rotten or overdue.

Even all these earlier events haven’t taken all at once. It is mostly a gradual increase in the factors that lead to the results (whether bad or good).

Most of us would probably get the right sense about the ingredients in the coffee story.

Transferring the same pattern into the larger world around us, banks, car manufactures, governments, healthcare and much more, is what we haven’t learned at school and therefore we often lack to see the connections and similarities.

Seeing them will open not just cracks in the bigger wall of problems, but huge windows and gates:-))

Our kids are probably the dooropeners to that and we should let go of our old thinking about education and let the new wind come in.

Schools without teachers (just coaches;-)), where the learners learn what to want to learn. They will definitely have the creativity and loose thinking not stuck in one or two silos, to create new ideas, thinking and -finally- action.

There are already some approaches and Team Academy is just one; learned yesterday that Mondragón University in the Basque Country (strongly connected to the Mondragón Cooperativa) is also on that journey.

Love to hear more ideas and let’s find the hole in our work where we can take part in actions to come.

Best regards,


Chris Landry
March 8, 2009

My friend Chris Martenson ( has been looking at the blind spot in our economic thinking for the past 5 or 6 years. His Crash Course, available to view on his web site and for purchase on DVD, is a very illuminating exploration of where we really are, as opposed to where the mainstream analysts say we are.

When you see, for example, that our debt-to-GDP ratio in the US is 360% – more than twice what it ever was in the past – you realize that policies designed to jump start the flow of credit are really absurd: we’re using outdated fixes that no longer apply in these times.

What’s encouraging to me is to see what’s possible when people are helped to this higher level of awareness. Martenson’s work, among other things, is powering the Transition Towns movement (, for example.

Otto, I’d love to arrange a meeting with you and Chris, if you haven’t met him already.

Michael Bischoff
March 9, 2009

After reading this blog post, I read Chapter 19 of Theory U, as you suggested. At the beginning of the chapter, you described a German group from 2002 who saw global systems starting to collapse at that time. As you said,, the leadership dilemmas in our current global society are similar to working within Enron or East Germany before their collapse. You and the 2002 group in Germany seemed to been accurately sensing the future that was emerging. And, now even with global systems publicly collapsing, we are trying to revitalize the systems and mindsets that led us into the collapse.

While I agree that we need to collectively create new ways of approaching economics, I also draw inspiration from ancient wisdom about economics that we have mostly forgotten. For instance, the models for Sabbath Economics (, taken from the roots of Christianity, Islam, and Judaism inspire me. Since we have billions of people in the world who look to these traditions for guidance, I think that framing and applying these principles in our current context holds a lot of promise.

Jim McShane
March 10, 2009

I completely agree that we ned to be creating the dolution, not reacting to the economic downturn as we are today. I just returned from Washington DC and being part of the workforce system, we will be receiving stimulus money to retrain workers. While this is very necessary in that the average american worker cannot compete in language and math skills with the rest of the world, the question on what to train these workers who have lost their jobs in our grandfathers economy as Ed Morrison of IOpen says, but transition to our grandchildrens economy.
You are correct in that the best brains surrounding the President are still using today’s thinking to solve the problem created by that thinking. It will not work.
I believe the coment and citation by Chris is right on in that the transition will arise from the community. As we all look locally for innovation and transformation, emerging leadership will show the way to the new thinking and resolution for the next advance in our interconnectedness. I am reminded of the Star Trek Borgs with the collective mind. At the subatomic level we are all connected. Tapping this is rteally what you are saying with connecting with Source.

Seth Kahan
March 11, 2009

I am with you all the way, Otto. I am looking for the next American Evolution. See my Fast Co blog post:

Here’s an excerpt: It’s time to shift the mountain. The mountain is a metaphor for a mental model that is so large it is immovable. It becomes everything, even to the point of obscuring the view. It is almost impossible to let go. Yet, spring is almost here (just 10 days away). And the early spring brings the tiniest signals, little flowers that sprout as beacons: snowdrops, crocuses, dewberries. Their appearance breaks through the cold, bleak days in the north, alerting us to new life. The world is telling us, it is time to shift the mountain.

Neil Olonoff
March 11, 2009

Yes, absolutely! Look how long it took for traditional economists to notice that the factors of production were changing from tools, hands and bricks to electrons and ideas! Drucker, of course, saw it in 1954, but the rest of the pack didn’t catch on for more than a generation! They were so stuck in the B-school mental model that they simply couldn’t see that what they were booking as “goodwill” actually were the main assets of the corporation! Of course, when people like Karl Erik Sveiby pointed out that an “invisible balance sheet” contained more valuable assets than the one in the computer printout they began to sit up and pay attention, belatedly. But just like the gray haired Generals at the Pentagon, they are still usually fighting the last war.

Bernd Nurnberger
March 14, 2009

Yes, Otto. I see a groundswell of grassroots movements come together to replace that intellectual bankruptcy of prior dominating worldviews with something much better. There has to be a phase of creative destruction.

And coincidence or synchronicity like what just happened in my universe, priming me to reply here.

I ran into two articles with the same title by different authors in different media. Actually, picked up the second one, a slideshow, searching for the title before tweeting about it myself, so as not to diminish value by needless duplication.

1. Received subscriber mail for a new article and posted on twitter:

cocreatr Reading “Not Just for Profit” by Marjorie Kelly on Strategy+Business mag

2. Had ascertained this non-duplicate on twitter

@pierremangin Not Just For Profit, philosophy of an innovative 21st century company

For my viewpoint, the grassroots groundswell is focusing fast on what is really needed.

Gosia Basinska
March 19, 2009

Hello all,
I certainly do not suggest that I know much at all on the current economic situation; and what I observe is that many things: cultural and political have been reduced to a commodity. This reduction to commodity of cultural things (which then take away rather than supporting human freedom) and political things (which then become a ‘boys club’ rather than promoting equality in the eyes of the law) makes a master of economics in an unhealthy way. I guess this is already understood here, but I like to think these things through :D

Something that has disturbed me in the response by Ralph Lippold is the suggestion of “Schools without teachers (just coaches;-)), where the learners learn what to want to learn. They will definitely have the creativity and loose thinking not stuck in one or two silos, to create new ideas, thinking and -finally- action.”
I am a teacher, I have taught for more than 3 years now (which is not that much) but I know to be true one VERY fundamental thing about human development. Children are NOT little adults. They have not developed thinking free of their feelings and unconscious will and are in need not of free circumstances, but good moral example. Children crave boundaries, anything less creates mental and emotional confusion as children and when they are adults. This idea of teachers as coaches has had strong support from the baby-boomer generation, but the general understanding in my generation (I am 27) is that giving in to the will of children is detrimental – we were the guinea pigs for this already.

Do not discount the history of the past, we need to be aware of it. New thinking arises when individuals are themselves able to find the rigour and strength to work with a world that is not broken, but has simply come about through the deeds of other individuals – through human development.

Honour children by letting them BE children. Healthy imagination, not early intellectual thinking and decision making is the surest basis for new and necessary adult, human thought and action.

It’s wonderful to be able to have this discussion! Thank you all.

Anne Mateson
March 21, 2009

Dear All,

Whilst I agree with the underlying sentiments expressed in the comments I think we have to be very careful and quite specific with our language. To say that economic theory is bankrupt or is not relevant to the problems of the 21st century is to stay in the ‘herd and blame’ mentality that currently surrounds the debates on the crisis.

I believe that we have to be very distinct in differentiating economics from commercial activities and government policy. Economics never has and never would define a debt as an asset – finance and accounting might do so and did do so. The other argument that ‘economics is fine but it doesn’t take people into account’ is in part true, basic economic theory is context less – i.e. outside of the normative behaviour of individuals. Some of what we talk about as economic theory – Marx, Socialism, Smith are all theories of political – they define the impact or outcome of the application of their political perspective on economic theory – it is the first level filter of culture onto economics.

For economic theory to become part of the operating system of a society it is influenced by the law and government policy (competition / anti monopoly etc) both of which are a reflection of the cultural values of the society and that is where the influence of people comes in. It is the task of society, through its governance to produce stability and sameness so that people’s assumptions about their daily actions are consistent and they can act on a future orientation. One way this is reflected is in the level of Government regulation over their financial institutions and it is interesting to look at those countries who maintained some regulation and the relative health of their finance sector (despite the flow-on effects from the US problems where people have lost this sense of stability).

Today we hear talk of the death of ‘neo-liberalism’ – but which version – the European or American version – basic economic theory gets morphed by the politics and culture within which it operates. Why has it taken until the mid 2000’s for there to be a set of international standards for company reporting (the IFRS standards) – it was cultural differences not economic theory. Why are we consuming the worlds resources at a rate greater than our ability to replace them or find a substitute – the mechanisms that tell us if they are becoming depleted are obscured by politics and culture, e.g. cultures that allow the political system to become corrupt, or where pricing mechanisms are used to create false price floors.

If the World Bank is trying to find new economic theories then it is ‘barking up the wrong tree’ – culture and government is where it needs to be looking – the issue of values systems. But that is hard, very hard – it is easier to say we need new theories. <>

Using international values systems (see the references below) America is and has always been a ‘Something Better’ country – it was founded by people who were wanting a life that was better than where they came from. People who immigrate there do so because they want ‘something better’ for their lives, the American Dream it’s called. However that Something Better values system has its own shadow – I’m Better Than, I Can Have What I Want, I’m Entitled, I’ll Do It My Way, Me First Second & Third. All the issues that we now see so starkly laid out in their worst form before the world. This is the Blind Spot. The ‘something better’ values are also the values associated with late adolescence before the full development of self-esteem, self-confidence and self-respect. They are also more often associated with the less admirable aspect of the self – greed, judgement, blame, revenge, hate etc.

Now Australia is different, Canada is different, each European country is different the Middle Eastern countries are different again and then the Asian and ……. The world is a giant pot of minestrone soup not a bland pot of cream potato soup, and we should never try and make it such.

Look at Hofstede work and particularly the Masculine and Feminine dimensions. Highly Masculine cultures have values systems that are about domination – the great promise of control over all things – particularly nature. Highly Feminine cultures are less into domination and more into creativity, equality and growing the size of the pie and respecting the natural environment, but can still have their own blind spots.

As a world we need to be challenging our value systems and moving out of adolescent behaviour into true adult behaviour, which is not a function of chronology or various rites of passage. It is where we have challenged ourselves and our values and determined what is right for us and grown to become a self-actualised person.

And what we call Leadership is true adult behaviour.

Look forward to peoples comments.


Hofstede Cultural Dimensions
SRI Vals – values systems of the US
Roy Morgan Research – Values systems international

Aaron G
March 27, 2009

I have my own little piece in the interactions I have had with an entrepreneurial contest. I am not a MBA student, but I am working with a team of 4 plus one other outsider. There are 6 in total.

I am the outsider of the team that is designing the visual model of the business plan. What it has allowed me to observe is the process by which the team turns what is a robust social enterprise into just a normal run of the mill chamber of commerce welcome plan that is in some ways unethical. The original visual model that demonstrated the key feedback loops in major system interactions changed into this A=>B=>C=>D linear-causality visual representation. The over simplification of the business plan and the resulting economic thought bothers me, especially when the original intent behind the systems perspective was for the common good. The latter appears to be the traditional approach that is taught in MBA programs in how to pitch the investor into coughing up cash.

I am bothered by this because the MBA students are afraid to answer questions, the forum for investing provides little room for ambiguity, and the ultimate pitch of the linear model is a form of deception. This of course leads me to my next line of questioning which relates to what happens when these MBA’s get into the real world?

Fabio Castellanos
March 27, 2009

I read your note and can only share the sense of frustration. However, I am coming to the conclusion that it is not as much an intellectual bankruptcy we are lacking, but that there are so many high and entrenched interests at stake, that unless the floor they are standing on is removed from underneath, that we will not be able to cross the ego frontier.

I had the expectation that under the Obama administration, there would be greater flexibility to bring forth the change catalysts that are required. Instead, we are seeing more of the same thinking and trying to preserve the status quo that is in need of change. We are trying to escape from accepting reality and dealing with it.

Breaking the ego frontier is not easy at all, but that is why someone like Obama–not part of the establishment– must do it. Otherwise, we will continue to have greater moral hazard problems, which are becoming so commonplace. He can be the conduit for ensuring that the community at large (tax payers in particular)does not get further hammered.

It is a question of boldness and of accepting the hardship that will come with it. If there is anything that Obama made clear was this and of entering into a new age of responsibility.

The time cannot be more propitious. There are no quick fixes here.

It is disheartening to see this problem perpetuating itself. For a nation to lead, it must do so by example. The U.S. is not doing so and the political and popular capital Obama has can deplete itself very rapidly. What a shame and an opportunity to waste. I am getting the sense that this capital has already been lost and recent actions (by-passing or not confronting Congress)seem to attest that the Administration is already believing so.

We all need to be thrown into the abyss and cross the frontier to go beyond the ego. This push has to happen if we want to prompt the change we need. Once this happens, there is no other choice but move forward to construct the proper pillars we need to “truly” work together, lift and hold ourselves up and migrate to greater levels of awareness.

How sad that these levels of awareness fall on those that have the greatest preparation and aptitude but cannot transcend their own ego worlds!!. This is why we must enact the needed changes and not engage in “patchwork” and quick fixes.

We must generate that source of human greatness we have within ourselves!!!

Henning Hess
March 28, 2009

Dear all,
When reading Ottos texts and all your comments I just feel as a poor little guy in a very big world and I get frustrated.

I am frustrated because still so few at the moment do see the need for change and how to do it.

For me the question is very simple and though so complex. How can it be that so few can see that we have a huge problem ??

Or is it just a “problem” which do interest professors and other intellectuals because it is kept on a high level which “a normal mortal human being” do not understand ??

How can we show the “problem” – and explain the “problem” in a way that the majority of the worlds population do understand clearly and it is so obvious to everybody that a change is needed ?

This is for me the real challenge – and then the change will come.

Henning Hess

Rainer v. Leoprechting
March 28, 2009

Hello Otto, I very much like your pointing to the underlying thought crisis underneath the financial symptoms. So much that I wanted to share my resonance with you and all other fellow conversation partners :-)
As much as I appreciate Anne’s distinctions between culture, institutions and economic theory proper, I will argue that there is something wrong even with that ‘pure’ economic theory.
Anne, to put in bluntly, the situation is much worse …
Pure economic thought holds a set of assumptions about human behaviour. Actually, if you accept these assumptions, economic theory provides you the logical consequences of a certain model of mankind. In a nutshell it says: As resources on the earth are limited (first assumption), we need to make choices (second assumption). Men make choices by decisions of tradeoff (one against the other), and we do so by comparing relative utility of one element against the other (this is the socalled ‘economic principle’, the heart of economic theory).
Now there have been since long studies about why this is intellectual poverty, a false copy of old-fashioned 19th century physics (see Philip Mirowski’s : More heat than light) and so on.
What illuminated my thinking on this was my encountering developmental psychology and social science, especially the works of Robert Kegan and one of his most profound students, Otto Laske (all live in Boston). What I found is a more general theory of ‘self’ in mankind. It includes the economic model as a first stage of adulthood, just after infancy (yes to our teacher: infants are not adults). At this first adult stage of development (‘self-desires’), people are identifying themselves with (i.e. they ‘are’) their desires, and indeed manipulate their environment by making choices based on their perceived utility for fulfilling their own desires. This stage describes some 10% of actual adults in modern populations.
As a stage theory suggests, there are other stages!
And the mind-opening insights were that those other stages of development account for roughly 90% of adults, while economic theory keeps our model of mankind to one of its lowest development levels (10% only).
This only could happen due to one of the qualities of the second stage of adulthood, the conventional level.
After the self-desires identification, people identify with the world and conventions around them, they take the conventions and feelings of others in their surround as a norm they identify with. It is only as long as self-identification with perceived utility choices is functioning as a social norm that a large majority of adults continue believing in the role of economic theory as developed in the 19th century. It’s not even 20th century thinking haunting us, it is obsolute since Einstein’s version of physics in 1905 :-).

However, as people at the conventional stage actually identify with status quo, they’ll only change if status quo collapses. That may be the good thing in our meltdown experience, that it may serve as gigantic mind opener for the more than 50-60% of adults living at this stage of self development.

Individual life crisis help a few other adults (20-25%) to grow into a authentic, self-determined stage. Here, people define the world out of their own principles and values. Even from this stage of development a few people might defend status quo and economic theory’s role in it. You would have made economic theory a part of your authentic beliefs and value systems, it is included in the moral basis of your judgements. As our currently melting society used to function on the largely shared belief into the greed of individuals, this morality might have made sense even for such highly developed selves. And it is hard for them to let go of those self-beliefs…
However, learning to let go of your own beliefs is what helps us to open into another stage of development at which we identify with a process of learning and disidentifying, a process of continuous creation and destruction, a holding of opposites together (we stop making choices, we leave that to the stupids), as the real work is about integrating polarities. At this stage, some 5-8% of adults arrive there, we may begin to become capable of living in the world we actually already live in.
So that for me my life’s question has become: How can we develop our learning institutions and processes so that adults (and indeed including children education into this) are helped and supported in doing their next steps in growth and development instead of just moving inside the static edges of limited selves?

March 30, 2009

The great part of this moment is that humanity is confronted with so much unconsciousness….how can you gain consciousness otherwise? All the problems are connected and the financial crisis is not seperate from the other global crisises. Only when things truly hurt we are generally willing to let go of the old. What we are witnissing is the collapse of mankinds egoic created world order. Thinking in nation state concepts is outdated, the current democracies and nations are more a barrier than a solution. But don’t forget that political and economical structures are very attached to the ‘I think, therefore I am’. At the same time people are discovering the Oneness and make the real change from within, not waiting until the outer world brings salvation. So it’s a fascinating crossroad the outer darkness brings the real light from within. Or as Obama nicely said I do not expect you to believe in my capabilities to bring about real change in Washington, I expect you to believe in yours.

As for new economic paradigm? Discover the passion of people, what is their authentic I, create moral, social stock, true ownership and participation in creation. All with the understanding that Consciousness is all there is, so when our perception on eachother changes we also no longer have to exploit eachother and our surroundings. But we can enjoy being, creating, innovating for the benefit of all. Not a select group.

Q principles……

Fabio Castellanos
March 30, 2009

There is an interesting article that I saw today (Mrach 30,2009) and applies to the comments made earlier on the subject. It is an article written by Simon Johnson, titled “The Quiet Coup”, and which appears at the Atlantic Monthly. He is a former chief Economist from the IMF. He gives a clear account of the intricate web of interests that have been created between the financial industry and the US government in the last few years. This “relationship” is evidently holding us hostage to moving forward in readdressing the current state of things. Breaking this rekationhsip deadlock would allow us to migrate to the deeper levels of awareness required to discuss current alternatives ( new / bad banks, for example)and reformulate them or formulate new initiatives. It would also integrate us into a a higher and inclusive field where the community and the world at large ought to be an integral part of it.

Julia Hultgren
April 2, 2009

I am so relieved to read your thoughts on this, Otto. While I am with you conceptually, I wish we had more visual models, before and after Theory U, of what the change creates. I am so interested in Porto Allegre and any other models and some reporting on what happens AFTER. Graphs and charts and the like. I feel confident I can sell these concepts, I’m doing it my work everyday. But when I sell “creating new neuronal pathways” via meditation and altered mind states, it suggests a picture that most can relate to. An “OK I get that and I want it.” My impression is people want to believe they can create a new reality individually and in groups, and are willing to be led to that experience. I could use some more props relating to the end result of large social change.

Thanks, Julia

Friedrich Christian Haas
April 8, 2009

Dear Otto,

it’s refreshing to read your thoughts and the comments on this blog. Talking about a “financial crisis” or “financial bankruptcy” is missing the point and entirely superficial. We are indeed facing an “intellectual bankruptcy” up to intellectual corruption – a moral crisis of a failed system harming an entire society. Stephen Marglin called it “The Dismal Science: How Thinking Like an Economist Undermines Community” ( I agree we have to rethink our system and its underlying presuppositions. It strikes me most, that the majority of the crisis managers to do heed Einstein’s advice and simple wisdom „You cannot solve a problem with the same thinking that created it.” But working as POLAD in post-communist and post-conflict environments of failed states, I know this simple truth is the most challenging one, to change thinking, minds: It’s easy to pump money into a system, create and change some laws, … but finally it’s about long term strategies of changing behaviors, mentalities, values, … or “mental models” as you mention it in “theory U”. These are my lessons learned from the “intellectual bankruptcy” and failed system of the Eastern Block in 1989 up to the EU integration process of post-communist countries. Another interesting parallel: The crisis of the system did not take us by surprise – either in 1987 nor in 2007-09. There have been public early warnings – but the a majority of people was not willing or able to share the perception of critical contemporaries. We have had even voices from inside the system as Warren Buffet talked at BBC in 2003 about “financial weapons o mass destruction” ( But this ignorance is just another indicator for the “intellectual bankruptcy”. So rethinking banking, finance, economy, … as servants of a civil society will be crucial. I found an article and speech (MP3 with slides of Prof. Prabhu Guptara ( from India quite inspiring (trained in UK, working now for a think tank of a bank in Switzerland and member of NGOs as the World Future Council):
Best from Germany!
Friedrich Haas

April 9, 2009

i love reading all these wonderful comments. what a wealth of perspectives and insight. feels like this topic will stay with us for a while. as the Wallstreet financial oligarchy still remains unchallenged by the Obama team (see link below), its probably about time to widen this circle of conversation and to connect to all the other places where this topic begins to show up…

April 10, 2009

I agree there are blind spots in thinking with respect to this crisis, but I do not see and reference to specific solutions. Otto, can you direct me to a place where more specific suggestions are presented?

Fabio Castellanos
April 13, 2009


Maybe there are a couple of suggestions I may suggest.

You can read some thoughts on a good /bad bank solution being offered by Willem Buiter, who has a blog known as Maverecom. You may gain access to his blog through the London Financial Times. Prof. Buiter also makes reference to other writers that have been providing some possible solutions.

Another good source is voxeu. There is a brief paper written by Jeremy Bulow and Paul Klemperer, titled: Reorganizing the Banks: Focus on the liabilities, not the assets.

I hope this helps.

Bart Gijsbertsen
May 27, 2009

Hi Otto,

Honest disagreement is often a good sign of progress, Ghandi once said. So let me disagree with you on the crisis of our time. I do not believe that it is about intellectual bankrupcy (nor do I believe that this is what you really mean to say). The crisis of our time is not a crisis of the intellect. It is about the isolation of our intellect, from the wholeness of our person.

When Presence was first published in 2004, I contacted Joseph Jaworski about it, whom I had connected to at a dialogue conference a few years earlier. What immediately struck me, was that the U process at the core is a theory/practice of religion, more than a theory/practice for systemic change. The experience of presencing (Jaworski falling down on his knees in prayer) leaves the memory of purpose and obligation, and not just beauty. The transformative power of the U-process depends on the level of success in reconnecting individual people to their humanity, their soul.

Heschel once said that man in search of ultimate meaning is like a messenger who forgot the message. We are not out of control, but we have forgotten our destination. “In the Middle Ages thinkers were trying to discover proofs for the existence of God. Today we seem to look for proof for the existence of man.” This search is not an intellectual quest, but a spiritual one. “The animality of man we can grasp with a fair degree of clarity. The perplexity begins when we attempt to make clear what is meant by the humanity of man.”

The current crises in Natural Resource Management and Human Resource Management are two sides of one coin. These crises do not originate from a lack of information, which is up for grabs, but rather from a lack of appreciation and wonder. What makes our world so difficult to understand, is not that it is too complex for us to process, but rather the fact that we have lost the ability to ask ultimate questions. Here lies a challenge for education as well. We’ve got to stop routinely dumping loads of information on people, and start giving them the tools to ask ultimate questions, and to sense awe and wonder.

In my company, I refer to this area of capacity building as Forgotten Resources Management. It is about a shift from a focus on information (i.e. viewing the world a an answer to our questions) to a focus on appreciation (i.e. experiencing the world as a question, rather than an answer).

Mind and soul are different categories, different realms of existence and experience, though they co-exist in every individual. “The mind is in search of rational coherence, the soul in quest of celebration” (Heschel). Though they are interrelated, the are also seperate. The waves of philosophy break on the shores of religion. Our souls do not belong to the earth.

Tom Klein
July 18, 2009

Hi Everyone,

To pick up the thread again, reading Nassim Taleb’s Fooled by Randomness recently has made me wonder whether the intellectual bankruptcy in economic thought is not a consequence of natural limits to our perceptual apparatus, and to thinking as an attempt to compensate for the limits. Faced by the complexity of life as a thing in itself we will never know, the brain orients itself by taking short-cuts, and inevitably falls short. To use Taleb’s metaphor, from the experience that we have only ever seen white swans, we infer that there can be no black swans in principle (an assumtion of Europeans held for hundreds of years before it was contradicted by the sighting of black swans by Australian exporers). We create theories and forget that they are not reality. Because no black swan (an image for a theory-breaking event) has disturbed our assumptions about reality until now, we infer that it cannot do so at all.

In general, constructs that are entirely non-viable are exposed as such by failing quickly. But many a construct fits for the moment to a trend in a market, so that it is successful for a time–until the appearance of a black swan exposes its inadequacy. One of the brain’s natural tendencies is to infer that current success confirms the truth of its model in principle, and as long as no experience to the contrary gives pause for thought, only very unusual minds would voluntarily subject themselves to the stress of questioning apparently successful assumptions.

For about 60 years we have been economically without challenge from a global conflict with reality. The system was robust, and the warning signals of partial failures did not present fundamental challenges to economic thinking. Granting that the brains of our most brilliant economists are not fundamentally different from those of the rest of us, there is no reason to expect they should be exempt from making the same mistakes as we do, not withstanding the complexity of the methods that are used to provide confirmation for their (now discredited) beliefs.

But in a recent interview, Taleb said that the system has become fragile. The risk is that now even slight perterbations can have massive consequences, not “only” a the periphery, but at its heart. My inference is that this presents us with a unique opportunity to learn to rethink our assumptions. The feedback loops have become short, as opposed to the generational time-frames we have had until now. (For example, the philosophical and common sense opposition to Reaganomics during the Clinton years got no traction in the face of the experience of a budget surplus, even as it was making its contribution to the current crash.)

As the brain learns well by experience through feedback loops, we would now seem to have the conditions needed for an exponential global learning curve, as every action based on failed assumptions will have immediate impact. As no new globally viable model yet exists, I would not be surprised if the global economy remains fragile for a very long time to come–and so keeps us thinking very hard. What I wonder is whether our brains are capable of building the neural patterns we need for successful new models quickly enough, given that they will feel counter-intuitive at the start and must encompass scales of all kinds of complexity to which our biology has hardly had time to adapt.

David Jones
July 21, 2009

corrected version of post please discard first one

Hi Otto,

Great stuff I must say! I would like help support your idea.

You have identified I believe the correct overall struture of Human Society. We have Business, Government, Third Sector (NGOs, also Police & Army perhaps?), but also importantly the fourth element.

Would you be surprised to learn that this four-way division of Society is what Plato and Socrates really had in mind in ‘The Republic’? In that book however this four-way division was disguised as a three-way division by amalgamating the ‘political’ class with the ‘philosopher’ class.

And isn’t this just what we see today? – everyone pretending that politicians are also wise, or rather, SHOULD also be wise (coming from a place of presence of the Whole)?

What you think? If you what to know more about this please read and the subsequent conversation…

Well done, I hope you persuade the political class that you are right,


Fabio Castellanos
September 24, 2009

Professor Scharmer: I do not know what you make up of things lately. Since my comment made on the 30th of March where I quoted the article “The Quiet Coup” written by Simon Johnson– which you also refrred to later— I see that things seem to be going for the worse. There is no end to being surprised by the actions undertaken by government and other corporate vested interests. If there were ever any doubts about the “inferences” made by Simon Johnson, they can now be fully confirmed and things are now self-evident. Unfortunately, my hopes from President Obama about initiating change have evaporated and doubt this will change at all.

It seems unfortunate but it appears that they only way we learn is until things just fall apart and there are no options left but to re-construct oneself. How disconcerting to see this.

We are now having not intellectual bankruptcy but a coterie of very intelligent people that are defrauding their own communities and seeking self-enrichment and protecting their own self-interests to the detriment to the vast majority of their populations. I am sorry to sound so negative. I do see, however, a community of bloggers that is increasing measurably and instilling awareness of the how to protect oneself in order to survive. This is good in the sense of alerting people to take action but worrisome inasfar as making clear that there will be increasing levels of mistrust which will take many years to repair.

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