A History of Popular Delusions and Group Hysteria in Finance

and Climate Science by

Charles Battig, M.S., M.D.Charlottesville, VA

May 2010

Wisdom From A Poet And From A Financier

• “Anyone taken as an individual is tolerably sensible and reasonable…as a member of a crowd he at once becomes a blockhead.” Schiller

• “I have always thought that if in 1929 we had all continuously repeated ‘two and two still make four,’ much of the evil might have been averted.” Bernard M. Baruch

The Theme Of This Presentation• “Dissatisfaction with his lot seems to be the

characteristic of man in all ages and climates…but the same discontent which has been the source of all improvement, has been the parent of no small progeny of follies and absurdities; to trace the latter is our present object”

• “Three causes especially have excited the discontent of mankind…impelling us in a maze of madness and error…death, toil, and the ignorance of the future” Charles Mackay 1841

Ancient Mass HysteriaPublished in 1841• The Mississippi Scheme• The South-Sea Bubble• Tulipomania• The Alchemists• Fortune-Telling• The Magnetizers• The Crusades• The Witch Mania

Tulipomania (1634-1636)• Often cited as the first modern speculative irrationality• The trading of tulip bulbs in the early 1660s by the

Dutch became a national pastime at all levels of society

• People would sell or trade their possessions to buy a single bulb, expecting to sell it to someone else at a profit; a bulb might sell for 20-30 times a year’s wages

• February 1637 the market collapsed leaving many with overpriced purchase contracts

Tulipomania Terminated

• Judges regarded the debts as gambling debts and therefore not enforceable by law

• The government of the Netherlands responded to the financial crisis by proclaiming that anyone who had bought contracts to purchase bulbs could void their contract by payment of a ten percent fee.

• Parallels to the U.S. government responses to the subprime housing market crisis and financial collapse…imposed voiding of valid contracts

The Mississippi Scheme (1719-1720)•Scotsman John Law, a successful professional gambler with a knowledge of business finance, sets up a private bank in France in 1716 founded on the capital of French government bills and notes•In 1717 he purchases the Mississippi Company as a stock trading company and is granted a trade monopoly for the West Indies and North America•In 1718 his bank becomes the Royal Bank and his notes bear the guarantee of the king …“sovereign debt” and the P.I.G.S. of today•Exploiting the public’s imagined wealth of the Louisiana colony, he is able to market his bank notes

Mississippi Scheme Collapses • The marketing scheme coupled with the ready

acceptance of the French government’s backed company notes fed a public growing demand for more notes as they exchanged hands at ever higher prices.

• Profits were paid out in more paper bank notes• The paper notes in circulation came to greatly

exceed the value of the precious metal backing it• In 1720 the scheme collapses when the public made

a run on the bank demanding the nonexistent coin• Law flees to Italy

The South Sea Bubble (1711)• The South Sea Company was a British stock company

founded by the Lord Treasurer in 1711 with a monopoly to trade in Spain’s South American colonies

• The company in turn assumed a portion of the national debt of England resulting from the War of Spanish Succession, even though it was not a bank but a trading company

• The public was convinced to exchange government debit for company stock

• The government sought to profit by exchanging high interest government debit for company shares

The Bubble Builds• The South Sea Company out bid the Bank of England

in a second refinancing scheme covering over half of the national debt. The costs were to be paid by the assumed profits from the South Sea trading monopoly.

• A successful self-promotional campaign and widespread investor fervor boosted the company stock value from 128 pounds to almost 1000 pounds in one year.

• The company initiated a program to lend money to investors so they could buy its shares

The Bubble Balloons• The public was aware that the Parliament and the King

supported the enterprise with a fund of credit• Politicians and friends profited as they sold back unpaid-

for shares at higher prices (unsecured futures trading precursor?)

• Seeing the wild success of the South Sea Company, entrepreneurs formed dozens of other joint-stock companies, nicknamed “Bubbles.”

• One example “a company for carrying out an undertaking of great advantage, but nobody to know what it is.”

The Bubble Bursts• June 1720 Parliament passes the “Bubble Act” requiring

all new joint-stock ventures to have a Royal Charter• August 1720 the stock price fell back to 150 pounds

taking down investors, banks, and goldsmiths• A simultaneous drying up of international liquidity in

other “bubbles”, including the Mississippi Scheme, drives share prices down

• British Parliament initiates an inquiry; company directors are questioned, their estates confiscated, and threats of drowning in the Thames…(parallels with recent U.S. Senate hearings)

Some Of The Bubble Enterprises• Mackay lists 86 “bubbles” which were abolished by the

“Bubble” act, including:– For building and rebuilding houses throughout England– For buying and selling estates, and mortgage lending– For a grand dispensary– For a wheel for perpetual motion– For insuring and increasing children’s fortunes– For extracting silver from lead– For transmutation of quicksilver into fine metal

• Reincarnated in the 2009 American Recovery and Reinvestment Act? Congressional earmarks? Global warming cures?

The Poetry of Stock ManipulationSome in clandestine companies combine;Erect new stocks to trade beyond the line;With air and empty names beguile the town;And raise new credits first, then cry them down;Divide the empty nothing into shares;And set the crowd together by the ears.Daniel Defoe (1660-1731)

(stock and commodity naked futures manipulation? “cap-and-trade” carbon credits…a paper created

commodity with no physical substance?)

The Alchemists (A.D. 700-1800 +/-)•The “research scientists” of the day engaged in the search for the “philosopher’s stone and the water of life.” This stone was to be able to dissolve certain base metals and transmute them into pure gold. •One example: Roger Bacon 1200s; credited with development of gun powder and the telescope•Funding for these “scientists” came from the ruling nobility and church-based patrons•This template for funding the solving of the unsolvable lives on today in the government and university system of grants, e.g. solving climate change…the unsolvable problem that keeps giving

Cognitive Dissonance• Book by Leon Festinger et al

1956• Based on the observations of a

group of people who believed that aliens from the planet Clarion had foretold one member that the world would end before Dec. 21, 1954

• How does the group react if a prophecy fails in which all have a vested emotional and financial investment?

Responses To Challenges To Belief• Rationalization…”I did not want it anyway”…sour

grapes• Change attitude and beliefs• Double down, press on, and ignore the conflicting

evidence because the story/cause is too good to abandon

• An example: responses of climate change/global warming advocates following the November 2009 “climategate” behind-the-scenes revelations of apparent scientific misconduct

• Thomas Kuhn’s paradigm shift in scientific fashion

The “Battle For The Mind” Rages On• Psychiatrist William

Sargant; published in 1957• Partial list of topics

include: psychotherapy, brain washing in religion and politics…mental fatigue

• 1959 novel: “The Manchurian Candidate” (R. Condon) illustrated these techniques

The “Cargo Cult” Islanders• Caltech commencement

address 1974; book 1985• Native islanders in the South

Pacific faithfully mimicked all the rituals and hardware of WW II military, hoping to secure the return of the cargo planes

• Beware of scientists whose rituals of overt scientific methodology lack scientific integrity and produce pseudo science claiming validity

Cargo Cult ClimatologyIn 2005, Warwick Hughes ,an Australian scientist, wrote to Phil Jones, director of the U.K Climatic Research Unit (CRU) of the University of East Anglia for his original climate data for the purposes of trying to replicate the original work. (The CRU is a major source of climate data for the UN’s IPCC and the U.S.’s EPA)Dr. Jones reply: “We have 25 years or so invested in the work. Why should I make the data available to you, when your aim is to try and find something wrong with it?”

Cargo Cult Pseudoscience• Stanford University climatologist Stephen Schneider

“On the one hand, we are ethically bound to the scientific method promising to tell the truth…including all the doubts…we need to capture the public’s imagination…so we have to offer up scary scenarios, make little mention of any doubts we have…each of us has to decide…the right balance is between being effective and being honest” (Nature 1989)

• In 1978, Schneider was discussing geoengineering solutions for the widely proclaimed “coming ice age.”

December 24, 1979

The New Science: “Post-Normal Science”•A philosophical construct ( U.K. Jerry Ravetz): “in the application of science to public issues where facts are uncertain, values in dispute, stakes are high, and decisions urgent.” Issues so categorized are no longer to be bound by the traditional benchmarks of true science: skepticism, universalism, communalism, and disinterestedness• Consensus and political influence rule over traditional science; “the end justifies the means” mentality…postmodernism redefining science •More a charter statement for quasi-religious dogmas such as “environmentalism”

Post-Normal Science In ActionMike Hulme, professor of climate change at the U.K. University of East Anglia (home of “climategate”), and author of reports for the U.N.’s Intergovernmental Panel on Climate Change reflects this “new science” in his comments that: “the idea of climate change is so plastic, it can be deployed across many of our human projects and can serve many of our psychological, ethical, and spiritual needs.” Myths, such as Lamenting Eden, Presaging Apocalypse, Constructing Babel, and Celebrating Jubilee transcend the scientific categories of “true and false,” according to Hulme.

“Climate Change”…A False Problem?

• “Does A Climate Exist?” E. Lorenz, MIT 1964 • Who shall decide what is the universally

“correct” climate ?• What group and mechanism shall be used to

change whose climate…climate governance? • Who will be responsible if changing the

climate change results in harm to some but benefits others?

Prophets…Old And New

• The Oracle at Delphi, riding high on natural earthly emanations of ethylene, provided the ancient Greeks with convoluted answers to the urgent questions of the day

• The modern computer and computer modeling… the new Oracle

Climate Computer Models vs. Reality Hint: A Model Is Not Reality

Third IPCC Assessment Report (2001), Chapter 14, page 774

774 Advancing Our Understanding14.2.2.2 (continued):

the magnitude and pattern of the response. Furthermore, manygroups have now performed model integrations using similarradiative forcings. This allows ensembles of model results to beconstructed (see Chapter 9, Section 9.3; see also the end ofChapter 7, Section 7.1.3 for an interesting question aboutensemble formation).

In sum, a strategy must recognise what is possible. In climateresearch and modelling, we should recognise that we are dealingwith a coupled non-linear chaotic system, and therefore that thelong-term prediction of future climate states is not possible

“The Science Is Settled” Philosophy•A falsehood – true science is never settled and is always open to a better explanation:

The sun revolves about the earth; the earth is flat; peptic ulcers are caused by excess acid; Euclidian geometry; Newtonian physics…all disproved or revised

•Saying something is so does not make it so; traditional science does not depend on consensus or arguments to authority for validity•A cowardly position taken by those unwilling or unable to engage in open, scientific debate•“Black Swans” are lying in wait to destroy theory

Stephen Jay Gould

“Few arguments are more dangerous than the ones that “feel” right but can’t be justified.”The Mismeasure of Man, 1981

Saturated Fat Causes Cardiovascular Disease

“The Science is Settled”…Really?• A 2009 analysis of 21 epidemiological studies

monitoring 350,000 people found “no association between saturated fat and risk of CHD or stroke”, American J Clinical Nutrition Jan 2010

• A 2008 report from the World Health Organization and Food and Agriculture Organization of the US found that “intake of saturated fatty acids was not associated with CHD events or mortality; fatal CHD events were not reduced by low-fat diets”

True In 1999; True In 2009• “False bad news” sells papers,

raises campaign donations, and research grants

• Paul Ehrlich, prophet of population and climate doom

• Peak Oil• Acid Rain• Vanishing Farmland Scam• Endlessly imagined environmental

disasters• Past irrationally viewed as better

than present

Julian’s Bet• In 1980, Julian Simon, an optimistic economist

(more people = more opportunities for human advancement), offered a bet to Paul Ehrlich, a perpetual doomsayer (Population Bomb - 1968) and bug expert: that an agreed upon basket of raw materials would cost less in 1990

• The bet was accepted and $200.00 each of copper, chrome, nickel, tin, and tungsten were selected

• The 1990 value was less; Ehrlich lost the bet

J. Simon’s “Media-Shaped Opinion” Feedback Loop Of

Perpetual Alarm1. The media carry stories about environmental scares2. People therefore become frightened3. Polls then show people to be more frightened 4. This worry then is cited as support for policies to

initiate actions about the supposed scares5. These policies raise the level of public concern

further, which the media report again…back to step 16. Miller Center “Virginia Climate Survey” 2008

The “Climate Change” Language Of Fear, Media Sound Bites In Place of Science

• If current trends continue…• Unprecedented…• According to computer studies…• Not experienced since…• There is a XX% chance…• Scientists agree…• We must act now…• In my opinion…

Disaster Predictions From Earth Day 1970• “Civilization will end within 15 or 30 years unless immediate

action is taken against problems facing mankind” G. Wald, Harvard Biologist

• “Population will inevitably and completely outstrip whatever small increases in food supplies we make” P. Ehrlich, Stanford University biologist

• “We are prospecting for the very last of our resources” M. Litton, Sierra Club director

• “The world has been chilling sharply for 20 years…and will be 11 degrees colder in 2000…twice what it would take to put us in an ice age” K. Watt, ecologist ( the snowball earth prediction)

Post-Modern Science Philosophies

• Club of Rome: “The common enemy of humanity is man; we came up with the idea that pollution, the threat of global warming…would fit the bill”

• Paul Watson, co-founder of Greenpeace: “it doesn’t matter what is true, it only matters what people believe”

• Maurice Strong, UN Environment Program: “The U.S. is the greatest threat to the global environment…isn’t it the only hope for the planet that the industrialized civilizations collapse?” IPCC formed to verify mankind’s climate impact, not to conduct an impartial, scientific study of all potential drivers of the Earth’s climate

Modern Hysteria And Scams• DDT • Disappearing U.S. farmland• Disappearing Amazon and rain forests• Year 2000 computer scare• Bernard Madoff and Ponzi investment scams• Savings and Loan and housing market bubbles• Perpetual environmental disasters• Run away/tipping point global warming• Autism and vaccines; Bisphenol-A in plastics• Genetically modified food crops

DDT• Synthesized in 1874• Usefulness as insecticide discovered in 1939• Widely used in WWII and credited with saving hundred

of thousands of lives from malaria and typhus• Agricultural use and overuse led to impacts on the

environment; egg shell thinning in wild birds was claimed, but later disputed

• Rachel Carson “Silent Spring” 1962; environmental movement; false claims made of DDT being a human carcinogen

•

DDT• 1972 DDT banned in the U.S.• Scientists had voluntarily ingested DDT in daily

doses 100x-200x insecticide dosage for 18 months without adverse effects

• 2004 Stockholm Convention…use restricted to vector control; 2006 WHO backs DDT use

• World Wildlife Fund “DDT is so potent that as long as it is used anywhere in the world, nobody is safe.”

• Estimates of malaria deaths: 2 million per year, mostly children under 5, mostly in Africa

Two Visions

Disappearing Farmland• 1980s headlines “The Peril of Vanishing

Farmlands” (NYT) ; Farmland Losses Could End U.S. Food Exports” (Chicago Tribune)

• Urbanization of farmland • A crisis creation of the U.S. Department of

Agriculture, the National Agricultural Lands Study and members of Congress, claiming a 3x increase in the rate of farmland conversion

• Unsubstantiated claims of environmentalists widely quoted by unquestioning journalists

The Scam Is Exposed• USDA employee uses USDA data to expose the false claims

of exponential loss of farmland; in fact farmland was increasing

• USDA, the Bureau of Census, the Illinois Department of Agriculture all conspired to produce numbers supporting the (false) claim of farmland loss

• 1984, the Soil Conservation Service and USDA, when confronted with the facts, reverse the false claims

• The media largely ignored the positive news

•

Lessons From The Farmland Scam• Environmental reporters uncritically accepted

and published reports of negative trends issued by governmental agencies and activists; countervailing positive news was largely ignored

• Factual refutation of false data and conclusions does not assure the recantation of those claims by activists or the press

• The imprimatur of “governmental agency” does not assure scientific integrity or data honesty

• 1981 Congress enacted the Farmland Protection Policy; conservation easements and tax breaks were enabled

Disappearing Amazon Rain Forests?• By one estimate, for every acre of rainforest cut down

each year, more than 50 acres are growing in the tropics on land that was once farmed, logged, or ravaged by natural disaster

• In 20 years of warnings about deforestation, only 10 per cent of the Amazon has been converted from original forest to agriculture

• Two decades of satellite measurements of the Earth as a whole document a 6 % increase in vegetated land mass, with the Amazon rain forests accounting for 42 % of the increase

Peak Oil• A construct of engineer M. Hubbert ( 1956 ) who

graphed the apparent depletion rates of oil well fields • He predicted that 1995-2000 would see peak oil

production…global oil production = global oil extraction

• Ignores the fact that oil discovery is a continuous process driven by profit motive

• Oil consumption in past 33 years was more than 3 x known oil reserves in 1976

• Present known oil reserves are 2 x starting reserves

Postponed Peak Oil• Canadian oil sands…est. 200 billion barrels• Bakken oil shale (North Dakota and Montana): est. 270

– 500 billion barrels• Tupi and Jupiter oil fields (Brazil)…est. 40 billion barrels• Factoid: Russian scientists claim that petroleum oil is

abiotic i.e. not of biological origin, but is generated in the mantel of the Earth…a theory in dispute, but not disproved

Oil Pollution in U.S. Off-Shore Waters? Nature Does It “Best”

47 million gallons per year

China’s Oil Policy• U.S. Export-Import Bank loans 2 billion dollars to China

to buy into Brazil’s oil fields• China’s purchases into the Canadian oil sands project

total 10 billion dollars• China has oil drilling rights in Cuba and is negotiating to

drill offshore from Cuba, about 45 miles from Florida• China has recently negotiated oil lease rights in East

Africa• China lends 20 billion to Venezuela for oil venture (April

2010)

China’s Coal Energy Policy

China is currently building one new coal fired electric generating plant every ten days

The Legacy And Future Of False Prophecy, Post-Normal Science, and Popular Delusions

• A negative legacy of unfounded social disruption, waste or loss of natural, financial, and human resources promoted by perpetual pessimists

• Empowerment of elite ruling classes, both political and business (crony capitalism), and the loss of individual freedoms (regulatory confiscation)

• The future?…increased prosperity affords the time and money to those so inclined to ruminate on the uncertainties and minutia inherent in life and the environment , and to pester their fellow man with their imposed cures and the costs for doing so

Julian Simon’s Observation•There is a predisposition in human nature to uncritically accept “bad news”…perhaps as a cultural and basic survival mechanism•The hoodwinkers and charlatans of all types… be they politicians, salesmen, scientists, businessmen, false prophets, or others…know this and use “ false bad news” to their own advantage

Nature Has The Final Word

Iceland, April 2010 est. 6,000,000 tons of CO2 in 20 days