The stock markets ended higher today, Tuesday, February 20, 2007
"Tire Reef off Florida Proves a Disaster," read a USA Today headline. About two million old tires were dumped in the ocean off Fort Lauderdale in 1972 in an attempt to simultaneously create an artificial reef and reduce the mosquito-breeding habitat provided by old tires. "Now" we find that marine life won't grow on the tires, which break loose, move around, scour the bottom, damage natural reefs and wash up on beaches. To retrieve and dispose of a single tire from the ocean costs about $16. A main proponent of the tire reef plan, an otherwise respectable professor of "ocean engineering" at a Florida university, says, "I look back now and see it was a bad idea."
How did this fiasco happen? Simple -- it's called "consensus" math. Add "ocean engineering," plus the Army Corps of Engineers, plus Goodyear, plus volunteers in the environmental movement, plus dollars saved in tire disposal, and presto… an attractive fictional concept everyone loves rolls easily off the tongue -- the Tire Reef.
Surely somebody checked tires already dumped in the ocean to see no coral attached. I suspect they even spoke up… and were drowned out by consensus. Since small artificial reefs primarily function as fish attracting devices that make it easier to locate and catch fish, perhaps someone even wondered about the premise -- whether we should be building artificial reefs at all. Want to try that idea at a gamefish convention?
Developing a consensus is part of the scientific process, but that process is a social enterprise. Heavy criticism comes down on those who contradict the consensus, yet the most dramatic scientific and social paradigm shifts -- as well as turning points in markets -- occur when consensus is most entrenched.
Some ideas accepted by popular consensus that are now rejected:
- The flat earth
- Geocentrism
- The harmlessness of tobacco
- The link between electromagnetic fields and cancer
- The benefits and harmlessness of leaded gasoline additives, followed closely by
- The benefits and harmlessness of MTBE gasoline additives
- Nuclear Winter
- Y2K
Ideas once rejected by popular consensus that are now accepted:
- Germ theory
- Continental drift
- Overuse of antibiotics
- The theory of symbiogenesis, the merging of two organisms to form a new one
- The theory of punctuated equilibrium
- The theory of prions, which cause "mad cow disease"
- The theory of a bacterial cause for stomach ulcers
So, which consensus today appears to be the most powerful, entrenched, reasonable, rational and stable? Global Warming? The War on Terror? Peak Oil?
How about, "none of the above." How about, in the style of James Carville, "It's the mania, stupid."
"When trends reach extremes, reporters no longer require the services of financial professionals to express an opinion; the continuation of the trend is so obvious to them that they become convinced that anyone can do it, and they take on the forecasting themselves. Error at such times is guaranteed." (The Wave Principle of Human Social Behavior)
Today, total margin debt for NYSE and NASD firms has set a new record. Mutual funds cash to asset ratio is at a record low. I could go on and on recognizing financial and social signs of a peaking financial mania with facts and figures, but that holds little sway against entrenched consensus -- especially one in party mode.
I know there were individuals in 1972 that knew tire reefs wouldn't work. But it takes time for the tires to begin washing up on the beach, and for "everyone" to realize what has happened.