Previously: Short Termism and Quotes from Moral Mazes

Epistemic Status: Long term

My list of quotes from moral mazes has a section of twenty devoted to short term thinking. It fits with, and gives internal gears and color to, my previous understanding of of the problem of short termism.

Much of what we think of as a Short Term vs. Long Term issue is actually an adversarial Goodhart’s Law problem, or a legibility vs. illegibility problem, at the object level, that then becomes a short vs. long term issue at higher levels. When a manager milks a plant (see quotes 72, 73, 78 and 79) they are not primarily trading long term assets for short term assets. Rather, they are trading unmeasured assets for measured assets (see 67 and 69).

This is why you can have companies like Amazon, Uber or Tesla get high valuations. They hit legible short-term metrics that represent long-term growth. A start-up gets rewarded for their own sort of legible short-term indicators of progress and success, and of the quality of team and therefore potential for future success. Whereas other companies, that are not based on growth, report huge pressure to hit profit numbers.

The overwhelming object level pressure towards legible short-term success, whatever that means in context, comes from being judged in the short term on one’s success, and having that judgment being more important than object-level long term success.

The easiest way for this to be true is not to care about object-level long term success. If you’re gone before the long term, and no one traces the long term back to you, why do you care what happens? That is exactly the situation the managers face in Moral Mazes (see 64, 65, 70, 71, 74 and 83, and for a non-manager very clean example see 77). In particular:

74. We’re judged on the short-term because everybody changes their jobs so frequently.

And:

64. The ideal situation, of course, is to end up in a position where one can fire one’s successors for one’s own previous mistakes.

Almost as good as having a designated scapegoat is to have already sold the company or found employment elsewhere, rendering your problems someone else’s problems.

The other way to not care is for the short-term evaluation of one’s success or failure to impact long-term success. If not hitting a short-term number gets you fired, or prevents your company from getting acceptable terms on financing or gets you bought out, then the long term will get neglected. The net present value payoff for looking good, which can then be reinvested, makes it look like by far the best long term investment around.

Thus we have this problem at every level of management except the top. But for the top to actually be the top, it needs to not be answering to the stock market or capital markets, or otherwise care what others think – even without explicit verdicts, this can be as hard to root out as needing the perception of a bright future to attract and keep quality employees and keep up morale. So we almost always have it at the top as well. Each level is distorting things for the level above, and pushing these distorted priorities down to get to the next move in a giant game of adversarial telephone (see section A of quotes for how hierarchy works).

This results in a corporation that acts in various short-term ways, some of which make sense for it, some of which are the result of internal conflicts.

Why isn’t this out-competed? Why don’t the corporations that do less of this drive the ones that do more of it out of the market?

On the level of corporations doing this direct from the top, often these actions are a response to the incentives the corporation faces. In those cases, there is no reason to expect such actions to be out-competed.

In other cases, the incentives of the CEO and top management are twisted but the corporation’s incentives are not. One would certainly expect those corporations that avoid this to do better. But these mismatches are the natural consequence of putting someone in charge who does not permanently own the company. Thus, dual class share structures becoming popular to restore skin in the correct game. Some of the lower-down issues can be made less bad by removing the ones at the top, but the problem does not go away, and what sources I have inside major tech companies including Google match this model.

There is also the tendency of these dynamics to arise over time. Those who play the power game tend to outperform those who do not play it barring constant vigilance and a willingness to sacrifice. As those players outperform, they cause other power players to outperform more, because they prefer and favor such other players, and favor rules that favor such players. This is especially powerful for anyone below them in the hierarchy. An infected CEO, who can install their own people, can quickly be game over on its own, and outside CEOs are brought in often.

Thus, even if the system causes the corporation to underperform, it still spreads, like a meme that infects the host, causing the host to prioritize spreading the meme, while reducing reproductive fitness. The bigger the organization, the harder it is to remain uninfected. Being able to be temporarily less burdened by such issues is one of the big advantages new entrants have.

One could even say that yes, they do get wiped out by this, but it’s not that fast, because it takes a while for this to rise to the level of a primary determining factor in outcomes. And there are bigger things to worry about. It’s short termism, so that isn’t too surprising.

A big pressure that causes these infections is that business is constantly under siege and forced to engage in public relations (see quotes sections L and M) and is constantly facing Asymmetric Justice and the Copenhagen Interpretation of Ethics. This puts tremendous pressure on corporations to tell different stories to different audiences, to avoid creating records, and otherwise engage in the types of behavior that will be comfortable to the infected and uncomfortable to the uninfected.

Another explanation is that those who are infected don’t only reward each other within a corporation. They also do business with and cooperate with the infected elsewhere. Infected people are comfortable with others who are infected, and uncomfortable with those not infected, because if the time comes to play ball, they might refuse. So those who refuse to play by these rules do better at object-level tasks, but face alliances and hostile action from all sides, including capital markets, competitors and government, all of which are, to varying degrees, infected.

I am likely missing additional mechanisms, either because I don’t know about them or forgot to mention them, but I consider what I see here sufficient. I am no longer confused about short termism.