The penny-wise, pound foolish strategy of denial

From climate change to financial security, self-deception is a very human trait

Every day, people succumb to denial – including investors, financial advisors and yes, politicians, who occasionally practice denial as a force of habit.

While some form of denial is personal, some comes from societal norms with a wide range of consequences resulting in systemic problems, such as financial bubbles, rising sea levels and unsafe roads and bridges. Indefinitely delaying a realistic path to financial security is one of the broader forms of denial that I regularly encounter.

At a recent gathering with our senior management team in Florida, I observed that the beach outside the hotel was significantly reduced from years past. When I saw an old photo of this historic property in the lobby, it was crystal clear that hundreds of yards of a formerly pristine sandy white beach had completely disappeared.

There may be an ongoing inane political discussion about the science of climate change, but there’s little doubt to this observer that shoreline erosion is occuring – and with the seemingly significant increase in severity and frequency of ocean storms, our shorelines are eroding quicker than we would like to believe.

Geologist Orrin Pilkey in his book, “The Last Beach,” argues that hard choices must be made between preserving beaches themselves or favoring coastline development with seawalls and erosion protection efforts.

It is unlikely that we can do both. One reason is a global shortage of beach-quality sand, which is making beach sand restoration projects not only costly, but ultimately futile.

John Gillis is a professor emeritus of history at Rutgers University and the author of the book, “The Human Shore: Seacoasts in History.” In “Why Sand is Disappearing,” a recent opinion piece in The New York Times, Gillis noted that efforts to fight ocean beach erosion can have unintended consequences.

“Virginia Beach alone has been restored more than 50 times,” he wrote. “In recent decades, East Coast barrier islands have used 23 million loads of sand, much of it mined inland and the rest dredged from coastal waters – a practice that disturbs the sea bottom, creating turbidity that kills coral beds and damages spawning grounds, which hurts inshore fisheries.”

My point isn’t to dedicate a column to proposing solutions for our disappearing coastlines, but to show that this isn’t an issue where the public can say, “Well, no one was talking about it, nothing was being done.”

It’s not unlike what happened before the financial crash of 2008. There were warnings aplenty about the housing bubble and the opacity of complex securities designed out of household mortgages. The actions taken by many large financial firms after the 1999 repeal of the Glass-Steagall Act were known contributors to the 2008 meltdown.

After the collapse of the banking industry in the Great Depression, wiser minds thought it best that commercial banks and investment banks should not intermingle. Perhaps less-than-wise minds in the 1990s, or just plain greedy ones, thought that large financial institutions could police themselves, since they were smart enough not to engage in risky behaviors, such as selling toxic subprime mortgages as “safe” securities on par with government bonds.

Deception and denial worked hand in hand, devastating the economy on a scale not seen since the Great Depression.

The same conversation applies to our declining roads and bridges.

The 2013 report card by the American Society of Civil Engineers gave a D+ grade on our infrastructure and estimated $3.6 trillion was needed nationally by 2020 just to meet public safety needs.

Despite the massive evidence to the contrary, ignoring the facts about an aging infrastructure has allowed our politicians (and the taxpaying public) to kick the financial can down the road – that is, until the roads and bridges degrade to the point of costing far more than the original investment. It’s the essence of denial – being penny smart and pound stupid.

The same scenario applies to retirement savings. According to a 2012 survey by the Employee Benefits Research Institute, only 17 percent of Americans had retirement savings of more than $250,000, while 60 percent reported savings of less than $50,000. A report by the financial services industry trade association LIMRA reported that 49 percent of Americans had zero retirement savings.

This lack of savings for retirement is mostly a consequence of two social trends: financial illiteracy and the increased tendency to put off hard choices. We will see the alarming consequences of both trends in the coming decades, as a growing number of poorer elderly Americans bring costs that all of us will be forced to pay.

Fooling ourselves is a most human trait. As the great science fiction writer Isaac Asimov put it, “The easiest way to solve a problem is to deny it exists.”

Tom Sedoric, managing director-investments of the Sedoric Group of Wells Fargo Advisors in Portsmouth, can be reached at 603-430-8000 or thesedoricgroup.com.