More effective leadership in politics would be a good thing, but leadership to what end? Shiller’s behavioural economics-wrong again

18 02 2010

..in the aftermath of the bursting of the largest bubble in history, in the property market as well as other markets, we see that a social-psychological phenomenon, over-confidence, was not managed by leaders, and its subsequent collapse represents the deepest cause of the financial crisis.

The essential banality of behavioural psychology when applied to politics or economics was revealed again today in Robert Shiller’s latest article on leadership in the United States. Shiller, the joint  author of Animal Spirits contrasts unfavourably  the leadership of Obama and Gordon Brown during the present recession with that of Franklin D Roosevelt during the Great Depression of the 1930s. His conclusion is

Leadership matters. But it can be effective only sometimes. And leadership in a crisis cannot undo all the damage of lack of leadership in the past.

so sometimes leadership works and sometimes it does not. Excellent work Sherlock! Shiller cannot even explain why on its own terms Roosevelt’s leadership was effective, merely pointing out that it appeared to help bring an end to the Depression. Such a narrow reading of the economics of the 1930s is itself absurd. The US economy was finally brought out of the Depression by World War Two and the tremendous boost to production and innovation that came with it.

There is now widespread acceptance that politics and the political process in the West are in acute crisis. (See this desperate analysis of UK politics for example). It is tempting at times like this to yearn for the smack of firm government. It is certainly true that seeing political leaders taking firm and decisive action evokes at least some respect, even if one disagrees with the particular approach, and is better than leaders who vacillate and seem constantly uncertain of even their short-term, let alone their long-term goals.

But Shiller and others over-emphasise the subjective element of leadership. It is interesting that the only other example he gives of effective leadership in a crisis is of Winston Churchill during World War Two. Churchill is significant because he combined strong personal leadership qualities with a well-defined cause, the survival of Britain in the face of a deadly enemy. Before the War  Churchill was a renegade who lacked significant influence. After the War he was a totem Prime Minister. It was the unique political environment of the War which gave content to his leadership skills. He engaged with the strong patriotic feelings still at that time present within large sections of the British people and inspired them to keep fighting.

President Obama is a man with obvious and admirable leadership qualities. His problem is that he is leading a nation which is in relative economic decline and he has no political framework available within which to address this problem. The story of the United States is of continuous progress and global domination. US politics is finding it impossible to deal with a world of relative decline. Shiller’s emphasis on confidence is very American. The story of the US is one in which confidence is the key to success.

There is something very attractive about this ‘can do’ approach to life and there is much about it which we who are immersed in the deep cynicism of British culture could emulate. British political leaders are dwarves compared with Obama, so the problem here is even more acute. However the mirror image of US style confidence is those other figures familiar from American fiction, the confidence trickster, the snake oil seller and the quack doctor. Confidence and optimism are all very well, but the main problem facing politics today is its emptiness and lack of vision. Shiller does us all no favours by focusing on the wrong problem and the wrong solution. The medicine of confidence he prescribes is the modern equivalent of snake oil.

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What’s wrong with a Green New Deal? (Part 1)

17 04 2009

The Conservatives have unveiled their plans for a Green New Deal for the UK (although they do not call it that).  It is fast becoming an item of common sense, from Obama downwards, that the twin problems of recession and global warming can be tackled by investing in green technology, thereby killing two birds with one stone.

This may on the surface seem an eminently sensible suggestion. There is a problem in that the climate change agenda is so politicised it is almost impossible to work out from the outside what the real facts are. But let us assume for the moment that climate change needs to be addressed.

The first problem with the Green New Deal (GND) is that it is a very amorphous concept. However, as the Tory proposals demonstrate, the GND almost always begin with a requirement to cut energy consumption. If one intention of the GND is to stimulate the economy out of recession, then cutting energy consumption is an odd way of doing this. As the authors of Energise have pointed out, a more rational approach to the issue of carbon emissions is to accelerate the development of better and cleaner energy sources rather than cutting consumption which can only have the effect of lowering living standards.

Indeed, China, the fastest growing economy in the world, has 16% of its electricity produced by renewables, compared with 4.5% in the UK. This is because China’s rapid growth has stimulated research, development into and implemetation of new sources of energy. In the West by contrast the whole issue of renewable enegy has become linked to an anti-growth agenda. The subtext of the current discussion on the GND in the West is that it is part of the new austerity.

Whether you accept all or some of the climate change agenda, the solution lies in innovation and growth, not consumption cutting and austerity.