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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Democratic reform and the Titanic

1 06 2009
Asset bubbles + zombie political parties = ?

Asset bubbles + zombie political parties = ?

The news that the last survivor of the Titanic, Lillian Gertrud Asplund, has died reminds us that rearranging the deckchairs on that doomed vessel has since been a metaphor for wasting time on trivial things while disaster looms. The current discussion on democratic reform falls into that category. Whatever may or may not be the merits of proportional representation, the discussion about them at this point is almost entirely irrelevant to the real problems we face. The debacle over MPs’ expenses is partly the product of underlying anger about the recession, partly a response to politicians lecturing us about personal morality for years, and partly their own fault for making greed the official cause of the recession itself. These are all symptoms of a political crisis and not causes.

These contingent factors have precipitated a crisis in public confidence in the parties. But the bankruptcy of our political culture is the culmination of a long process of deterioration in politics, not the cause of it. The political parties have had their political blood drained away over the years: zombie parties propped up by bubbles in the economy

The problem of the emptiness of politics is not going to disappear simply because we vote for MPs in a different way. Neither is it right to see this crisis simply as a distraction from dealing with the economy, as the head of the CBI reminds us today. It is the crisis of politics that has led us into this recession and that has also caused the weak and vacillating response to it. The recession has exposed the problems for all to see and it is this public exposure that is now bringing down the political parties.

The second part of Sean Collins’ excellent essay on the difference between the 1930s Depression and today ends by making the point that the US President FD Roosevelt, whatever his failings, at least tried to attack the cause of the Depression in a bold and experimental way. This kind of openness to experimentation does not mean making Esther Rantzen an MP, it means throwing off many of the conservative ways of thinking and operating that have become part of our way of life.

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