Why some of the world’s elected leaders continue to fail their people
It is not the role of central banks to govern a country’s financial health nor are they responsible for economic growth. But with politicians who can’t seem to get their act together, the onus has fallen on them.
The invisible gorilla
One of the most famous recent experiments in psychology is called the invisible gorilla. Those being tested have to watch a short video in which six people – three in white shirts and three in black shirts – pass basketballs around, and they have to keep count of the number of passes made by the people in white shirts.
At a certain point in the video, a gorilla strolls into the middle of the action. Nearly half of all the viewers of the video fail to observe the gorilla at all – because they are so busy counting the white shirt passes!
The experiment reveals that many of us are totally unaware of what goes on around us, and that we have no idea that we are missing huge and often vital pieces of information. In some ways, the current state of the financial markets is very akin to this famous video.
The invisible gorilla in the financial world
Most financial watchers are excessively scrutinizing and analyzing every single detail of the monetary actions of the major central banks around the globe (the players in white), that they fail to notice how many world leaders are simply drifting around in their black t-shirts (Japan PM Abe and UK PM May are prime examples).
Even when a gorilla appears – and we are not suggesting Trump is a gorilla – financial observers continue to see little but the moves of the central bankers.
The official role of the central banks in the developed world is to act ‘independently’ to control inflation, and in the case of the US to ensure high levels of employment. The reality is that they do not have the power to substantially boost economic growth – even if they can relieve the after-effects of a major financial catastrophe.
Clearly they have done the best they can since the great financial crisis (and before that 9/11) under exceptionally difficult economic conditions. And they are the ‘only game in town’ for the financial markets.
But ultimately they are not directly accountable to the electorate. And there is certainly an all too prevalent academic and elitist bias. This can put them out of touch with the middle classes, the backbone of most civil societies and the main source of economic demand for goods and services, as well as its suppliers.
Is there hope yet for world leaders?
Sadly, political leaders of much of the western world are equally out of touch, and have focused exclusively on the goal of getting themselves elected and holding onto power. There can be a massive conflict of interest between this goal (of winning elections), and effectively governing a country.
Being a good politician should be about making tough but critical long term decisions for the better of the economic well-being of the majority. However, with electioneering taking up much of the time of the average political leader, increasingly the decision has been made to ‘outsource’ the responsibility for the economy – virtually in its entirety – to the central banks. This is evident to a greater or lesser degree in the US, the UK, Japan, and New Zealand.
The rise of maverick politicians such as Bernie Sanders in the US, Jeremy Corbyn and Sadiq Kahn in the UK, and Yuriko Koike as the new mayor of Tokyo – are a hopeful sign. In our video analogy, perhaps the ‘players in black and the gorilla’ may become less ‘invisible’.
Even in Hong Kong, several young activists just won places in the local elections. The blinkered world of the financial markets is not a balanced one, and some would argue even a potentially dangerous one. It can therefore only be a good thing if the politicians start to play a proper role and really get to grips with fiscal policy.
The financial markets are already obsessing about the next FOMC meeting and the burning question de jour is (of course): will there be a US rate hike before year-end?
Much of the financial media, barely less myopic than financial markets, also continues to see nothing but the white players in the video.
It is only when the politicians start to do the job they are elected (and paid) to do, that we can at least begin to hope for a healthier and more sustainable economic environment, and a better outlook for ordinary people.