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When Accountants rule the country

When accountants rule the country – irrationality and politics

By | All, Government & Politics

The dangerous economic myths
underlying political decision-making

When Accountants rule the country

Picture by Neil Moralee, shared under a Creative Common license

This is going to be a slightly longer post than usual. I want to share a couple of thoughts on a subject that fascinates me: irrationality in governing. I want to argue that billions of Euro’s are being spent by governments, based on bad economic ideas. These ideas are very pervasive, because they provide politicians with the illusion that they’re working very hard. But in reality, they’re making things worse.

How do you want your tax money to be spent?

As a tax-payer, you want to assume that your government uses its tax-income to make smart, rational decisions. You would like political debates to be about which investments would yield the highest societal return. Should we invest more in education? In infrastructure? In the military? Should we invest more in stimulating entrepreneurs to develop thriving businesses that generate jobs? Or should we focus more on redistributing wealth to encourage the poorest to get out of poverty? Should we accelerate spending in green energy, or is it better to remain addicted to burning cheap fossil fuels?

Spending billions based on irrationality

Your average Western government has to make a yearly decision on how to spend billions of Euros, Pounds or Dollars. So you want that decision to be based on evidence and facts. You don’t want it to be based on irrationality. 

The problem is: this is how governments think. 

In the book “Money and Government: The past and future of economics“, History Professor – and Keynes biographer – Robert Skidelsky argues very eloquently that governments worldwide use bad economics to make big decisions on government spending. And some problematic myths form the foundation of these lousy decisions.

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Myth 1: Whenever possible, leave things to the market. 

The underlying idea is that governments are not productive and bureaucratic, whereas markets tend to create increasingly better service for less money. This cliche is very pervasive and very wrong. Mariana Mazzucato demonstrates in “The Entrepreneurial State” that every piece of innovation that sits within an iPhone has been funded and developed with governmental funding. And vice versa: Markets have a deep tendency towards monopolies, profit maximization and obsession with shareholder value. This market tendency becomes problematic when it concerns critical services like health care and public transport. 

Myth 2: Governments need to be prudent with money

Our Dutch government loves to compliment itself with having one of the best budgets in the world. Our national debt is rapidly decreasing due to the disciplined cost-cutting efforts of our government. Every European government decided that the best answer to the financial crisis was austerity. Sounds reasonable. If you’re in debt, you have to stop spending and start paying back. But ‘reasonable’ is not the same as ‘rational’. The rational thing to do to prevent the economy from further contracting, as many economists have argued, is precisely the opposite: increase spending. Economies are not the same as households. The reason why this myth is so powerful is that there’s a lot of signalling power in it: Being strict on the budget allows politicians to signal that they are working hard and responsible. 

Two fascinating stories illustrate the point how wrong this myth is: 

  • Belgium suffered far less from the financial crisis than other Western-European countries. The Reason: They weren’t able to form a government for more than 1,5 year – rewarded with a Guinness World Record mention – so they didn’t have the opportunity to make stupid decisions.
  • Portugal, one of the worst economies in Europe defied the European Austerity-doctrine and started investing in wages, pensions and work. To everyone’s surprise, it quickly became one of the best-performing economies in Europe. Read this background article: “No Alternative to Austerity? That lie has now been nailed“.

Myth 3: There’s no magic money tree (spoiler: there is)

In an excellent essay on Robert Skidelsky, David Graeben shares a shocking statistic: Almost 85% of all Members of Parliament in the UK has no clue about how money is created. And yet they have to decide upon billions, even trillions of Pounds/Euros/Dollars. He writes:

 “There is no magic money tree,” as Theresa May put it during the snap election of 2017—virtually the only memorable line from one of the most lackluster campaigns in British history. The phrase has been repeated endlessly in the media, whenever someone asks why the UK is the only country in Western Europe that charges university tuition, or whether it is really necessary to have quite so many people sleeping on the streets.

The truly extraordinary thing about May’s phrase is that it isn’t true. There are plenty of magic money trees in Britain, as there are in any developed economy. They are called “banks.” Since modern money is simply credit, banks can and do create money literally out of nothing, simply by making loans. Almost all of the money circulating in Britain at the moment is bank-created in this way. Not only is the public largely unaware of this, but a recent survey by the British research group Positive Money discovered that an astounding 85 percent of members of Parliament had no idea where money really came from (most appeared to be under the impression that it was produced by the Royal Mint)”

Because nobody knows how money is created, Richard Werner, a German Economist, decided to go and find it out for himself, by applying for a job at a bank. To his disbelief, he discovered that bank tellers don’t balance out the loans and mortgages they issue against a reserve. They simply create the money out of thin air and expect it to be paid back with interest.

What happens when accountants rule the country

So, if banks can create money out of thin air, purely based on the confidence that it will return one day with interest, why couldn’t governments do this? It’s called investing. The big crisis of today is a crisis of imagination. Governments have come to think of themselves only in terms of accountants, or as the instance that only takes money and prosperity away instead of creating it. 

It reminds me of my own experience with accountants years ago. Our accountants always used to be very proud and satisfied when they looked at the quarterly numbers. In the mind of the accountant, a great company is a company that performs well on a balance sheet. I hated these conversations. I still do. Because what accountants don’t see is that an excellent looking balance-sheet can mask all kinds of deep problems: terrible clients, 80-hours work weeks, a significant dependency on junior staff, unhealthy competition, etc.

An accountant could be looking at a company that is terminally ill, and still think it’s doing great. And since they talk numbers and spreadsheets, I tended to think they knew what they’re talking about. You don’t need much imagination that the same thing is going on on a government level. Dutch politicians recently lamented that they are performing well, and yet people keep being dissatisfied and disappointed. Voters are such ungrateful bastards. 🙂

Tom De Bruyne, February 2020.

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How Brett Kavanaugh and his Republican Senators only made it worse

How The Senate Hearing of Brett Kavanaugh turned into a framing nightmare for Republicans

By | All, Government & Politics

Framing Blunder 1: Attack a likable opponent

In theory, a Senate hearing is supposed to be nothing more than a carefully crafted show to shape public perception. The stakes for the hearing last night were enormous. Republicans have a small window of opportunity to install an extreme conservative Supreme Court Judge who can block every progressive legislation for the next 40 years. There’s only little problem: The guy is being accused by several women to be an alcohol abusing sexual predator.

How Brett Kavanaugh and his Republican Senators only made it worse

So what do you do? How do you solve this problem? The classic Republican approach is following one of Roger Stone’s Rules: Attack, Attack, Attack, Never Defend. They knew they had to discredit the female accuser. But they had two big problems:

  1. Mrs Ford is a Professor in Psychology. A woman who can’t be out-bluffed. She’s tough as a nail.
  2. The similar case of Anita Hill, who accused a Supreme Court Judge in 1991, had taught them that a group of old male Senators, attacking the credibility of a victim of sexual abuse, resulted in both a PR and an electoral nightmare

Framing blunder 2: Misjudge the setting

They had figured it all out: They would avoid making this mistake again by letting a female prosecutor doing the questioning of Mrs Ford. And they would do the questioning of Brett Kavanaugh. The spectacle that followed was a disaster. A hand grenade exploding in their face. As fans of political framing it reminded us of watching a Bruce Willis movie with your friends, eating popcorn and yelling at the scream. This is what happend:

  1. First of all the prosecutor turned out to be an ice cold woman. The contrast with the decent and likable Mrs Ford couldn’t be sharper.
  2. As a result the Senators in the back looked like a bunch of cowards for not daring to do the dirty work themselves.
  3. The contrast with Brett Kavanaugh was enormous. He acted agitated, bothered, offended, throwing all kinds of accusations at everyone, interrupting senators, etc. Let’s say that he did a great job in confirming the image of a high school bully called Brett. Not the kind of temper you want for a Supreme Court judge.
  4. Mrs Ford did a brilliant job in speaking in System 1 terms. She captured the imagination, which is way much powerful than talking to the rational mind. When she was asked about the strongest memory of the abuse she painted an incredibly powerful image: ““Indelible in the hippocampus is the laughter, the uproarious laughter, and their having fun at my expense. I was underneath one of them while the two laughed. Two friends having a really good time with one another.”

Framing blunder 3: Don’t Think of an Elephant

The most disastrous part had yet to come. Republican Senators tried to help Kavanaugh by posing all kinds of questions about his drinking behaviour. That would allow him to deny the accusations. But one of the first rules of political framing, named after the essential book by George Lakoff: Don’t Think of an Elephant. If you repeat the frame, even if you try to deny it, you make the frame stronger. The classic example of this is when President Nixon said: I am not a crook. That’s the moment when his days were over. He got stuck with the word “Crook”.

Now picture this: A group of old Republican Senators, who kept asking questions to Kavanaugh about sex and alcohol. The more they asked the worse he sounded. They asked him if he ever passed out. If he ever woke up not knowing where he was? How much of a drinking problem does he really have? It was a gift that kept on giving. The only conclusion you could think of when watching this spectacle: This guy is guilty.

More Behavioural Design Thinking on Framing:

The consumer behind the rise of Trump (English)
Power Talk: How framing reality determines our perception (English)
Campagnes zijn smerige Framing oorlogen (Dutch)
Hoe progressieven moeten leren Framen (Dutch)

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