Skip navigation

Monthly Archives: December 2011

Not exactly about economics, but this review was interesting to me because I remember reading Shackleton’s Valiant Voyage when I was a boy.

This is more about management, and how some historical examples can give today’s managers examples to adapt to in difficult times.

But another polar explorer — Ernest Shackleton — faced harsh conditions in a way that speaks more directly to our time. The Shackleton expedition, from 1914 to 1916, is a compelling story of leadership when disaster strikes again and again.

Consider just a handful of recent events: the financial crisis of 2008; the gulf oil spill of 2010; and the Japanese nuclear disaster, the debt-ceiling debacle and euro crisis this year. Constant turbulence seems to be the new normal, and effective leadership is crucial in containing it.

Real leaders, wrote the novelist David Foster Wallace, are people who “help us overcome the limitations of our own individual laziness and selfishness and weakness and fear and get us to do better, harder things than we can get ourselves to do on our own.”

Shackleton exemplified this kind of leadership for almost two years on the ice. What can we learn from his actions?

As some talented research assistants and I worked on the study, I was struck by Shackleton’s ability to respond to constantly changing circumstances. When his expedition encountered serious trouble, he had to reinvent the team’s goals. He had begun the voyage with a mission of exploration, but it quickly became a mission of survival.

This capacity is vital in our own time, when leaders must often change course midstream — jettisoning earlier standards of success and redefining their purposes and plans.

I am not sure Shackleton’s problems are really so realistic for modern managers, but the point of the article turns out to be about dealing with change and new problems, relevant for anyone.

Through the routines, order and interaction, Shackleton managed the collective fear that threatened to take hold when the trip didn’t go as planned.  He knew that in this environment, without traditional benchmarks and supports, his greatest enemies were high levels of anxiety and disengagement, as well as a slow-burning pessimism.

Days became weeks, and weeks became months, and still the ice held the ship. By June 1915 — the thick of winter in the Southern Hemisphere — the ship’s timbers were weakening under the pressure created by the ice, and in October water started pouring into the Endurance.

Shackleton ordered the crew to abandon the sinking ship and make camp on a nearby ice floe. The next morning, he announced a new goal: “Ship and stores have gone — so now we’ll go home.”

A day later, in the privacy of his diary, he was more candid about the gauntlet in front of him. “A man must shape himself to a new mark directly the old one goes to ground,” he wrote. “I pray God, I can manage to get the whole party to civilization.”

Which he did manage to do.

Advertisements

Christopher Sims and Thomas Sargent are the newest winners of the Nobel Prize in Economics.

I have heard  and read about both of these guys for years, but I did not really know about their contributions until reading this article.

Apparently, they had much to do with the concept of rational expectations, and the role that expectations play in the influence of monetary policy.

They won their Nobel for “their empirical research on cause and effect in the macroeconomy,” in the academy’s words. What that means, in part, is that they have done some serious math. Today, ideas they largely formed in the 1970s and ’80s help shape the thinking inside the Fed and on Wall Street.

Their work goes beyond old labels like Keynesianism and the monetarism of Milton Friedman. They have shown that fiscal and monetary policy are inextricably linked, and their research reflects the broad shift in economics from words to numbers — toward a level of empirical analysis that few outside the profession can readily grasp. But it contains a kernel of skepticism appropriate for these troubled times. In a world of uncertainty and constraint, cause and effect may not be what they seem. As a result, we must test and retest our assumptions — and try to prepare for the unexpected.

“The most impressive thing about them as scholars,” says David Easley, an economist at Cornell University, “is that in recent years they have questioned the assumptions of the models they helped to create, and they have been at the vanguard of the efforts to go beyond them.”

This last paragraph is interesting to me. They agree that there is room for new ideas and models that might better predict the results of economic policy, something our new nobel laureates admit is still not done very well.

Mr. Sargent is tough on himself, saying the “rational expectations approach” and the techniques he has helped to pioneer don’t yet capture economic reality. How do people really think, as individuals and in a market? How should we account for changes in expectations as people learn? How should we incorporate human thinking more realistically into economic models? He’s grappling with such questions, seeking more sophisticated techniques that incorporate what he calls the theory of “adaptive learning.”

His own assumptions need to be continually re-examined “to capture a fundamentally uncertain, constrained, complicated world,” he says.

Simon Potter, director of economic research at the New York Federal Reserve, says he has taken Mr. Sargent’s message to heart: “Our profession hasn’t reached the stage where it can reliably forecast the economy,” Mr. Potter says. “Our collective failure to do so in the financial crisis shows this.”

Maybe the next Nobel goes to a newer model that solves some of those problems. Any volunteers?

China’s manufacturing sector has experienced a drop for the first time in three years, largely because of lower export demand from both Europe and the US.

This has prompted a monetary stimulus policy in China, and–at the same time–many banks internationally are providing stimulus as well, propping-up stock markets everywhere.

The emergency move by the U.S. Federal Reserve, the European Central Bank, and the central banks of Japan, Britain, Canada and Switzerland recalled coordinated action to stabilize global markets in the 2008 financial crisis after the collapse of Lehman Brothers.

In Italy, now the focal point of the euro debt crisis, the Treasury started emergency cash tenders for banks which have been squeezed particularly hard as Rome’s borrowing costs have soared towards 8 percent, a level seen as unaffordable in the long term.

The euro and European shares surged on the central bank action, which came after euro zone finance ministers agreed to ramp up the firepower of their bailout fund but acknowledged they may have to turn to the International Monetary Fund for more help.

These actions will lower the cost of borrowing, and that will be welcome both by deficit spending governments and industry, but for long-term help, there must also be a willingness to borrow and spend.

There may be a factor here that is not being given enough attention. We are in a world where we have experienced a great deal of new investment and consumer spending on personal computers, mobile phones, and the growth of new industries spawned by those technologies. It is natural that at the tail-end of those developments we will witness less investment spending and a slow-down in consumption.