Belmont Club

Self-licking ice cream cones

Historian Niall Ferguson has a curious interview with Der Spiegel, which while literate, seems to place an inordinate amount of trust in mood and atmospherics, as if perception by itself could alter reality. Here are the relevant excerpts:

SPIEGEL: You initially favored John McCain?

Ferguson: I have become a convert in the last six months because of Obama’s extraordinary combination of rhetorical genius, coolness under fire and organizational skills. This was the best election campaign we have ever experienced.

SPIEGEL: Which doesn’t necessarily have to mean a great presidency.

Ferguson: What it means is enough: the death of racism, the end of the original American sin and, most of all, the right reaction to end the economic crisis. Obama can stimulate self-confidence because he is so calm and collected. He will not simply put an end to the crisis or ensure that banks lend money again. He is a politician, not the Messiah. But he can change the national mood. Americans are lucky that they were able to elect him now, just as the panic reached its climax. It is as if they had voted Roosevelt into office earlier, in 1930, and not in 1933. …

SPIEGEL: So what can Obama do?

Ferguson: He can give a great inauguration speech.

SPIEGEL: And what else?

Ferguson: Give more great speeches.

SPIEGEL: He can’t do more?

Ferguson: No, because he will have the least latitude of all presidents we can remember. Obama wants to assemble a nonpartisan government, and we will experience a more cautious first 100 days than we did under Bill Clinton. He will be cautious to the point of being boring. This will be precisely his great strength.

SPIEGEL: Where does the problem lie?

Ferguson: With Hank Paulson.

SPIEGEL: What does the current treasury secretary have to do with Obama?

Ferguson: Because of his big bailout plan, Paulson has already spent the money for Obama’s healthcare reform and for his tax cuts. The money is gone.

SPIEGEL: Mr. Ferguson, we thank you for this interview.

The interview ascribes Obama’s greatest power to his symbolism and ability to shape perception. ‘What can Obama do? He can give great speeches. What else can he do? He can give more great speeches. Why is he transformative? Because he has expiated America’s original sin: slavery.’ Almost as if he has done so in a way far above the poor power of past struggles to add or detract; where the world will little note, nor long remember what happened at Gettysburg Ferguson believes it can never forget what Obama will say on inauguration day. It is the true office of a prophet.

And at the risk of descending to the sublunar world to find a proper analogue for Obama, I think it is the power of self-fulfilling prophecy upon which Mr. Ferguson primarily relies. “The self-fulfilling prophecy is, in the beginning, a false definition of the situation evoking a new behaviour which makes the original false conception come ‘true’. … If men define situations as real, they are real in their consequences.” Robert K. Merton, one of the theorists of self-fulfilling prophecies used the financial system to illustrate what he meant:

In his book Social Theory and Social Structure, he conceives of a bank run at the fictional bank of Cartwright Millingville. It is a typical bank, and Millingville has run it honestly and quite properly. As a result, like all banks, it has some liquid assets (cash), but most of its assets are invested in various ventures. Then one day, a large number of customers come to the bank at once—the exact reason is never made clear. Customers, seeing so many others at the bank, begin to worry. False rumors spread that something is wrong with the bank and more customers rush to the bank to try to get some of their money out while they still can. The number of customers at the bank increases, as does their annoyance and excitement, which in turn fuels the false rumors of the bank’s insolvency and upcoming bankruptcy, causing more customers to come and try to withdraw their money. At the beginning of the day—the last one for Millingville’s bank—the bank was not insolvent. But the rumor of insolvency caused a sudden demand of withdrawal of too many customers, which could not be answered, causing the bank to become insolvent and declare bankruptcy.

To reverse the process what is needed is not more money or competence. There was enough of that to start with. “The only thing to fear is fear itself.” And to banish fear what is required is more faith. And this, only a prophet can provide. Unfortunately, Barack Obama may not actually be a prophet. He might be a politician from Chicago. And if so, then Ferguson’s theory of political transcendance reduces to the degenerate case: self-deception. The difference between a soaring inaugural speech and ‘sign here on the dotted line, buddy, I got a bridge to sell you’ is substance. If substance doesn’t matter then the difference is mere style, and then there is no distinction between the words of a prophet and those of a confidence man.


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