Machiavelli and the economic crisis

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October 17, 2008

By Don McNay The Richmond Register Fri Oct 17, 2008, 03:43 PM EDT

“Come on baby, don’t fear the reaper.”

-Blue Oyster Cult

I wish one of our economic leaders had been a political science major.

George Bush has an MBA from Harvard. Henry Paulson has an MBA from Harvard. Ben Bernanke graduated from Harvard before he became a Princeton professor.

The crisis is not boding well for the Ivy League.

I used to wish the economic leaders had gone to state schools and owned a corner grocery store. I felt they were out of touch with average Americans.

The problem is simpler than that. None of them understand political philosophy or crowd psychology.

Every aspiring political science student has read “The Prince” by Machiavelli. One lesson from the book has stuck with me.

Always give bad news in one dose.

The worst thing a leader can do is dribble out bad news a little at a time. Like the crew in Washington is doing now.

When the $700 billion Wall Street bailout plan was proposed, someone called into a radio talk show and asked me what would happen to the Dow Jones average if the bill did not pass.

I said it would drop 50 percent in one day. Then we would start over again.

If the Washington crew had read Machiavelli, maybe it would have happened that way.

Instead, Congress passed the bailout bill. The markets continue to decline day by day.

Now people are really scared. I can’t blame them. Each day, there is bad news followed by more bad news. No one knows when it will stop.

People need certainty. Even if the news is terrible. It is easier to come back from one big disaster than a series of little ones.

We spent $700 billion and it didn’t give us certainty. I’m not really sure what it gave us.

I’d love to have the money back.

I wish Bush, Paulson and Bernanke had spent less time reading about market theory and more time on philosophy and psychology.

We are past the point where market theory has anything to do with the economic crisis. Decisions are driven by fear and human behaviors.

The kind of behaviors that Machiavelli figured out 500 years ago.

I wish more of our business leaders understood history and philosophy. Too few do.

When you see the current economic crisis, you need to look at world history to get some answers.

Once you do that, you come to the same conclusion as Harry Truman, “the only thing new in the world is the history you don’t know.”

This is not the first, or the last, economic crisis that the world will face. There have been worse. No one is starving or rioting. At least not yet.

We need to draw upon the knowledge of the ages.

Machiavelli gave us the first answer. Let bad news happen in one swoop.

The gang in Washington screwed that up. So now what do we do?

Listen to Machiavelli again. Stop trying the “fix of the day.” Let some companies that are “too big to fail,” go ahead and fail.

Get the garbage out of the system at once rather than let things keep sliding.

The government should completely protect savers, home owners and insurance policyholders. No one else.

Wall Street CEOs, with their million-dollar bonuses, would be out of luck.

People were horrified when I first suggested that we let things bottom out. People said, “the Dow Jones will drop 5,000 points in a day.”

I would have rather have had it drop 5,000 in a day than 5,000 in gradual steps, like it did.

Once the markets hit bottom, smart investors, like the Warren Buffett’s of the world, will come back and start buying. We will be back on the way up.

If we had done it my way, we would have still had $700 billion in the till when that happened.

Not learning the lesson of Machiavelli has been a root cause of the crisis. Politicians never want to give bad news.

People can handle bad news. Especially when it comes at one time.

I learned early in my business career that people want you to lead with the worst news first.

If I have to fire someone, I always start the conversation with that fact. I don’t dribble it out over an hour.

I’ve remained friends with most of the people I have fired. Once the shock wore off, the former employees appreciated my candor.

History tells us that we can survive any kind of disaster. The key is to get the disaster completely on the table so we can deal with it.

Which is the lesson Machiavelli taught us 500 years ago.

Don McNay is the Chairman of the Board for McNay Settlement Group in Richmond Kentucky. You can read his award winning, syndicated column at www.donmcnay.com or write to him at don@donmcnay.com. McNay is Treasurer of the National Society of Newspaper Columnists.

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Machiavelli and the economic crisis

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