Summary: Bad decisions often transform a crisis into a disaster. Sometimes bad decisions are unavoidable. Today we’ll look at two episodes of the past, mining them for useful lessons for us about leadership.
- Learning from the Titanic
- Learning from the Great Depression
- Looking at responses to the 2008-2009 crash, and the crises that followed
- For more information about solutions
The world economy again totters. The center ring of the daily media circus again features doomsters, perma-bears, and panicked experts — all hurling mockery at the decisions of our leaders. Some of this is valid. Much of this results from the critics’ combination of ignorance and hubris, like those fans at NFL games yelling that they could do better if allowed on the field.
Does history provide any yardsticks with which we can evaluate our leaders’ performance?
(2) Learning from the Titanic
At 11:40 pm on 14 April 1912 the RMS Titanic was approaching a crisis, steaming at almost full speed through an ice field under a dark sky (no moon, no Venus), no wind (no waves breaking on the ice). Warnings of ice have been received and ignored. The lookouts sound three bells — for object dead ahead. Was disaster inevitable at this point, or could the officers have save most of the passengers and crew?
(a) What could First Officer William Murdoch have done?
He ordered the rudder “hard astarboard” and the engines “full astern”, intending to steer around the iceberg. The Titanic almost made it; under the water it’s hull gently brushed against the ice. Water entered through long lines where plates buckled and seams opened.
The Titanic probably could have survived if at that second Murdoch decided not to turn the ship, instead direct hitting the iceberg. Only the first few compartments would have flooded. The roughly 56 firemen birthed in the forward block of F Deck would have died, along with scores of 3rd class passengers. But this was not a “by the book” response, and only a bold (genius, or reckless) officer would have done it.
However, neither did Murdoch give the “by the book” orders. He turned with “full engines astern”, instead of turning with full speed on the engines. The rudder’s turning power comes from the rate of water flowing over it. The book answer risked damage to the stern and the screws (banging into the ice), but might (possibly) have given Titanic the few extra inches it needed to survive — or at least float until help arrived.
For more about these alternate histories see Murdoch’s Decision In Retrospect.
Conclusions: Since 2008, as on the Titanic, the people in command could have made better decisions. But who can throw the first stone? Who has not made flash decisions that in retrospect could have been better — with more information and the time to analyze without pressure.
(b) The Titanic’s officers could have controlled the flooding
The weight of the in-rushing sea pulled the bow down, accelerating the rate of sinking. Instead they could have opened some watertight doors and allowed the water move aft. This might have delayed the sinking by 2 – 4 hours; the SS Carpathia arrived 1 hour 40 minutes too late. .
Why didn’t the Titanic’s officers do this? This procedure became common knowledge only during WWI (the Titanic pushed development of these methods). For example, at Pearl Harbor on 7 December 1941 junior officers on watch ordered counter-flooding so that only one battleship capsized (inspection ports in the Oklahoma’s bilges were open for inspection).
Conclusion: History provides insights not available to the participants. Leaders do what they can with what they know.
(3) Learning from the Great Depression
We see both of these factors at work during the 1929-32 crash. President Hoover and Secretary of the Treasury Mellon were competent men, with distinguished histories. Their actions were mistakes only in hindsight, based on their experiences and the theories developed with that knowledge. Hoover’s advisers would have done better if they had a copy of Keynes’ General Theory of Employment, Interest and Money — published in February 1936.
But even after publication Keynes’ ideas were not well understood. If FDR’s advisers had time to grasp its lessons, they might have avoided the 1937 recession. If the EU’s current leaders understood Keynes’ ideas they might have made better decisions.
(4) Looking at responses to the 2008-2009 crash, and the crises that followed
Today our world’s leaders quickly and boldly responded to the 2008-09 crash, so similar in magnitude to 1929-30. But afterwards everybody adopted different courses, since each has different circumstances. It’s too soon to say which is best.
- China responded with large fiscal and monetary stimuluses, followed by slow policy adjustments. Their bubble-like real estate boom has slowed and their massive trade and current account surpluses have slowed (as inflation boosted the real value of the RMB vs. its trade partners).
- America responded with massive fiscal fiscal and monetary stimuluses plus bank bailouts — followed by business as usual (no reforms). The UK, also.
- Europe responded with repeated small to moderate rounds of fiscal and monetary stimuluses plus selective bank bailouts.
- Iceland defaulted on its foreign loans, which has worked well for them.
- Japan has continued with its decades-long policy of zero interest rates (ZIRP) and mind-numbing fiscal deficits.
Unfortunately there are no clear answers as to the best policy for each nation. We’re off the map of history. The scraps of today’s poorly interconnected economic theory give complex and uncertain answers — especially for nations with high public or private debt loads (or both). That almost everybody is entering periods of massive demographic change adds another layer of complexity.
As always, leaders must make decisions despite limited information and immature theory. As citizens we can help most by avoiding quacks. The purveyors of easy simple solutions, which like roaches emerge from the walls during dark times. No matter how bad conditions become, these people can make it worse.
Fortunately, unlike the passengers and crew of the Titanic, we have some degree of choice in our leaders. In times of crisis such decisions have large effects. Effects which may ripple throughout the 21st century. Let’s hope we choose wisely.
(6) For more information about solutions
It’s sad, but these posts from late 2008 about solutions apply today, although with less urgency.
- A solution to our financial crisis, 25 September 2008:
- Stabilize the financial system3 October 2008
- Stabilize the economy, 7 October 2008
- Arrange long-term financing for steps #1 and #2 with our foreign creditors5 October 2008