The Volokh Conspiracy - The Political Psychology of Crisis

All of our political leaders believe that the bailout plan is proper, but they were unable to persuade the public, and it was because of public pressure that Congress voted down the plan. Could the leadership have done a better job?

This story attributes their failure to an inadequate effort to scare people:

why, despite all the efforts of all of the country's leaders to fill them with fear of an economic apocalypse, did Americans not see a failure to act as a serious threat to their livelihoods?

Traditionally, human beings are not great at assessing this kind of risk — a peril that has not yet arrived and that is, in any case, hard to viscerally imagine. Witness people's reluctance to evacuate before hurricanes, and weather forecasts portend a danger far easier to comprehend than failing investment banks.

But there are methods of communicating risk in a way that stills the heart, with words that inject dread into the populace. And Treasury Secretary Henry Paulson Jr., Fed Chairman Ben Bernanke and President George W. Bush used none of them.

As the author later acknowledges, however, politicians are in a bind. If they fail to stoke fears, then the public will not support a needed bailout package. If they do stoke fears, however, the public might respond by selling off assets and withdrawing deposits, thus exacerbating the crisis and destroying the economy. There is yet a third problem. Even if leaders do stoke fears "optimally" so as to ensure passage of the bailout bill without causing further financial and economic turmoil, they will be blamed after the fact for fear-mongering. After all, if the bailout plan is a success, the financial system will not collapse, and everyone will say, hey, you said there was a problem and in fact all we ended up doing was lining the pockets of investment bankers! Among critics of the bailout plan, one already hears the claim that the Bush administration is just looking for another way of expanding executive power, and is using the present crisis as a pretext for doing so.

All of this might sound familiar. The events of 9/11 made people fearful in a way that so far the financial crisis of 2008 has not. (I should say, with respect to the general public; experts seem plenty scared.) But as the years passed, the level of fear declined, and the Bush administration had more and more difficulty persuading people to accept limitations on civil liberties for the sake of security. It was in the same bind then as it and Congress are today. To motivate people, it needed to scare them by describing worst-case scenarios; but it did not want everyone to hunker down in their basements and stop flying on airplanes and crossing bridges. At the same time, everyone accused the Bush administration of deliberately stoking fears in order to justify an expansion of executive power. As years pass without a second attack on American soil, this belief has entered conventional wisdom.

The problem in both cases is that there is no independent way to verify the facts, at least not as a practical matter when the decision whether to hand over more power to the government is being made. It is also in the nature of the crisis in both instances that it is impossible to state a precise estimate of the probability of future harm. I suspect that the only practical way for the public to evaluate the government's actions is in a very broad-gauged way, long after the event, when one can decide whether things in general are going well or poorly—we are safe, our financial system functions, and the government is not using its new powers in an improper way. I can see how this might work in a parliamentary system with strong party discipline—just vote for or against the party that has been in power when the decisions were made. In our separation-of-powers system, it is harder to reward or punish the relevant decisionmakers; however, bipartisan consensus across branches, that a crisis exists and can be appropriately addressed in a particular way, may be an adequate substitute when in fact the government is divided by party.

	[Eric Posner, October 1, 2008 at 2:03pm] Trackbacks The Political Psychology of Crisis All of our political leaders believe that the bailout plan is proper, but they were unable to persuade the public, and it was because of public pressure that Congress voted down the plan. Could the leadership have done a better job? This story attributes their failure to an inadequate effort to scare people: why, despite all the efforts of all of the country's leaders to fill them with fear of an economic apocalypse, did Americans not see a failure to act as a serious threat to their livelihoods? Traditionally, human beings are not great at assessing this kind of risk — a peril that has not yet arrived and that is, in any case, hard to viscerally imagine. Witness people's reluctance to evacuate before hurricanes, and weather forecasts portend a danger far easier to comprehend than failing investment banks. But there are methods of communicating risk in a way that stills the heart, with words that inject dread into the populace. And Treasury Secretary Henry Paulson Jr., Fed Chairman Ben Bernanke and President George W. Bush used none of them. As the author later acknowledges, however, politicians are in a bind. If they fail to stoke fears, then the public will not support a needed bailout package. If they do stoke fears, however, the public might respond by selling off assets and withdrawing deposits, thus exacerbating the crisis and destroying the economy. There is yet a third problem. Even if leaders do stoke fears "optimally" so as to ensure passage of the bailout bill without causing further financial and economic turmoil, they will be blamed after the fact for fear-mongering. After all, if the bailout plan is a success, the financial system will not collapse, and everyone will say, hey, you said there was a problem and in fact all we ended up doing was lining the pockets of investment bankers! Among critics of the bailout plan, one already hears the claim that the Bush administration is just looking for another way of expanding executive power, and is using the present crisis as a pretext for doing so. All of this might sound familiar. The events of 9/11 made people fearful in a way that so far the financial crisis of 2008 has not. (I should say, with respect to the general public; experts seem plenty scared.) But as the years passed, the level of fear declined, and the Bush administration had more and more difficulty persuading people to accept limitations on civil liberties for the sake of security. It was in the same bind then as it and Congress are today. To motivate people, it needed to scare them by describing worst-case scenarios; but it did not want everyone to hunker down in their basements and stop flying on airplanes and crossing bridges. At the same time, everyone accused the Bush administration of deliberately stoking fears in order to justify an expansion of executive power. As years pass without a second attack on American soil, this belief has entered conventional wisdom. The problem in both cases is that there is no independent way to verify the facts, at least not as a practical matter when the decision whether to hand over more power to the government is being made. It is also in the nature of the crisis in both instances that it is impossible to state a precise estimate of the probability of future harm. I suspect that the only practical way for the public to evaluate the government's actions is in a very broad-gauged way, long after the event, when one can decide whether things in general are going well or poorly—we are safe, our financial system functions, and the government is not using its new powers in an improper way. I can see how this might work in a parliamentary system with strong party discipline—just vote for or against the party that has been in power when the decisions were made. In our separation-of-powers system, it is harder to reward or punish the relevant decisionmakers; however, bipartisan consensus across branches, that a crisis exists and can be appropriately addressed in a particular way, may be an adequate substitute when in fact the government is divided by party.