If The Fed’s Members Spent Some Time As Uber Drivers, Our Monetary Policy Would Be Saner

BY PATRICK WATSON

John Mauldin wrote a letter last year called “Life on the Edge” that I think was one of his most important ever. It drew more reader feedback than anything else of John’s I’ve seen.

Drawing on Peggy Noonan’s Protected vs. Unprotected theme, John described how our economy has left so many people behind. Their anger, much of it well-justified, is one reason Donald Trump is now president.

The issue is broader, though.

Powerful People Act Like Brain Injury Victims, Science Says

Powerful people routinely make decisions that hurt others. We see it in central bankers, politicians, corporate CEOs, religious groups, universities. Power really does corrupt. And corruption is a barrier to sustainable economic growth.

This is more than a political problem; it has a serious economic impact.

Recent research suggests that powerful people act much like traumatic brain injury victims. Controlled experiments show that, given power over others, people often become impulsive and less sensitive to risk. Most important, test subjects often lose empathy, that is, the ability to understand and share the feelings of others.

Powerful people also lose a capacity called “mirroring.” When we observe other people doing something, our brains react as if we were doing the same thing. Some portion of your brain thinks you are really there.

But when researchers prime test subjects with powerful feelings, their mirroring capacity decreases.

You Can See Why This Is a Problem

The Protected-class members of the Federal Open Market Committee must feel quite powerful when they gather in that fancy room to make policy decisions. It’s no wonder they forget how their decisions will affect regular working-class people. Their empathy circuits get turned off.

Similarly, as John wrote in “Life on the Edge,”

Business executives meet in a nice office, tweak a few numbers, and somewhere down the line people lose their jobs. Those folks are thousands of miles away, and the decision-makers never even see them. This is what it means to be “protected.”

So if hubris is a disorder, can we treat it? Not easily. As with drug addictions, the patient must recognize the problem and want to change.

The Awareness Gap Is Widening

I once told John, jokingly, that we would get much better Fed policy if all FOMC members had to spend two weeks a year as Uber drivers or bank tellers. As it turns out, the research says that might actually help.

If you put the powerful in situations where they must interact with regular folks, it helps restore empathy.

Everyday interactions used to happen naturally. Powerful and wealthy people have always had privileges, but they still shared certain common life experiences with the general public.

Everyone went to the driver’s license office and waited. We all drove the same roads in the same traffic. We went to the same hospitals when we got sick. We bought our groceries in the same places.

These small points of commonality add up to a stable nation and economy—and we’re losing them. The Protected class is withdrawing into its own protected world. It hasn’t always been this way.

Years ago, I saw Michael Dell at the Austin airport. This was the late 1990s, when he was already a well-known billionaire. I’m sure people recognized him, but they left him alone.

This billionaire, who was perfectly able to fly in his own jet had he wanted to, stood in line to buy frozen yogurt, then took a seat at his gate to eat it. I was on a different flight, so I don’t know if Dell was in first class that day. He probably was, but otherwise he had the same experience as everyone else.

That was 20 years ago. How many of today’s top-level CEOs fly commercial? Not many, I suspect, and those who do probably wait for their flights in special lounges. Their boards may require this because they want the CEO to use time efficiently.

That’s not unreasonable, but it has a cost. It means the CEO (or government official, central banker, etc.) loses awareness of everyday life as most people live it.

Subscribe to Connecting the Dots—and Get a Glimpse of the Future

We live in an era of rapid change… and only those who see and understand the shifting market, economic, and political trends can make wise investment decisions. Macroeconomic forecaster Patrick Watson spots the trends and spells what they mean every week in the free e-letter, Connecting the Dots. Subscribe now for his seasoned insight into the surprising forces driving global markets.