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What to Do with Super-Achievers?

Saturday, October 15, 2011

Society is better off when super-achievers do their striving within the private sector rather than in government.

The organizations that come into existence will reflect the opportunities provided by the institutional matrix. That is, if the institutional framework rewards piracy then piratical organizations will come into existence; and if the institutional framework rewards productive activities then organizations—firms—will come into existence to engage in productive activities.

—Douglass North, Nobel Prize Lecture, December 9, 1993.

Steven Jobs, the late co-founder of Apple Computer, and Steven Chu, the current secretary of Energy, are both examples of super-achievers. Jobs created an innovative company that is currently among the most valuable in the world as measured by stock market capitalization. Chu earned a Nobel Prize in physics and sees himself as a leader in the battle against global warming.

At this point, it seems likely that Jobs will be remembered as having contributed significantly to human progress. Chu's historical legacy is more problematic. Assuming that Chu's efforts at promoting solar power and electric automobiles are no more successful than the Carter-era effort to build a breeder reactor, they will end in dismal failure. Is there a lesson to be learned from this about where society should want its super-achievers to perform?

It is certainly not the case that Jobs was more intelligent or noble than Chu. However, they operated within different institutional frameworks. In this essay, I argue that society is better off when people with the “animal spirits” to seek to become super-achievers do their striving within the private sector rather than if they hold the levers of power in government.

Super-achievers and animal spirits

The longing for super-achievers in government is dangerous and misguided.

Super-achievers are endowed with a high level of what I believe Keynes meant with the term “Animal Spirits.” (The term, like much else in Keynes's work, was left murky. Thus, later writers have disagreed over its definition.) Animal spirits are what motivate our attempts at big projects. These grand schemes can turn out fantastically well or dismally poorly.

For those with strong animal spirits, the intensity of their drive may be such that they would prefer to fail miserably than to settle for a low-risk path. In his 2005 commencement address at Stanford University, Jobs famously told the graduates, “Don't settle.”

What I am calling animal spirits is a set of personality characteristics. The table below shows what I have in mind. You can decide whether, according to these criteria, you have high animal spirits or low animal spirits.

Kling Animal Spirits

Consider how Winston Churchill felt about making decisions. Concerning being named prime minister on May 10, 1940, even as Germany was launching its ferocious Blitzkrieg against the West, he writes, "I was conscious of a profound sense of relief. At last I had the authority to give directions over the whole scene. I felt as if I were walking with Destiny, and that all my past life had been but a preparation for this hour and for this trial."

High status should accrue to leaders who build robust systems for preserving capital in banks of a manageable size.

Many of his contemporaries considered Churchill rash and unstable, and perhaps he was. By my definition, he was high in animal spirits. (He also was famous for his dark depressions, but those do not seem to have made him unwilling to seek power or to take risks once he had it.)

Evolutionary theorists Dominic D. P. Johnson and James H. Fowler recently published a paper in Nature entitled “The Evolution of Overconfidence,” in which they suggested that overconfidence (part of what I am calling animal spirits) might have survival advantages in some situations, for groups as well as individuals. Reacting to this paper, political economist Michael Munger wrote on his blog,

The problem is that our last two Presidents, first GWB and now BHO, are freakishly overconfident even by the standards of human males. Neither is capable of imagining that anyone actually disagrees with them, unless the disagreer is evil or a stone idiot.

The famous entrepreneurs of Silicon Valley possess high animal spirits. Facebook's Mark Zuckerberg fought intensely to retain control over his Web creation. He continued to take risks when instead he could have taken an enormous payout while settling for a loss of control. Although the movie The Social Network undoubtedly portrays him unfairly (no real-world entrepreneur is as devoid of charm as the character in the movie), it is probably reasonable to presume that Zuckerberg is relatively more interested in the impact he has on large numbers of people he has never met than in ensuring harmony among his immediate associates. The same could be said of Steve Jobs or Bill Gates.

Super-achievers in finance

For those with strong animal spirits, the intensity of their drive may be such that they would prefer to fail miserably than to settle for a low-risk path.

Many economists look back at the run-up to the financial crisis and see animal spirits at work. In hindsight, this is an instance where overconfidence did not work out well.

Overconfidence on Wall Street is not a new phenomenon. Michael Lewis offered an accurate snapshot of swashbuckling mortgage traders in his 1989 memoir Liar's Poker. He famously described the traders with the highest animal spirits as “Big Swinging Dicks.”

Some have suggested that there is indeed a connection between extreme cases of high animal spirits and male anatomy. Psychologist Roy Baumeister, in his book Is There Anything Good About Men? claims that males tend to carry the traits I have labeled as “high animal spirits.” Baumeister asserts that this is grounded in evolutionary psychology and the differences in strategies between males and females for passing along their genes.

Even though Baumeister's argument strikes me as highly speculative and flimsy, the empirical fact is that many super-achievers are male. Moreover, many of the traits that make up what I call high animal spirits are traits that psychologists find more often in males.

Regardless of the role, if any, played by sex differences in determining the propensity for extremely high animal spirits, how society channels its super-achievers is a critical issue.

Many of his contemporaries considered Churchill rash and unstable, and perhaps he was. By my definition, he was high in animal spirits.

Super-achievers are too prevalent in banking in this country. Ordinary savers have only a limited appetite for risk. Super-achievers are too confident and too willing to overlook the downsides of risks. I would like to see a significant change in the culture of banking. High status should not accrue to leaders who build the largest or most trend-setting institutions. Instead, it should accrue to the leaders who build robust systems for preserving capital in banks of a manageable size.

I am not confident that there is an easy way to get from here to there. Since the 1930s, we have, through deposit insurance, insulated ordinary savers from the animal spirits of their bankers. This puts the onus on bank regulators to tame the animal spirits. The regulators' track record, in my view, is dismal. The current approaches, as embodied in Basel III and Dodd-Frank, strike me as more of the same.

There are a number of more radical proposals from various parts of the political spectrum for trying to reduce animal spirits in banking. (I have, not entirely jokingly, suggested changing the gender of bank CEOs.) I will not list or compare the various approaches that have been suggested; suffice it to say that I think something more novel than what is embodied in current policy ought to be considered. In the end, we will know we have come up with a better approach to financial regulatory policy when we see the super-achievers moving out of banking to other areas of finance, or on to other fields entirely.

Super-achievers and government

Many super-achievers are male. Moreover, many of the traits that make up high animal spirits are traits that psychologists find more often in males.

Many people believe that it is good to have animal spirits channeled into the political sphere rather than into business. This is based on the view that political super-achievers are concerned with the whole community, whereas business super-achievers are concerned solely with their own gain. Unfortunately, this is a simplistic view. It is not the intent of the super-achievers that matters, it is the context in which they operate. The private sector, by providing competition and giving ultimate power to the consumer, provides a better form of sandpaper to rub against the super-achiever's rough vision.

The U.S. Constitution was designed to thwart super-achievers in the public sector. However, by the middle of the 20th century our culture venerated super-achievers in office, and we no longer look to the Constitution to impose the restraints it once seemed to enumerate. Unless our culture changes, Constitutional restraints on power will not be resurrected.

The longing for super-achievers in government is dangerous and misguided. The power that has accumulated in Washington, state capitals, and local governmental units is more than can be exercised responsibly. We have set ourselves up for disappointment and failure.

It is probably reasonable to presume that Zuckerberg is relatively more interested in the impact he has on large numbers of people he has never met than in ensuring harmony among his immediate associates.

What if, instead of doling out loan guarantees as secretary of Energy, Steven Chu were to set up a private venture capital fund to invest in the sort of projects he thinks are worthwhile? As a private venture capitalist, Chu might not be able to exert as much leverage on the industry as he can in his role as dispenser of taxpayer-funded guarantees. Power in the private sector is more dispersed. Most of the people who exercise it do not have credentials as impressive as Chu's Nobel Prize in physics. Still, the United States would be better off if super-achievers like Chu felt driven to pursue their goals in the private sector rather than through the institution of government.

I would like to see a culture where super-achievers look to the (non-banking) private sector as the arena for attempting to realize their visions. Government should be an arena for quiet competence, not for those who aspire to great achievement.

Arnold Kling is a member of the Financial Markets Working Group at the Mercatus Center of George Mason University. He writes for econlog, part of the Library of Economics and Liberty.

FURTHER READING: Kling also writes “The Soothsayers of Macroeconometrics,” “Prosperity, Depression, and Progress,” and “Putting Mr. Market on the Couch.” Nick Schulz discusses “Steve Jobs: America's Greatest Failure.”

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