Leaders will always fall prey to the sirens


The general inability of governments to bind themselves exposes a paradox at the heart of most political systems: the vast powers of governments are often weakened by their inability to bind themselves.

Ulysses plugs the ears of his sailors and binds himself to the mast. The paradoxical notion that you can make yourself better off by restricting your options recurs throughout history and literature, as in the many apocryphal stories of the commanders of invading armies who burnt their boats.

The language today is not poetry but game theory. Homer missed the Nobel prize, but Finn Kydland and Ed Prescott won it for their use of models of pre-commitment: above all, in providing a case for the independence of central banks. Ulysses is the chancellor of the exchequer, the monetary policy committee his (deaf to the sirens) crew.

The rationale of central bank independence comes from an unexpected interpretation of the benefits of pre-commitment. If the Norman king burned the boats of his invasion force, it was not for its effect on himself, but for the anticipated reaction of other people. Jon Elster, the philosopher who has made the analysis of Ulysses’ problem his life’s work, also emphasises that politicians rarely legislate to bind themselves; they devise policies to bind others.

The granting of independence to the Bank of England in 1997 by Gordon Brown, then at the Treasury, follows this logic of Elster and the Norman king – in spite of any appearances that the decision was purely concerned with binding the chancellor himself.

His objective was to strengthen his own position relative to his Labour supporters by depriving himself of the power to implement loose economic policies they favoured but he did not. Pre-commitment strengthens a negotiating position. It solves the problem that there is more advantage in making a threat than in carrying it out.

Pre-commitment can also be concerned purely with binding the self, and on an individual level it is an ideal tool for the person torn between conflicting desires.

We are not irrational when we want cream buns, dislike the gym, yet want to be slim and fit. The desire for inconsistent things is not a mark of mental incapacity, but an inescapable part of our complex human situation. The notion that we can, with sufficient introspection, divine our true preferences and always act on them each time amidst a welter of conflicting thoughts and emotions is misconceived.

However, we can tip the scales in our favour by using pre-commitment to make us take the virtuous options by removing, or playing down, the vicious ones. The economist Friedrich Hayek alluded to this self-binding when he said that constitutions acted as “a tie imposed by Peter when sober on Peter when drunk”.

Politicians find this second form of pre-commitment – the pure binding of the self – far more difficult. Governments find it most difficult of all to bind themselves because they cannot look to an external agency to enforce their commitments: international bodies are weak, and judges ultimately susceptible to political control. Ulysses can, after all, order his sailors to untie the knots.

This general inability of governments to bind themselves exposes a paradox at the heart of most political systems: the vast powers of governments are often weakened by their inability to bind themselves.

Kydland and Prescott famously illustrated this with the example of building houses on flood plains. Governments discourage building on flood plains and may explicitly say they will not bail out flood victims. However, when floods occur, governments usually end up bailing out the victims.

Since the original threat is not backed up, the policy fails. The evolutionary function of anger is that if we commit ourselves to punish those who attack us, we deter them from attacking in the first place.

There is no such force that can be called on here. A statement that the government will not bail out flood victims is not credible, perhaps like governments’ frequent statements that they will not negotiate with terrorists.

Central bank independence maintains its credibility because – so far – governments have found it difficult to reverse the policies. However, most other spheres of public policy will continue to remain a siren song in search of a stalwart Ulysses.

Print Friendly, PDF & Email