Swimming interlude

As you may have realized from several past notes, swimming is my second passion.  As you may also imagine, my loyalties were somewhat divided yesterday night when the time came for the 4x100 freestyle men final.

Because of the d*** time delay which NBC and its advertisers impose on TV viewers, I tried to follow the race online, but even there, the sites that provided “live timing” were also experiencing delays and other quirks.  So when my iPad’s screen finally showed the results, I was both stunned and elated.

Once again, life shows that forecasts and predictions are just that, extrapolations of the past which are as likely to pan out as to fail.  As in economics, sport experts find it very difficult to model human factors, either at the individual or group level.

Australia was the overwhelming favorite, the US was expected to be a worthy second with no hope of winning, and the French didn’t register on anybody’s radar (I believe the British bookmakers put the odds of a French victory at 7:1).  Contrarians anywhere?

After having styled themselves as the Weapons of Mass Destruction who would not just beat but annihilate the rest of the field, the Australians felt the overwhelming pressure to deliver and they faltered.  Indeed, faltered is perhaps too tame a word; they collapsed, finishing fourth behind Russia.

The US team had a very good race; indeed, it performed better than most expected.  Nathan Adrian touched first with a very fast and personal best of 47.89.  Michael Phelps kept the lead with a 47.15 split, probably a personal best and unexpected after his disappointing 400 IM performance.  Cullen Jones retained the lead in a solid 47.70.  Ryan Lochte fought very hard in 47.74, a good time for him.  This was the best line-up the US could offer.  Matt Greevers is intrinsically faster than Lochte but he had just finished swimming his 100 backstroke semi-final; under the circumstances, he might have matched Lochte’s time, but that would not have been enough to win.

The French, no longer under the microscope, swam very well too, and as the US in 2008, won thanks to an exceptional anchor who simply defeated models and extrapolations.  Amaury Leveaux, the team’s “mental stabilizer”, was a close third in 48.13 in the first leg.  Fabien Gilot, another survivor from the 2008 relay, advanced his team to second place in a strong 47.67.  Perhaps the first surprise performance was Clement Lefert, a 200 free specialist, who clocked a 47.39, surely a personal best when adjusted for the relay start.  Despite swimming the heats and semi-finals of the 200 free earlier in the day, Yannick Agnel blew the field with a blistering 46.74, exactly one second faster than Lochte.

Paraphrasing Yogi Berra, 95% of swimming is half mental.  The 4x100 relay, once again, proved it.  For France, after losing a “sure” gold medal in 2008, winning the gold at the world short course in Dubai and the silver at the European long course championships in Budapest, this London victory was sweet.

What about the losers?  Before we write off the Australian Missile, James Magnusson, let us not forget that Alain Bernard, after losing the anchor fight to Jason Lezak in 2008, came back to win the 100 free gold medal.  The mental pressures of a relay are different from those of an individual race.  Not all individual swimmers are good at relays and vice versa.

For the Americans, I think that it may be a good time to reflect on two issues.  First, it is generally accepted that relays give a good picture of an overall program.  In this regard, it is uncomfortable to think that Ryan Lochte, an extraordinary swimmer but not a sprinter, was the best available choice to complete the US relay.  It is also worth studying why France, not a traditional swimming world power, has come to be competitive with the US in sprint.  It started its ascent when a number of French swimmers came to study and swim at Auburn, but it has accelerated since then with less input from the top US swimming meccas.

Second, there is excessive pressure on the top US swimmers to sign up for as many events as they can.  As the rest of the world catches up and 200m events now incorporate semifinals, this can trigger adverse chain reactions: excessive physical stress, insufficient recovery intervals, disappointing results, self doubt, etc.  This hasn’t happened yet in these London Games, but it did in the past and could again in coming days.

Nelson at Trafalgar

On October 21^st, 1805, HMS Victory, Admiral Nelson’s flagship, sent out to its fleet the most famous naval message in history: “England expects that everyman will do its duty”.  Unfortunately for us French they did, and we lost the battle of Trafalgar.

The British navy was better trained and, at that time, enjoyed better command.  Nelson’s fleet was also under unified command while its adversary was a mix of French and Spanish task forces.  Nevertheless, the French and Spanish ships had huge firepower, and the British knew that they had to go all out to win.

Suppose however, that Nelson’s message had been different, such as:

-          “I know some of you men haven’t slept well these last few days.  Those who want to take the day off are excused from combat”, or

-          “Officers, because you receive a higher pay, I expect you to fight real hard.  As for you men, you can duck any time you feel like it”, or

-          “I have decided that one man on each battery will act as an observer in order to spot areas warranting future improvement”, or

-          “I have a plan to win this one without suffering any casualty”.

With less than an all out effort from all of his crews, Nelson could very well have lost the battle, and for sure British casualties would have been far higher.  Instead, he won everlasting fame, yet his example seems to have been lost of most future politicians.

Consider the cases of France and the US, where enormous adjustments must be made to correct structural economic and financial imbalances that threaten the future of these countries;  one would think that their political leaders would call for an all out effort, where every man and woman would be expected to contribute to national revival.  Not really.

What we have seen instead is a reluctance to acknowledge the gravity of the challenge and the inevitability of sacrifices and hardship in order to prevail.  We have also seen an effort to divide society, between rich and poor, young and old, entrepreneurs and salaried workers. 

 There is no question that the rich will need to pay more taxes, but there is also no question that almost half of the active population can’t continue paying no income taxes.  As Prime Minister Monti declared early in his mandate, the burden needs to be fairly shared among all.  Politicians should stress solidarity and fairness, not privilege or clientelism.  It is human nature that if Peter is asked to make an effort from which Paul is exempted, Peter will look for every way to wiggle out. 

We are at a time of crisis; the economies of most of the world are unstable, growth is negative to anemic, debts are ballooning while money is printed with abandon; trust in politicians, and therefore implicitly in democracy, is at an all time low; in the eyes of many, capitalism has failed to provide progress and stability for all (even when its critics have had a hand in its excesses).  Put it another way, we are in a state of unstable equilibrium the consequences of which could be very dire.  As at Trafalgar, it is time for a call, expressed succinctly and clearly, for each one of us to take our fair share of pain and to do our best to pull the country through.

Nowhere man (homo economicus)

Like all career generals, top economists prepare themselves for the day when their theories can be put to the test of reality (or is it the other way around?).  Certainly, the so-called Great Recession that has hit the US since 2008, then morphed into an existentialist crisis for Europe, and now challenges China’s investment driven growth is such a opportunity.  And indeed, we have seen a wide array of economists make the case for their deeply felt diagnoses and attending cures.  Yet they have little to show so far.

He’s a nowhere Man,

Sitting in his Nowhere Land
Making all his nowhere plans
For nobody.

Traditionalists have thundered against the wasteful ways of the consumer society and its propensity to spend itself to exhaustion, mostly with money borrowed from any willing lender, investor or speculator.  The cure is simple: let them fail, lance the boil and wait for nature to heal itself.  Unfortunately, and as we have seen when applied in some places, this triggers economic collapse, societal tensions and political instability.  But not recovery.

Doesn’t have a point of view,

Knows not where he’s going to,
Isn’t he a bit like you and me?

Others, who quote Keynes, have argued that the state should step up to make up for the reduced demand from the private sector and thus avoid an economic depression.  Some have also argued that such boost would also result in some degree of inflation which would help reduce the excessive indebtedness of both private and public borrowers.  We haven’t seen much inflation in the US where this approach was tried; on the contrary, prices have been stable but public debt has surged and little of that fiscal stimulus has found its way into worthy investment projects for a variety of reasons.

Nowhere Man, please listen,

You don’t know what you’re missing,
Nowhere man the world is at your command.

A variant of the Keynesian school of thought is epitomized by the Japanese economist Richard Koo who has made the persuasive argument that the current crisis of excessive private sector indebtedness doesn’t respond to traditional monetary policy as debtors focus on reducing their debt outstanding, even if interest rates are at rock-bottom.  In his view, the state had to crank up spending and go on as long as necessary;  in most wealthy countries, funding this fiscal effort should be doable as private sector savings would generally equal public sector borrowings.  While his reasoning is powerful, the example of Japan, which, by and large, has followed his prescription, is not: twenty years after its real estate bubble burst, Japan is still doing poorly while its public debt is soaring.

He’s as blind as he can be,

Just sees what he wants to see,
Nowhere Man can you see me at all?

Yet another group put its hopes on reforms, sometimes stated vaguely, or extravagantly.  By definition, reforms will change the way people work and live, will produce some winners and losers and can cast a pall of uncertainty that will last for several years, for reforms take years to be debated, agreed and implemented.  Successful reformers have been able to fine-tune the process so that change took place while stability was preserved and expectations were not let to run wild, with fear or overexcitement.  But reforms alone didn’t work. 

Doesn’t have a point of view,

Knows not where he’s going to,
Isn’t he a bit like you and me?

There is no lack of example of countries overcoming deep financial or economic crisis; there were no magical wands, excessive debts were not transmuted into savings, orthodox measures such as public spending cuts were combined with currency devaluation and strong foreign direct investments; and yes, there also were some policies that were “unorthodox” in their days such as privatizations, tax cuts and private pension reforms.  But what these countries also had was strong political leadership, capable and willing to carry out painful recoveries and to rally their nations behind the effort.

Nowhere Man, don’t worry,

Take your time, don’t hurry,
Leave it all ‘till somebody else
Lends you a hand.

Chile was engulfed in 1982 by the Latin American debt crisis despite having carried out wider economic reforms than the rest of the region.  Its downfall however was precipitated by an overvalued peso and excessive US dollar borrowings.  Because it was governed by the Pinochet-led military junta, Chile, unlike its neighbors, received no international financial help and was left to solve its problems on its own.  It did so by first nationalizing the banks (closing a few unviable ones), devaluing the peso, controlling public spending and restructuring its private and public debt in a way that was both fair and conducive to stabilizing and even raising foreign productive investments.  It has often been argued that having an authoritarian government helped Chile carry out unpopular policies.  This is true to some extent only; there were times in 1984 and 1985 when the position of the government was precarious; besides there have been many examples of authoritarian governments that were miserable economic failures. 

But Chile’s success in handling its crisis can be attributed to other important factors as well: unlike other countries, Chile cleaned up the financials of public companies before it privatized them; it insured that many ordinary Chileans could benefit from large privatizations thanks to its so called capitalism popular; from the beginning, it promoted free markets and private investments.  Finally, Chile offered a number of intangibles which are generally overlooked yet were of critical importance, such as a fair and predictable legal system, a very competent core administration where corruption was absent.  To this day, this remains one of the best turn-around stories.

He’s a nowhere Man,

Sitting in his Nowhere Land
Making all his nowhere plans
For nobody.

Brazil had been an intractable basket case for two decades, with endemic hyperinflation and spiraling public debt when F. H. Cardoso, then minister of Finance, launched the Plano Real in 1994.  The plan’s insight was to break the vicious cycle of expected inflation and general indexation without imposing price controls.  It did so by creating a money of reference (the Unidade Real de Valor- URV which was in effect indexed to the US dollar, not to domestic inflation) alongside the money of exchange (the cruzeiro), and setting it initially at a high level.  After confidence in the URV was won, the URV became the new money of exchange, the Real.  The strength of the Real was preserved by setting positive interest rates, by controlling public sector spending at times via financial negotiations with Brazilian states and by large scale privatizations.  FHC’s credibility helped him carry out his key policies, although former allies reproached him his free market initiatives which he nevertheless had the courage to see through.

Some elements are common to these turnaround examples: currency devaluation (delayed in the case of Brazil as the key problem was internal debt and lack of faith in the currency), public spending cuts, free market emphasis for greater efficiency and accountability, generally, policies that are consistent and understandable for the public, and leaders who are competent, honest and unafraid.

Homo economicus has a lot of ideas, and while there is always room for new policies, abolishing "no pain no gain" is not one of them.  In the end, he is only as good as the homo politicus to whom he reports and from whom he should get support.