Market Thinking

making sense of the narrative

We are in a real life Stamford Prison Experiment

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One of the most famous chapters in psychology involves what is  known as the Stamford Prison experiment, conducted by a Stamford Psychology Professor Zimbardo back in in 1971. In the experiment a group of volunteers were randomly split into two groups, prisoners and guards, in order to assess how the ‘situation’ affected their behaviours. It was supposed to be a two week experiment but ended after less than half of that as things go out of control. In a very short space of time the two groups had resorted very aggressively to type, with the ‘guards’ becoming cruel and tyrannical and the ‘prisoners’ depressed and disoriented. A good summary can be found here and is well worth reading.

The reason for mentioning this is of course the speed with which our current social experiment is following a similar pattern. As the article notes

The prisoners soon adopted prisoner-like behaviour too. They talked about prison issues a great deal of the time. They ‘told tales’ on each other to the guards.

They started taking the prison rules very seriously, as though they were there for the prisoners’ benefit and infringement would spell disaster for all of them. Some even began siding with the guards against prisoners who did not obey the rules.

All very familiar. The speed with which the western population has effectively been put under house arrest and appears to be willing to give up hard fought freedoms in quite astonishing, as is the manner in which some of the ‘guards’ appear to be enforcing, indeed, inventing, rules such as closing down parks or threatening to search shopping baskets for ‘non-essential items’. Meanwhile, governments, like Professor Zimbardo as the notional ‘Warden’ are adding little in the way of guidance. In the same way, it seems like nobody is discussing anything except ‘prison issues’ ie Covid-19 and the number of deaths, while the use of techniques such as punishing the group to control the individual have strong echoes in official ‘tactics’ across Europe.

Moreover, we are told that the majority of the public not only support the current lockdown but in many cases want it more strictly enforced, just like the ‘prisoners’ in Stamford who lost sight of the fact that it was only an experiment and not real life, so quickly did they become conditioned.

One thing that the experiment showed that should concern not only governments blithely ignoring the mission creep from lockdown to allow the health system to garner enough resources to a notion that lockdown will somehow kill the virus, but all of us, is the prison riot that took place on day two. First governments should not forget that this lockdown requires acceptance and second, the response to the riot, a more aggressive regime and a growing contempt by guards for prisoners, is a world we do not want to go into. Ever.

From a markets’ viewpoint, we should remember that how we get back to normal has far less to do with the virus itself and far more to do with the behaviours of ‘the guards’ in our current experiment. It matters little what they should or should not have done in the past, what we need to assess is what governments will do next, not what we would do if it was down to us. In the same way as many economists are forever predicting Fed behaviour on what they themselves believe, we need to think like politicians looking to extract themselves form the situation. As previously noted, we believe that the lockdown will lift when the risk to a politician for being blamed for every Covid-19 related death is less scary (to them) than the risk of being blamed for collapsing the economy.

Here we can, and should, watch the narrative being prepared, kites being flown as they say, the shift in the (planted) opinion pieces in the media. The situation in Sweden is currently very interesting, but no other European politician wants to think that the social distancing was not necessary (or even, as many epidemiologists are suggesting, actually made things worse). So that is being played down, in favour of highlighting how some countries are sending children back to school, opening smaller shops and so on. If that doesn’t cause a new spike in cases, then others will follow suit.

Confusing all this of course is the ongoing determination of much of the media class in the US either to blame China (and thus ignore any useful data from there) and/or to bring down President Trump. For the latter, things being worse suit their cause, so as usual it’s back to the tweets for policy direction. Indeed, perhaps the European press is a better source of the direction of possible future official action.

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