Friday, September 10, 2010

Ground Zero Mosque and the Financial Markets

Ground Zero
The 'Ground Zero Mosque' -- Authoritarianism in Lower Manhattan?

A local land use issue that has received a routine approval by a community board very rarely makes national news. In fact, it's the sort of thing that can make city council meetings a great cure for insomnia.

But when the "local land" is two blocks from where the World Trade Center stood in lower Manhattan, and the "use" in question includes a mosque -- well, collective emotions can turn it into a national story and then some. I spoke with socionomist Alan Hall about how the story relates to his own recently-published research.

Q: In the April 2010 issue of The Socionomist, you said authoritarianism can be evident in both a bull market and a bear market. In which of those is it more prevalent?

A: In a bear market, and just afterward. Authoritarianism begins with a negative social mood trend, which in turn spawns a desire among some to submit to authority and coerce their fellows to submit, and among others to resist authority. Figure 2 shows that over the past 300 years, major bear markets hosted most of the notable examples of authoritarianism. There are incidents of authoritarianism in bull markets, but they are fewer and smaller.

Q: The socionomic perspective offers impartial analysis on issues that are highly emotional and controversial. Is that perspective more valuable in that it doesn't "take sides"?

A: Yes. The impulse to polarize into "in groups" and "out groups" is strong in periods of negative social mood. When most people around you are following their emotions, the ability to think rationally is a big advantage. You make better decisions. You can recognize the patterns of collective human behavior, and in turn know whether to utilize that behavior or to get out of their way.

Q: Regarding authoritarianism in a bear market, what are the ingredients that can ignite authoritarianism about an issue, and produce the sort of collective anger that leads to public protests and related actions?

A: Negative mood trends produce fear, anger, polarization, discord and challenges to the status quo. Social mood declines generate a fear that grows. And as that emotion collectively increases, many individuals yearn for the safety and order promised by strong, controlling leaders. Autocrats can rise to power in such an environment, via popular demand or coups d’├ętat. Either way, fear creates the conditions that lead to an authoritarian outcome. A general bearish fear of the future causes people to group themselves around polarized views, based on the authoritarian/anti-authoritarian issue of the day. These disparate groups exclude messages that contradict their sentiment.

Q: Is the Islamic cultural center/mosque (Park51) near the World Trade Center site in New York City an example of this?

A: Feelings of polarization and xenophobia accompany large bear markets, and those emotions must be expressed -- usually against an individual or issue. Park51 happens to fit the bill. If it were not the cultural center/mosque, some other focus for conflict would be in the news.

Q: Imam Feisal Abdul Rauf is the cleric who wants to build Park51. When asked about the sensitivity of building it near Ground Zero, he said "We want the whole world to know that Muslims condemn 9/11." Park51 has many critics, yet its supporters include President Obama and New York Mayor Michael Bloomberg. Is that kind of support surprising in the face of a growing trend toward authoritarianism?

A: No, because the trend is characterized by the conflict between authoritarian and anti-authoritarian impulses. A bearish mood can push a society with little interest in authoritarianism into a significant authoritarian/anti-authoritarian conflict. We fully expect to see this conflict unfold in many places, including growing numbers of court battles at every level of the judicial system.

Q: Is the controversy going to fade from the news, or do you see the protests becoming worse over time?

A: The conflict should increase inversely to the pattern of the social-mood decline. The deeper the decline in the markets, the more likely conflict becomes.

Q: What does this story say about where we are in the trend toward authoritarianism?

A: The trend is young. The Park51 conflict is still largely a war of words. The relative civility we see in this case will be conspicuously absent when mood worsens; the controversies to come will bring out more violent emotions.

You can read Alan's two-part article about authoritarianism in the April and May 2010 issues of The Socionomist.

You'll get both of these issues -- plus the three most recent issues -- when you subscribe risk-free to The Socionomist.

Follow this link to learn more.

Click here to learn more and profit from what really drives the financial markets.