Sandra Navidi - SuperHubs - How the Financial Elite and Their Networks Rule our World

In Roubini’s view, networks are less relevant in academia than in other professional areas because accomplishments there are primarily based on merit. He made the transition to the policy world only after establishing himself as a scholar and authority. Although Roubini has high-level access, he believes that external experts have only limited influence. In order to truly affect policy, he explains, you must occupy a formal full-time position and be involved in the information flow and granular details. Getting access to policy makers is hard work. Contrary to what some may think, policy makers such as the Fed Chair Janet Yellen and ECB president Mario Draghi are extremely cautious and reluctant to talk about confidential matters. In addition, the heads of institutions typically do not have sole decision-making powers but act as part of a committee, which makes outcomes even harder to predict. For example, Janet Yellen is one of twelve members of the Federal Open Market Committee, and Mario Draghi is one of twenty-four persons on the ECB Governing Council. Generally, policy makers do not know what decisions will be made well into the future because those decisions hinge on uncertain, conditional developments across the world. In addition, their views and assessments are subject to major changes over time.

Roubini concedes that being plugged into a network of policy makers does provide a better understanding of the logic behind their thinking and decision-making processes, but he reiterates that it is no substitute for thorough analysis. My own view is that, being well aware of the ramifications of confidentiality breaches, policy makers will not disclose any “state secrets.” However, in personal meetings you may still be able to read between the lines from the tone of their voices, their body language, or choice of words and thus get a sense of where things might be heading. Of course, such intuitive impressions can never replace the hard, nose-to-the-grindstone analysis, but they can give you an edge.

Roubini agrees that possessing emotional intelligence is helpful but argues that the power of his ideas is what established him as a thought leader. His business consultancy has likely benefited from both his intellectual and social skills. Consulting is a competitive field as research is generally considered a cost and not a profit center, and the market is flooded with gratuitous high-quality analyses. There are no barriers to entry as it is not a licensed profession, and anyone can call him- or herself a consultant. Therefore, having top academic credentials, policy experience, and access to high-caliber networks provide thought leaders with distinct competitive advantages that propel them into the league of superhubs.

Most thought leaders in finance are economists. A select few have become academic celebrities, such as Thomas Piketty, Nassim Taleb, and Paul Krugman, because they have touched the Zeitgeist. They are their own brands, with rock star status and almost cultlike followings. Inundated with media requests, exclusive invitations, and offers to join prestigious boards, their work surpasses the insular world of academia and becomes the center of public attention. They often contribute to the public discourse by translating their abstract and complex analyses into layman’s terms. Governments, institutions, and corporations take their views into account when making decisions. Meanwhile, the thought leaders’ market value increases, enabling them to bill top dollars for their services. Their centrality affords them superhub status. For U.S. thought leaders, the rate for a one-hour speech usually starts at $75,000 in addition to first-class tickets and five-star hotel accommodations. An overseas speech can exceed $150,000 depending on the remoteness of the location.

Thought leaders typically challenge conventional thinking. Economic, financial, and political developments in the last few years have invalidated many existing paradigms. When they produce transformational research, thought leaders contribute to the collective thought process. However, their contrarian views often become controversial as many people are uncomfortable with change and resist challenging traditional norms. Thus, thought leaders stir heated debates, enrich the dialogue, and inspire innovative approaches.

The great demand for them is remarkable, considering that most economists’ forecasts have been notoriously incorrect. The spectrum of their misjudgments ranges from the movements of the stock markets to the breakup of the euro. Prakash Loungani, a senior economist at the IMF, analyzed various economic forecasts and found dismal results: In line with the saying “It is difficult to make predictions, especially about the future,” forecasts from the public as well as the private sector were equally incorrect—especially at inflection points such as the run-up to a recession or a return to growth.26 Perhaps that’s why economics has been called the “dismal science” and some segments of the academic world have made profound efforts to drive fundamental reforms. In a 2013 graduation speech at Princeton University, Ben Bernanke noted that economics is superb at explaining to policy makers why their past choices were wrong, but that its predictions for the future left much to be desired. However, he stated that economic analysis is at least helpful in eliminating the most logically inconsistent ideas.27

Why do experts have such a hard time making predictions, even in relatively predictable scenarios? One reason is that the future is inherently uncertain; it is impossible to connect the dots going forward28 and model it mathematically. Another is the fact that human thinking is limited by cognitive biases. As a consequence of our evolutionary development, we are wired to draw inferences, particularly in uncertain situations, as mental shortcuts to make judgments and arrive at conclusions. We presume our beliefs to be a permanent reality and tend to interpret events within our own frame of reference, believing only what supports our views. Biases save valuable time in the fight for survival, but they also keep us from accurately processing new information and adapting our views. Therefore, experts who demonstrate a capacity to think beyond biases add valuable dimensions to the dialogue and serve as key information links.

CEOs must constantly innovate and develop long-term visions and strategies. In times of concurrent revolutionary paradigm shifts across many parts of the world, decision parameters become more uncertain and complex. In a different world of low global growth, increasing political instability, and incalculable macroeconomic risks, CEOs look for unbiased guidance and innovative perspectives. Jamie Dimon once said that CEOs are terrible forecasters who can only see the recent past.29 High-level executives often operate in an echo chamber of homogeneous thinking, which can lead to tunnel vision and “analysis paralysis.” Thought leaders are the signals among the noise of groupthink, and they can help CEOs generate fresh ideas and see the big picture. By influencing the influencers, thought leaders’ ideas become part of the economic and financial evolution, providing them with “expert power.” Some argue that, figuratively speaking, CEOs give these advisers their watch so that they can tell them the time. Others criticize that consultants only provide CEOs with cover and justification for poor performance or unpopular measures such as layoffs.

NETWORK INVESTMENTS: SOCIAL CAPITAL

As already alluded to in Chapter 2, another commodity that superhubs exchange within networks is social capital, which consists of resources such as information, services, and the leveraging of influence. Social capital is an investment that pays a return, as the analogy “capital” implies. The higher one’s position in the hierarchy, the greater one’s creditworthiness, meaning one’s wealth in social capital and the ability to transact it.