Advisor One’s Gil Weinreich interviewed Harvard professor and leadership expert Ronald Heifetz to find out what kind of leader it will take to avoid the fiscal cliff that seems to be so much on the minds of investors.
This Website Is For Financial Professionals Only
Heifetz notes in a key insight that there are two kinds of leadership—technical leadership and adaptive leadership.
When a problem is technical, a leader can simply consult advisors or technical experts to find a solution.
But the fiscal cliff is not a technical problem. It is a political impasse that makes American citizens the problem. This means the problem requires adaptive leadership to help us see why we need to make changes and how those changes may be brought about.
The fiscal cliff is also not just a single challenge. It is a group of challenges that represent the losses demanded by living up to the fundamental household belief that one ultimately has to pay for what is purchased.
But it is difficult for democratic governments to confront citizens with the bill. The strategy has been to increase the deficit to spend a lot of money on defense, then put pressure on the budget to further slash government spending.
The problem is that there is no palatable way to cut government spending coming fresh out of a financial crisis with an economy that is barely finding the momentum it needs to sustain itself.
Heifetz says the impasse is not with the politicians but with the American citizens. Representatives have to go back to the citizens they represent and convince them that the compromise they make to resolve the issue is still in line with the values they hold.
The president has the upper hand in this case because he can allow the tax cuts to expire, then introduce new legislation in January that give tax breaks to the middle class. It would be difficult for the Republicans not to allow these tax cuts.
The Wall Street Journal has already acknowledged the President’s advantage because the price
of failure has fallen since he will never again be up for re-election.
The dynamics are quite interesting and you can read more here