There are moments in sports that are memorable because they capture the superb athleticism, the skill, the teamwork, or the grace that makes it all worthwhile. And within that group there are a few moments that illustrate ideas whose value goes beyond the boundaries of sport into our lives.
One of those moments took place in the closing seconds of a 1992 NCAA regional final basketball game between Duke Blue Devils and the Kentucky Wildcats. With only 2.1 seconds left, Kentucky leading by a point, and Duke inbounding the ball the full length of the court away, it looked like the Wildcats had the game sewn up.
Duke had one last chance. The clock would not start until a player’s hands touched the inbound ball. If Christian Laettner could get open and Grant Hill, standing out of bounds, could hit him with a very long pass, there would be time, barely, to get a shot off.
In the Duke huddle, coach Mike Krzyzewski looked directly into Laettner’s eyes and asked him if he could make the shot. And Laettner replied that if Hill could get the ball to him he could make the shot. Coach Krzyzewski green-lighted the play, they broke and took up their positions on the court.
The unguarded Hill was able to move around and get a clear angle, heaved the ball three-quarters of the length of the court to Laettner, who moved right then turned for the jump shot. The ball left his hand with .2 seconds left, and went through the net as time ran out. Duke had won by a point.
Where’s the valuable idea in all this? After all, it happened 23 years ago and few of us will ever coach or play in an NCAA tournament.
The key words are “trust” and “confidence.” The last thing you want to do in a make-or-break situation like that is to give the ball to someone harboring doubts about scoring. And the underlying reason for that trust was Laettner’s confidence, which his coach could recognize in his eyes and in his response to the question.
Confidence and trust are at the heart of some of our economic policy issues, embedded in both the problems and the solutions we apply.
Economists looking at the disappointing, although positive, economic growth in Japan during the last quarter of 2014 cited the lack of consumer confidence as the major cause of the shortfall. Japan had more than doubled its quantitative easing program, cranking up its money supply at an annual rate of over $700 billion by — buying its own government’s bonds — to jump-start its shrinking economy. The economy responded positively, but very slowly. Clearly, building confidence through monetary policy was going to take time.
This modest response was similar to that experienced in the U.S. economy, where quantitative easing involved trillions of dollars’ worth of Treasury bonds, an equivalently massive increase in the money supply, and an economy’s response that never moved the needle much past “yawn.”
The real achievement of quantitative easing in our economy was to restore confidence and trust in our financial markets. Those markets can seem pretty remote to the rest of America, and they lack popular appeal because they appear to be controlled by unattractive agents of self-interest. Without confidence in our financial system, though, the rest of our economy would deteriorate quickly. When the financial market is ailing, attention must be paid.
The dominant position of finance, which is dependent on ever-fragile confidence, provides a dilemma for modern economies, most of which carry substantial public debt burdens. Every policy move has to be weighed carefully for its effect on market confidence.
In this environment, the European Central Bank (ECB) wants to launch a large quantitative easing program to resuscitate its flagging economic growth — at the same time that Greece is facing a deadline on about $240 billion that it doesn’t have and is looking for a loan extension. Few believe that Athens’ latest plans for fiscal reform are credible, but a four-month extension will probably be granted because not doing so would undermine confidence not just in Greece’s credit but in the European Central Bank, the Euro, and the entire European financial system. The extension will push the problem out until June, when the ECB’s quantitative expansion program will have settled in.
Modern market economies are capable of great things and can create better living standards around the globe. But the price we pay for this prosperity is a level of dependence on debt and financial market confidence that keeps us “living on the edge.” We’ll learn to live with it, probably, but it is darned uncomfortable. Even prosperity comes with a price.
James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Herald Business Journal.
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