Reversing the Downward Spiral
A large part of an economic recovery is based on
psychology. Massachusetts Congress-man Michael Capuano told eight Wall
Street CEOs during their testimony to Congress, “America doesn’t trust
you anymore. . . . I get a lot of money to put in banks. I don’t have
one single penny in any of your banks. Not one. . . . Because I don’t
want my money put into CDO[*]s
and credit default swaps and making humongous bonuses).”
(See:
http://www.house.gov/capuano/.)
Trust is a key
ingredient in any economic recovery. Trust that our money will be spent
responsibly. Trust that our CDs are not part of a Ponzi scheme. Trust
that the administration knows what it is doing.
Treasury Secretary
Tim Geithner commented on his bank bailout proposal, “We will have to do
things we’ve never tried before. We will make mistakes.”
Oh, please! These
are words you would never want to hear from your surgeon as you are
being rolled into the operating room — or from your airplane’s captain
just before takeoff.
It does not matter
that the statement could well be true. Many years ago, Dutch economist
Jan Tinbergen pointed out that even just a forecast might have an
unintended and unwanted effect on the economy. What Geithner did was
forecast that he would make mistakes, and the country believed him. A
new uncertainty had been introduced, and stock prices plummeted.
This phenomenon is
well known in economics. When FDR said, “The only thing we have to fear
is fear itself,” he was trying to get people’s minds off the fact that
10,000 banks had gone bankrupt and the unemployment rate had reached
25%. There were plenty of things for people to be fearful about, but
Roosevelt knew that if he could gain their trust, and then show some
real results, he could lead the country out of the Great Depression.
Well, he did, in a
way, although the unemployment rate in 1943 was the same as it had been
in 1929. The solution came in the form of the largest public works
program in U.S. history: World War II. That turned the country around,
and it is instructive that President Obama is now closing in on a level
of spending comparable to the $288 billion the U.S. spent on WWII (equal
to $3.1 trillion in today’s money).
If we look up the
word “trust,” we find that the dictionary links it to confidence,
reliability and hope. These are words that describe an emotional space
high in satisfaction, low in stress and high in a sense of control.
A leader whom we
find reliable, who raises our confidence level and makes us hopeful, is
the kind of leader who can help the country recover much more quickly.
If, instead, we get
a leader who increases our stress and dissatisfaction, and leads us to
feel that we have lost control over our lives, the downward spiral will
accelerate and the cost of reversing the spiral will increase.
This is the
psychology that explains why recoveries get worse. Self-fulfilling
prophecies create their own “truths.” Every good coach knows this.
Good economists know this as well. |
|
Mr. Obama should
take a lesson from Shakespeare’s Henry V. In
the play (Act IV, Scene 3), Shakespeare has King
Henry delivering the best locker room speech in
history, concluding:
. . . We few,
we happy few, we band of brothers;
For he to-day that sheds his blood with me
Shall be my brother; be he ne'er so vile,
This day shall gentle his condition:
And gentlemen in England now a-bed
Shall think themselves accursed they were not here,
And hold their manhoods cheap whiles any speaks
That fought with us upon Saint Crispin's day.
thus engendering
hope and confidence that reached a point that
allowed the British Army, outnumbered 5:1, to defeat
the French Army in the Battle of Agincourt.
We need a locker
room speech now that is even better than King
Henry’s, because President Obama is not just
addressing an army going into battle. He is
addressing a nation that is losing hope, confidence
and a sense of control.
Mr. Obama will find
the magical words, he will paint the future that is
within our reach so well that we can taste it, feel
it, smell it, and then follow up with action that
will yield quick results. It will happen if and
when we believe him, when we act on that belief, and
when we realize that WE are the only ones who can do
it.
Believing is seeing.
But real recovery is doing.
What can you do to
add more value? Good — now do it! Invent a new and
better way of doing your work. Start a new
business. Find a way to educate yourself. Learn
how new technology can help you perform better, and
produce at less expense than you did before. See
what everybody sees, yet think what no
one else thinks. That’s when innovation springs into
view — there is sudden recognition of how something
can be done much better. It is such insights over
the millennia that have made this a better world.
Be optimistic— that
is not only helpful to others (psychology works!),
but will make you healthier and happier, and open up
new doors and new opportunities for you.
The downward spiral
will not stop until we all change what we do. So,
change! Set an ambitious goal. Stick with it until
it becomes a habit (5 weeks). Everyone can add 10%
more value every year. In 2016, that 10% value
added habit will have created a GDP twice as large
as the one we enjoy today. If we so choose, we can
retire our entire national debt in that year and
still be as rich as if there had been no recession.
We will have
reversed that downward spiral. And we will have done
it together.
[*] Collateralized Debt
Obligation
|
