February 10, 2009

Like all Americans, I wish you the very best of outcomes as you create strategies and programs to solve the economic crises which define our country at this moment.

In that light I would like to suggest that an understanding of psychology might be at least as important as a mastery of economic theory.  The basic assumption in economics that self-interest creates a market that is rational and based on facts is, to put it politely, absurd.  People’s decisions and goals about money, status, power, success and failure…are driven by very strong feelings of greed or fear, compassion or envy.  On these issues feelings far outweigh facts.

I am not minimizing today’s very real financial pain when I say Right now, psychology matters more than economics.  People’s fear of worse-to-come outweighs any stimulus check or tax benefit or make-work projects in terms of what people will do.

Most decisions are really based on emotions.  Facts, logic and reason usually come into play only after emotional certainty determines the choices made.  Right now the driving emotions are a poisonous combination of anxiety about the future, specific fears of further personal financial catastrophes, and depression about economic losses which have already occurred. 

A stimulus package is intended to increase the number of jobs by encouraging institutions, especially corporations to invest in their future and by getting people to spend money.  Thus far, the major arguments have been about how large the fiscal stimulus package needs to be to get the desired changes in the behaviors of consumers and corporations. 

It is worthwhile to take note of what happened to the last stimulus package which took the form of checks sent to individuals.  Did those who received the money go out and splurge?  No, they didn’t.  The great majority either paid off credit card debt or banked the money.  People’s wallets are zipped shut and they won’t be opened until there’s a widespread feeling that there’s reason for optimism and things are getting better.  Why did these previously free-spending consumers save and not spend?  The answer is the world is very scary right now and the future scarier still.  So having even a little less debt or a little more cash makes people feel a bit safer from catastrophe.

In other words, Mr. President, and with all due respect, if we understand the depth of most people’s fears we also know why a stimulus package in the midst of widespread pessimism is very unlikely to change organizations’ or individuals’ inclinations away from saving and into spending.

Our culture is dominated by media in myriad forms all of which are united by their focus on bad news.  A case in point is last week’s local elections in Iraq in which the vote was peaceful and Iraq’s security forces were effective.  Early returns seem to indicate a victory for Prime Minister Nouri-al-Maliki’s coalition and for other secular parties.  From an apparent debacle and sink hole two years ago, Iraq has become a model for other Arab states that democracy and an inclusive pluralistic form of government is possible.

The big news, Mr. President, is these great results received almost no media coverage.

In a simple and simplified example, headlines are screaming, Unemployment is Soaring to 10 Percent!  The unstated other half of this message of doom is that 10 percent unemployed also means 90 percent are employed.  That balanced viewpoint rarely gets visible.

Similarly, massive downsizing dominates media reports about business.  What did we read in the San Diego Union Tribune on February 6th? 

• Retail sales were down for the 4th straight month in January.
• Factory orders dropped for the 5th straight month in December.
• Jobless claims in January hit a 25 year high.

Good news about businesses and industries are scarcer than hen’s teeth.  But at the same time Fortune magazine’s issue of February 2, 2009 reported that of “The 100 Best Companies To Work For,” 78 are hiring and have at least 50 open positions, even after downsizing. 

Where are the eager reporters with any good news?

The bias of the media toward reporting bleak conditions and awful outcomes inevitably reinforce pessimism and a sense of hopelessness. 

The stimulus package Americans need most is an infusion of confidence in ourselves, and in the basic strength of our diverse economy, and in our institutions of governance and their commitment to the greater good.  We need a reinstatement of our belief that we and our institutions are moral, strong and effective.  We need to be reminded that there are basic reasons why much of the time in our history, we have endured, flourished and led.  As Peggy Noonan reminded us in a Wall Street Journal column on December 20-21, 2008, we are the largest, wealthiest and most technologically advanced economy in the world; we are also the oldest operating democracy in the world and we are governed by a constitution that gives us both stability and the capacity to change.  And we are blessed with people and ideas from everywhere which continuously enriches our ability to see things differently and create innovation.

We also need to remember that we hold certain values as bedrock:  we believe in the rule of law and equal opportunities.  We hold fast to individual liberty and freedom of speech, thought and religion.  We believe in a meritocracy in which everyone earns their status and a failure is just the precursor to try again.  We respect what is old but we don’t revere it.  We’re much more interested in creating a better future than in idolizing a past.

Today’s problems reflect ugly qualities of selfishness, greed, and a loss of commitment to the greater good.  During boom times these motives tend to eclipse American’s higher values.  But busts always follow booms and it is within the phase of busts and crises that we roll up our sleeves and return to those values that are the basis of the American Dream and our generally upbeat, optimistic view.  That’s where we are now and we need to remember and believe in our quintessential response which is, We can make it work!  Let’s go!  Count me in!