Two enduring concepts have crept into my thinking in the last few weeks, as the economy continues to lurch about with no apparent direction and no visibility into what the future may hold.
The first concept comes from an absolutely brilliant movie about racism in France, La Haine. The movie features a memorable “joke” that serves as a metaphor for the social/political strife that inflames the 1995 movie, which quite neatly predicted the riots in suburban France ten years later. A man has jumped from a building, and as he is descending towards certain death, he keep repeating, despite his eventual doom, the optimists’ mantra “so far, so good, so far, so good.”
The second thought swirling about my brain is another mantra, this one taken from a more genuinely optimistic venue: the twelve-step programs that dominate rehabilitation therapy in the U.S. (Full disclosure, I have no personal experience in a twelve-step program, though I have been on the receiving end of step nine a little more than I would like.) That mantra is this: One day at a time.
Taken together, the two mantras have come to symbolize where I stand in the current economic crisis, and where I think a lot of our economy stands. On the one hand, we know we are in a free fall, though, for many of us, we haven’t crashed through to the bottom floor, yet. So far so good. And, simultaneously, each day I take stock of my business, my clients’ business, and the market in general and, instead of panicking, I direct myself towards looking for what needs to be done today to make all of us better off than we were yesterday (Hint: it usually involves leaving the market tickers alone and getting back to work.) With that comes the serenity that enforced myopia affords us. One day at a time.
What is interesting about my attempts at living with the prospect of imminent collapse is how much the psychology of the moment rules our perceptions much more than reality. With the benefit of 20/20 hindsight, it’s clear that we’ve been on the verge of a financial disaster for years, pretty much the last decade as far as I can see. Bubble economies really got started in the late 1990s, with Y2K begetting the dotcom bubble in our industry, while easy credit, deregulation, and the “greed is good” mentality continued frothing up bubbles across the financial sector until the credit markets began to collapse in mid-2007. And then the shit really hit the fan.
What this means is that while we’ve been living on the edge of a disaster for a number of years, we’ve only just now began to act as though this disaster could result in our personal destruction. In other words, the bliss of ignorance kept us spending and planning despite the possibility of imminent collapse. As long as we didn’t worry about a collapse, to a large extent we were able to avoid one. But once we actually popped our head out of the sand, we found ourselves panicking at the awful reality that uncertainty brings.
This panic reaction reminds me very much of the difference between my wife’s world view and my own. My wife is a cancer survivor, and, among other things, runs a support group for young adults with cancer. Many people in her support group have horrible prognoses, so in her world, every day is a gift, and the prospect of an untimely death is simply a recognition of a reality that is infinitely easier to accept than it is to fight. We are all going to die, and most of us will probably think it’s going happen too soon – so rather than fight that fight, how about taking a walk, or watching a movie, or playing with the kids. Focusing on the inevitable awfulness of reality doesn’t do much more than fuel a panic reaction that, if taken to its extreme, would keep us all in bed under the covers for the rest of our lives.
How does this tie into the current economic crisis? On the one hand, there are people for whom the current economic disaster is truly a disaster: millions are unemployed, their houses “under water”, their prospects grim. For them, I have no glib nostrum to paper over their genuine suffering.
But for the rest of us, and we are still the vast majority, so far so good. We have jobs, houses, income, savings, and the prospect of a bright future. When we succeed in tuning out the rising panic of external reality, things today aren’t that different than they were two years ago, even as we ignorantly assumed everything was fine despite the pending doom.
What will fuel a recovery, more than anything, is a return to a more realistic, if not optimistic, perception of our economy that includes an understanding, and embracing, of its fragility as much as its potential. Much of the problem with bubbles is not that they are risky, but that the risk is misunderstood or fraudulently represented. Risk is good, and we should take plenty of it. And we should protect ourselves against the consequences of that risk, so that there is room for failure – failure being as much if not more the norm in human endeavor than success – without causing the collapse of the world as we know it.
Some of this risk mitigation can be accomplished by technology – in case you were wondering where the tie-in to the usual topic of this blog might be – and some of this risk mitigation is more societal: my counterparts in Europe, with their guaranteed pensions and universal healthcare, are infinitely less panicked about the state of the global economy than my friends here, who are one paycheck from living in the street and looking suicidally at their 201(k) or 101(k) pension plans, if they even have one left to look at.
I believe our recovery will start only when there is recognition that there is a safety zone in our economy where those of us still blessed with resources can act like consumers of old without fear that some other unknown disaster will soon wipe us out (again.) That safety zone has to come in part from regulation (the credit markets, hedge funds, etc.), and in part from legislation (health care reform, jobs stimulus programs, more equitable taxation). That’s why I believe in the necessity of rescuing the automotive industry – and its workers. Our national safety zone has to take into account the symbolic resources of the country as much as the more tangible – and perhaps fungible ones – that we might think are more worthy of rescue. If GM and Chrysler can outright fail, so can anyone and anything, and if that’s how we set the stage for recovery, we’ll have created a psychological barrier that will be hugely difficult to overcome.
How long will this recovery take? Here’s where I really go out on a limb: A return to a safer, more stable psychology in the economy could engender a recovery almost as breathtakingly fast as the downturn. Poor John McCain was actually right when he said, in the midst of bungling his response to the financial crisis, that our economy is fundamentally sound. It still is, despite its current state of hibernation. We are still a consumer society, a consumption society, and one that doesn’t like to miss a sale or pass up a cool new innovation. We can and will be tempted again, once it’s safe to come out of our shells. If we solve the fear factor, the recovery will happen, slowly but surely.
One day at a time.