Remember the television program Lost in Space?
There was a robot that would usually at times of relative tranquility begin shouting “Danger, danger, danger.” On this optimistic bright-side blog, I feel like a terrible Cassandra. My apologies to Rich and my cheerful colleagues. I have kept silent while Obama has had an incredible bear rally, but it is time for some more “realistic” comments.
Today, the Pew Research Center shows that Americans are not becoming more populist, but rather are quite optimistic about the future. For most of you this is a good outcome. We, as Americans, dare I say in deference to Rich, North Americans believe optimism is good. What could possibly be wrong here?
My concern is that this optimism and the Obama Administration-sponsored talks of “green shoots” in the economy is lulling Americans to sleep regarding the extraordinary seriousness of the economic crisis we are facing. Already, concerns regarding controlling executive pay at the banks, letting shareholders and lenders suffer from the business decisions they made to invest, and general moral hazard arguments have been forgotten even though the miscreants have received tens of billions of government funds through a myriad of programs, bailouts, and other mechanisms. This will come back to haunt us as the world economy takes another leg downward in the months to come.
This second leg downward, as the entire U.S. including California basically declare bankruptcy, will finally wipe crackpot optimism off the faces of Americans. It is only then that we will be able to become realistic about the circumstances that we face and begin the grim task of reregulating, rethinking the role of finance, and rebuilding our economy.
Rich has always and correctly warned of the problem with the “squelchers.” However, today in this economy full of crackpot optimists, Cassandras are an important social asset, if they can prevent suicide by the delusional. To put a point on it, when the robot warns of danger, foolish optimism is not a survival response.
How do you folks see the current economic conjuncture?
May 22nd, 2009 at 9:46 am
I find it very interesting that given all the fireworks over Phil Gramm’s “mental recession” comment last summer, the Administration seems perfectly comfortable touting a “mental recovery” as the solution to our problem.
As you note, if you look at the “confidence” campaign that has been building over last few months, from FASB accounting tricks, to bank’s miraculous Q1 profits, to “green shoots” and the phony stress tests that no bank was allowed to fail, people really seem to believe they can talk their way out of this, and as long as the “American consumer” can be persuaded to return to credit-fueled gluttony the entire problem will just go away. There really seems to be a belief that we can just re-inflate the bubble. There is a rare confluence of self-interests in this regard – Wall Street wants the bubble to come back, Washington wants the bubble to come back, and Main Street wants the bubble to come back. Good luck.
Despite a chorus (which includes, unfortunately, both respected economists and guns-and-gold-hoarding crackpots) of voices still warning of impending armageddon brought on by the collapse of the dollar, nobody seems to be taking notice.
May 22nd, 2009 at 1:19 pm
I don’t know if I agree with this or not, it’s beyond my level of knowledge. But wanted to point out the legend of Cassandra, who was blessed with the ability to predict the future and cursed so that nobody would believe her warnings.
Robots and gun/gold nuts gather over there with Krugman, Siglitz and Kenney.
May 22nd, 2009 at 1:43 pm
Thanks to both of you for your comments.
Michael,
I agree on Cassandra. I find it offensive that you are labelling me a “gun/gold” nut. Debate and discussion of serious issues is not helped by this kind of ad hominem attack, but I am surprised that you believe it is.
I would put it this way, we will see what the actual outcome in the real world is. When I look at the economic statistics, I am frightened. It is good that you, like the average Americans, is not.
As an aside, I do not believe in gold as an investment during most periods. However, my recent massive move into gold, mimicking the Chinese government’s large move into gold, because of the policies of the Bush and Obama Administrations has been amply rewarded.
I have never owned a gun nor have any interest in them.
Thank you for helping me to understand you.
May 22nd, 2009 at 1:53 pm
Michael,
You just reinforced what I already thought of you. Funny thing about guns and gold – you don’t know how bad you need them – ’till you need them.
I’ll let you get back to your blind worship of THE ONE.
May 22nd, 2009 at 2:05 pm
The US economy is in need of massive structural reform. Rich’s “Great Reset” is likely underway, but I don’t think it will reach the tipping point — or really get established — in this market cycle, but instead in the next one.
I think you’re right that there are efforts to boost American consumer confidence to try to get out of this recession the same way as America escaped the last two downturns of 1991 and 2001 — through consumer spending.
It will work temporarily, but quickly the economy will collapse again and only then will enough Americans believe that substantial change is required that it will be possible for politicians to implement the necessary legislation.
May 22nd, 2009 at 4:41 pm
APOLOGIES. I was playing off of Rockfish’s “respected economists and guns-and-gold-hoarding crackpots” comment and didn’t mean to label anyone, certainly not Martin who I strongly respect, in that camp. Meant Martin in the respected economists category. Bad attempt at a joke. Rockfish was describing Cassendra’s dilemma for the two groups in his last sentence, which prompted my comment.
My best friend and running buddy has been heavily into gold for over a year and I hold no opinions on its value as an investment. I’m too naive and conservative to have jumped the index fund boat myself.
I grew up a country boy in a hunting family and have no quarrel with guns per se. either.
May 22nd, 2009 at 4:48 pm
Michael,
Sorry for jumping the gun.
Around my university most people, until the last month, have thought I was a foolish negativist, now that every single prediction has come through absolutely on the money, they are believing me.
So I am used to being pooh-poohed and over reacted.
Sorry. A lot of work will be needed to understand what went wrong.
Martin
May 22nd, 2009 at 4:55 pm
I was probably unclear, trying to be funny. Jim H, whatever our disagreements, also though I was labeling rather than quoting. You’re better off with your colleagues than Cassandra, who was never believed.
Here’s the story from Wikipedia:
In Greek mythology, Cassandra (Greek: Κασσάνδρα, “she who entangles men” also known as Alexandra) was the daughter of King Priam and Queen Hecuba of Troy. Her beauty caused Apollo to grant her the gift of prophecy. However, when she did not return his love, Apollo placed a curse on her so that no one would ever believe her predictions.