The mid-term elections are over. The endless, loud, bitter, accusatory political ads, commercials, and speeches will come to an end. By itself that change will be a relief.
Hopefully, the election being over will also end the perceived need for both sides to tear each other apart, to so severely divide the country, which has had such a serious effect on consumer and business confidence.
Now we need some positive talk from both sides that will instill some degree of hope and confidence in depressed consumers and businesses.
Both political parties will now own the economy and be responsible for what happens to it. While gridlock will be the condition over the next two years, and nothing dramatic will be accomplished by either side, both parties will need cooperation and compromise to advance any of their proposals at all.
That should lead to calmer rhetoric and attempts to work together, and hopefully a more positive tone as to what can be done. And that could be the biggest positive effect on the economy over the next two years.
After the last presidential elections and before the new Administration was sworn in, the doom and gloom speeches and accusations that took place during the election campaign, continued. The Bush Administration had already provided a massive $700 billion stimulus package in 2008, and the Obama Administration wanted to muster public support for another $700 billion package. To muster that public support, the White House, Treasury Secretary, and Fed Chairman Bernanke constantly bombarded the nation with speeches, and testimony before Congress, about how terrible things were, with the economy teetering on the brink of a depression, and the stock market in a serious bear market since its 2007 top.
I wrote several pieces at the time about the need for the government’s stimulus efforts to be supplemented by efforts to instill some degree of confidence and hope in severely depressed consumers, investors, and businesses.
I was bombarded with ridicule, the theme being “Sure, Sy, we can just hope the economy will recover and it will.”
I was thinking in terms of President Reagan’s strategy upon inheriting the similar economic collapse of the 1970′s. He provided financial stimulus, including huge increases in defence spending, launching the costly but never completed ‘Star Wars’ anti-missile system, etc., but created jobs. He augmented the spending with a reversal of President Carter’s gloomy “A malaise has descended upon the country”, with upbeat assurances about the greatness of America, and how the country would soon begin to pull out of the seemingly impossible mess. Similarly President Bush provided a large stimulus package after the terrorist attacks in 2001, and supplemented it with confidence-building speeches about how Americans should get out of their terrorist-inspired fear modes and spend, “to show these terrorists who would tear down our economic system that they won’t succeed.”
Both times the ‘jaw-boning’ was as important as the financial stimulus in lifting the confidence and determination of consumers and investors.
And sure enough, once the Obama Administration had the support of the public, and Congress passed the stimulus plans, the speeches and testimony of the President, Treasury Secretary, and Fed Chairman, changed to upbeat assessments and forecasts that the economy would begin turning back up. And I believe that once again the positive rhetoric played a large part in consumer and investor confidence turning up and bringing the end of the bear market in March of last year, as the market anticipated the end of the long recession (which took place in the third quarter of last year).
Now that the mid-term elections are over, the time has come for both parties to similarly halt the destructive rhetoric and provide hope and confidence to the country that they can work together and keep the economy in recovery mode.
Psychology is as important as actions in raising confidence levels.
It’s been proven before.
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