Photo: Courtesy of HBO
On Wall Street (the free part, not the occupied territory) they talk about “animal spirits.” Economists measure consumer and business confidence. Politicians track approval ratings like batting averages. Business schools teach entrepreneurship alongside marketing, finance and accounting.These are all aspects of our national mojo – the seemingly innate American confidence that notwithstanding today’s problems, tomorrow will be better if we work hard enough to make it so.
Our mojo has taken a big hit lately. We ought to ask ourselves why – and, more importantly, what we can do to get it back.
Let’s start with a few obvious explanations for its decline, on the theory that being obvious does not automatically make them wrong – though it doesn’t make them completely right, either. This is a big, complicated country. Anything as large as the national spirit is going to be the product of a lot of factors.
But we can be confident that the crash in housing and stock prices that began a few years ago has played a major role in undermining our self-assurance. Economists Karl Case, Robert Shiller and John Quigley used the dramatic decline in housing prices to update an earlier study about the “wealth effect” that encourages consumers to spend money when their net worth increases. As reported in a recent New York Times article, the economists, unsurprisingly, found that there also is a negative wealth effect; consumers pull back on spending when asset values drop. Also, less intuitively, the negative effect is bigger for a drop in home values than a drop in stock portfolios.
So the sharp drop in home values has a lot to do with the economy’s slow rebound, because it makes a lot of people feel poorer, even if their disposable income, which comes mainly from paychecks rather than houses, has not changed.
We might speculate that there is another psychological component at work. A lot of people who bought property during the recent boom thought they were savvy investors, only to discover that they had fallen into a trap long familiar to stock traders. That trap is summed up in the phrase, “never confuse brains with a bull market.” I suspect people feel not only poorer thanks to the housing crash, but less sure of their own financial acumen. (A decent level of humility is a good thing in the long run, but it does not make for a fast recovery from a market crash.)
Then there is the sense that we are not making progress on the day’s major economic and social issues. Unemployment lingers at painfully high levels. The federal government relentlessly spends $100 billion more than it takes in every month, a total annual deficit – and addition to the national debt – of more than $1.3 trillion, which has held that dreadful pace for three years running. Health care remains a flashpoint as insurance costs continue to climb for families and businesses. Students and their families are burdened with debt that may take a lifetime to repay, with little chance for relief even in bankruptcy. A quarter-century of arguing over immigration law has produced no solutions.
A lot of people across the political spectrum feel alienated and angry. So what do we do about it?
For starters, let’s recognise that we have been in straits this dire – and worse – in the past. Think this country is polarised now? Consider the Civil War, or the protests of the 1960s. Today’s politics are a love fest by comparison.
Think we’ve lost our national will? We’ve waged a 10-year war on terrorists and their sponsors, and they have had a far worse year than we did. We have waged this struggle through Republican and Democratic administrations. For contrast, consider the beginning of the 1940s. After a decade of Depression, this country stood frozen while Nazis invaded Poland, captured Paris and blitzed London. Only the Japanese attack on Pearl Harbor mustered the national will to resist a world where tyrants slaughtered millions of innocents.
Sometimes a nice winnable little war provides a helpful morale boost. President Reagan helped banish the national malaise over Vietnam by invading the tiny Caribbean island of Grenada in 1983. I’m not advocating another invasion, especially since we have plenty of military action these days anyway. But that dreary North American winter is almost upon us. Just making an observation.
More usefully, Reagan found ways to work with Congress to change tax policy, unshackle business and put reasonably long-term fixes in place on immigration and Social Security. His budget deficits soared, but they pale in comparison to ours. And his policy changes gave business executives something they could plan with and count on. Nowadays, tax laws and Social Security changes expire faster than unpasteurized milk. Nobody can count on anything.
If we want to shake the national malaise, we have to confront our problems rather than continue our recent game of “extend and pretend” that things are going to get better on their own. We can’t fix everything overnight, but we can start. Things have to stop getting worse before they can get better.
What if we can’t agree on how to fix things? Well, that’s why we have elections. We’ll have one next year, and I suspect that one way or another, it’s going to produce enough of a mandate to allow things to move forward. I won’t like the direction that everything moves, and neither will you. But after the stagnation of the last few years, it will be progress.
I suppose that is what it takes for a country to rediscover its mojo. We never arrive at a perfect future, but our history has been that we do arrive, if sometimes haltingly, at a better one.
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