Saturday, March 28, 2009

Happy happy joy joy

There continues to be a prevailing attitude that a lot of our problems are simply the result of pervasive pessimism, that, if we could just perk up and feel good about what's going on, we would see a resurgence of financial strength and national pride. The media comes in for particular criticism here; they insist on talking about layoffs and unemployment and housing prices and dead 401(k)s, and they bring everyone down, and that creates a vicious cycle that makes things even worse.

Rob Horning discussed this in an item that ran about a month ago, where he parses an op-ed by Robert Shiller that replicates the idea of his book (with George Akerlof), Animal Spirits (which has given us one of the more blogged phrases of the past month), that "the Depression narrative could easily end up as a self-fulfilling prophecy." Horning:
If people invest, or spend, not out of strict need or want, but in accordance with how they feel about wanting, then the implication is that the media owes society some happy talk about the economy to keep up the “animal spirits”—Keynes’s term for the irreducible ambition that drives entrepreneurs regardless of their probability of success.
Akerlof has gone so far as to argue that government's role is one of countercyclical confidence: that it cut down people's confidence when times are good, and pump us up when times are bad. Horning quotes Will Wilkinson, who is not very pleased with this reasoning:
I’m extremely suspicious of what strike me as intellectually contentious, ad hoc interventions into the economy aimed at expectation management. Countercyclical economic mood-control initiatives seem to me inconsistent with the maintenance of a general framework of stable rules — that is, they don’t take the importance of expectations seriously enough — while also smacking of illiberal state propaganda.
A skeptical Horning concludes:
Delusional thinking about credit risk got us into this mess, so now the only thing to get us out is more widespread and more doggedly institutionalized delusional thinking? All right then! Not sure how this would help the “trust” and “faith in the system” components of animal spirits, but oh, well. Maybe if we perfect the dissemination of these delusions, we’ll be free at last from those ultimately irrelevant real economic conditions, and the state can just drop in to tell us what condition our animal spirits should be in.
I liken the Shiller-Akerlof attitude to our mental model of how football works. Conditioned by years of "Win one for the Gipper" and "Do you believe in miracles?," Americans have come to believe that any situation can be overcome by the right frame of mind and simply "wanting it more." All the economy needs to come back strong is the right halftime speech, and we will all be inspired to do anything necessary for success.

This seems compelling until we think about it for, say, 15 seconds or so. A football team made up of 160-pounders can be as inspired as we want, but, barring massive injections of PCP, is going to be crushed by the 300-pound linemen of a major college or pro team. No amount of "animal spirits" is going to change the reality that facts are facts. If you've lost your job, confidence doesn't permit you to believe you still have one.

Anyone who's worked in business for a while has seen an example or two of the person who brings very little competence, but a whole mess of confidence. Enthusiasm is confused with ability; that's possibly the result of management's own experience, that projection of a certain image can bring real results, whether in sales or the conference room.

But that should have nothing to do with hiring a programmer or an accountant, jobs where skills actually matter. You can trump up a theory that a positive attitude helps any team, and that may be true in the short run, but, eventually, management's regard for someone who can't actually do anything but be peppy corrodes the team.

The same is true of the economy as a whole. To say that everything's fine, just ignore those pesky media reports or the for sale signs, is to brand yourself as a nincompoop. It's possible to project long-term optimism while being realistic about today; that's something, I think, that Obama has done quite well (though I personally still find his outlook overly rosy). Irrational optimism, optimism that is at odds with actual on-the-ground, is foolish, and the purveyor of such ideas should not be listened to.

1 comment:

Citizen Carrie said...

That whole business recently about NBC deciding to report more positive news due to viewer demand left me cold. NBC was reporting the news it should have reporting for the last five years. The whole thing smacked of a publicity stunt.

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