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Portfolio > Economy & Markets

How Soon We Forget

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Former Senator Phil Gramm recently shook up the political landscape when he said, in effect, that Americans are a bunch of “whiners” when it comes to economics.

While the statement may have been tactless and most certainly politically incorrect, defenders of Gramm argue that he did have a point. Perhaps so, but I don’t believe it is that we are whiners; rather, we are victims of economic overkill by a media obsessed with focusing on bad news. Sadly, this overemphasis on bad news more often than not is pursuant to a political agenda.

Politicians using scare tactics to drum up votes also add to this victimization. It is not very likely that you will hear someone running for office, especially Congress, who does not allege that everything is in a mess and he or she will clean things up if elected. Young people, in particular, are affected by this kind of rhetoric because they have not heard it before, like those of us who have been around a long time and have heard it many times.

How soon we forget how things were when the economy was really bad. This was brought home to me a few weeks ago when the History International Channel ran a two-hour program on the life of President Franklin Roosevelt. While the program was primarily about the personal life of FDR, it did spend considerable time on the two great crises he had to deal with as president–the Great Depression and World War II.

The program was meaningful to me because I lived through both of those crises and felt the hardship first hand. Most people alive today were not living during either of these events and have no basis to compare that experience with today’s happenings.

I have vivid recollections of what it was like when the unemployment rate was officially at 25%. We now know that the actual rate was much higher because when WWII started, millions came off of farms to join the military or work in defense plants-and farm production increased. There were unemployed and underemployed. I remember the long lines at soup kitchens feeding the hungry and people selling apples on the street to eke out a living.

I saw some long lines on TV a couple nights ago. One was a line waiting to be the first to buy Apple’s new iPhone for about $300 a pop–the modern day “apple merchant.” A few days later another long line appeared on TV–people waiting in line for up to 18 hours. Waiting for food? Nope. Waiting instead to be among the first to view the new Batman movie, “The Dark Knight.” Wow, an 18-hour wait to watch a movie–now that is something to really whine about.

Today, unemployment has increased from 5% to 5.5%–still very close to full employment–but that is not the way it is usually characterized. It is important to recognize that our economy is subject to a natural cycle. At times it expands and at other times it contracts, as natural as breathing in and out. The purpose of fiscal and monetary policy is to flatten the cycle as much as possible, limiting expansion to head off inflation and reducing contraction to avoid a recession. Psychology also plays an important role, especially as it affects consumers, who are the principal driving force in the economy!

FDR understood this when he uttered his famous line, “We have nothing to fear but fear itself.” Encouraging words to hear in the midst of the Great Depression. President Eisenhower, when faced with a downturn in the economy also came on the air urging consumers not to curtail spending. Consumers responded and the economy rebounded.

A recent event illustrates, I believe, how psychology can play an important role in consumer behavior and its effect on the economy. The Wall Street Journal recently reported that an important senator leaked negative information about a major bank. The result was a run on the bank by depositors forcing a government takeover, which it is estimated will cost the taxpayers between $4 billion and $8 billion. The Office of Thrift Supervision credited the “run” on the bank with its collapse. Upsetting consumers or depositors with overkill is dangerous business and responsible parties should know better.

Ruben Navarrette, columnist and editorial board member for the San Diego Union-Tribune, in a July 16 column defends Phil Gramm’s remarks as a message we need to heed. He agrees that much of our economic gloom is “self-inflicted” and that we are not in a recession as some allege. I am not as convinced that the gloom is self-inflicted as I am that it is deliberately inflicted by people pursuing a political agenda in pursuit of power.

Nothing that I have written in the foregoing should suggest that while the nation may not be in recession, individuals may indeed be experiencing recession or even depression. To people who have lost their job or are facing foreclosure on their home, depression is real. What they need is help–not more bad-mouthing that only exacerbates the gloom and makes it harder to recover.

Individual problems are important but should not be viewed in the same context as of those of a nation. Or as Joe Louis put it after losing most of the money he made as a boxing great, “I went bust in the boom.”


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