Although President Obama is trying his hardest to help our struggling economy, he is looking for advice from the wrong experts. Like most people, he is thinking, this is an economic problem so lets ask the economists. But this isn't a problem about money, its about dealing with human emotion and right now those emotions are fear and confidence.
Companies are scared of the recession and are laying off employees. The people who still have jobs fear losing their jobs so they spend less money. Because consumers spend less, companies fears are validated, and so they lay off more people. And Banks don't trust anyone with their money. Its a vicious cycle and unless we can restore confidence, we won't get out of it soon.
It won't matter how much money we pump into the economy if at the end of the day people's confidence isn't restored. Many surveys show that lots of people don't think the economic stimulus package (800 + Billion$) will have any effect on the economy. And if they don't think it will, then it won't. Its kind of like a reverse placebo effect where you don't think a drug will help you get better, so it doesn't.
And the media doesn't help at all. They continuously tell us how bad it is and give us minute to minute updates on the total jobs lost. I admit, its bad, but all the media does is scare us and make a bad situation worse. All in the name of better ratings, they are willing to help us into the hole and cover us with dirt. Sadly, the only way to get the media to stop spreading mass economic chaos is to get them to focus on something else that would bring them bigger ratings. I don't even want to think about what that would be.
We need something that inspires confidence, trust and optimism. The current stimulus plan does just the opposite. Its too big. Happened to quick. Its highly debated. People already don't trust the government with money. And all the fighting in Washington between the two parties only makes it worse.
So how do we fix it? We approach this from a marketing point of view and re-brand the economy. We start from scratch, get rid of the old, throw out the stimulus package and work on developing strategies to gain consumer confidence. A good marketing plan will go further than all the money in the world.
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Hey Lj. Please don't take my response as deliberately confrontational. I hate unnecessary confrontation. You're a good friend and always have been. What I do like, though, is healthy discussion. That is the spirit of my response.
To understand why the economy is in crisis, we need to understand how we got here. And to do that, we need to unfortunately go to those who know most about this: the economists. The widely accepted reason for the crisis in the economy is "the collapse of the U.S. housing market and the resulting surge in mortgage loan defaults." (http://www.economy.com/mark-zandi/documents/House_Budget_Committee_01_27_09.pdf) (p. 2 para 4)
You said that the problem is not money, but about dealing with fear and confidence. There is much truth to the latter.
Forgive my quoting an economist, but he (they) have detailed the best rationale for our current situation, and while you might be hesitant to trust an economist, hear me out. :)
This is from Mark Zandi, chief economist and cofounder of Moody's Economy.com, given in a report before the House of Representatives Budget Committee on January 27:
"Any fiscal stimulus plan has to be about more than dollars and cents to be effective in lifting spirits and the economy, however. It must be passed quickly and explained well so that households and businesses are convinced it will work. Unless the plan helps dissipate the dark mood, it will not stem the economic downturn,” (p. 2 para 2).
You are spot on with the fact that consumer confidence and optimism is an integral part of remedying the current situation. Zandi further states, "The panic's most immediate fallout is the blow to confidence. Consumer confidence crashed in October to its lowest reading since the Conference Board began its survey more than 40 years ago . . . Current events have so soured sentiment that they are sure to have long-lasting effects," (p. 6). And finally something that hits on more personal level, "Nothing is more psychologically debilitating, even to those still employed, than watching unemployed friends and relatives lose their sources of support,” (p. 11 para 1)
So the understanding, acknowledgement, and discussion of consumer fear and confidence is integral to working our way out.
But while Mr. Zandi has thus far corroborated and agrees with what you have said is the biggest problem, he also claims that, "Only concerted, comprehensive and consistent government action will instill the confidence necessary to restore financial stability and restart economic growth," (p. 4 para 1) I think it only logical—considering that economic malfeasance is the principal arbiter of our current situation—that we, and the president, turn to economists to help us figure out how to get out of it.
Now, a few things about what you've said:
"The people who still have jobs fear losing their jobs so they spend less money." This is a non sequitur. I have a job and I fear losing my job, but neither of those facts has any bearing on whether or not I spend more or less, because the amount of what I spend has no direct effect on whether or not I keep my job, and I don't know of any job that is in jeopardy because of how the one holding it spends his/her money.
"Because consumers spend less, companies fears are validated, and so they lay off more people." My understanding of business procedures is limited at best but I don't think companies lay off employees out of fear. They lay them off because they can't afford to keep them, and not just because consumers aren't spending. The problem is that the money of the country (specifically credit here) is frozen. Many companies (including the one my parents previously owned) at times take out loans to pay their payroll. While they might not have the funds at the moment to pay their employees, they can take out a loan, ensure that they still have a workforce, and use that workforce to continue to bring in revenue, and thus be eventually able to pay off that loan. If the credit markets are frozen, this is not an option for companies, so in these types of instances (and this is one example), the company has no choice but to lay off people, not out of fear, but out of survival.
"Many surveys show that lots of people don't think the economic stimulus package . . . will have any effect on the economy." A couple things with this statement:
1) Of these "people" who don't think the economic stimulus package will have any effect, who among them are actually qualified to make such an assessment?
2) Unfortunately, those who, based on their opinion, don't think that the stimulus will have any effect on the economy are grossly uninformed.
I try to inform myself as much as possible with news and ideas from all sorts of sources, and I have heard from no one on any side that what is needed is no stimulus.
"If they don't think [the stimulus package] will work, then it won't."
I'm sorry, but I can't see how this is a mind over matter issue. By the same token, if I think that there's no problem with the country, does that mean there is none? Or perhaps even more appropriately (and personally), if I think that a certain medication will not work, does that mean it won't? I can tell you from sincere and difficult personal experience that just because one does not believe something will work does determine whether or not said "something" will actually do that. While there is something to be said for placebos, I don’t think they are applicable here. I am all for being as positive and confident as possible, but not to the point of ignorance.
I have to disagree with you that the media doesn't help at all. "They continue to tell us how bad it is." Yes, they do, and yes, it's bad. That's the reality. ". . . and give us minute to minute updates on the total jobs lost." I don't see this as not helping, I see it as informing. Is it negative information? Sure, but again, that's the reality and I don't think there is anything wrong with understanding the reality of a situation. In fact, I think it is paramount to making an educated assertion on situations. Can the media be biased and partisan? Of course, and to a large degree it is, but I don't think that telling us how bad it is and updating us on jobs lost is biased and/or partisan. It's simply reality.
"We need something that inspires confidence, trust, and optimism."
Yes. Exactly. That was a big part of the report to the budget committee.
"The current stimulus plan does just the opposite."
I'm sorry, but I don't see how this conclusion is reached. While the report agrees with the need to inspire confidence, trust, and optimism, it also states that, "Only concerted, comprehensive and consistent government action will instill the confidence necessary to restore financial stability and restart economic growth."
Finally, I don't see how viewing the economy differently, re-branding it, will fix it. Granted, I'm not in marketing and I don't know much about marketing. Being an educator myself, I would welcome being educated on the subject. Having said that, I think it makes sense to understand first how we got here so we know how to get out. Considering money is the lifeblood of the former, it would stand to reason that money is also the lifeblood of the latter, and it makes sense to me to listen to the experts in these matters: the economists.
I welcome any thoughts.
Information taken from:
http://www.economy.com/mark-zandi/documents/House_Budget_Committee_01_27_09.pdf
:)
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