Kind of a chicken and egg thing
If you’re like me and you read some of the paper, watch a little TV news and visit a couple of online news outlets every day, you’re probably thinking that we’re all doomed. Everything seems to be going to hell, and quickly. “How can it be THIS bad?” I ask myself often these days. I’m not in denial, I know it’s bad. After all, we are in a recession (and if you hadn’t already realized we were in one, maybe say, because you were in a deep-sea submersible since last winter, a bunch of economists officially told us so a couple of weeks ago. Whew…am I glad they did!) This is my third such event since I started scratching out a living on my own. Based on this vast experience I could tell, evidently before the economists could, that this was definitely one of them, and a bad one at that. But again, how can it be THIS bad? — as bad as I read, hear and see in the media everyday?
With this on my mind pretty much all the time, I was very happy to read an article by David Carr of the New York Times, Stoking Fear Everywhere You Look (December 7th). Here’s the link to the piece. The article was posted on Facebook by my friend and talented professional colleague Tim King (Tim’s own blog can be found here). Carr writes that to a much greater extent than in earlier downturns, we’re inundated with media that allow the doomsday messages to be delivered to our eyes and ears much faster and in many more places. The speed and furiousness of those messages is too much for us and it becomes hard for us to make sense of it all. So we get confused, get panicky and then fall in line and start, in fact, acting like there’s a recession. We buy less, pull our money from the markets, and hide under our desks like they taught my father to do in elementary school after Pearl Harbor (you know, in case the Japanese Navy decided that Springfield, Massachusetts should be their next target). A self-fulfilling prophecy if there has ever been one.
By the way, and not incidentally, I blogged about this very issue a few months ago and suggested that no one panic as the financial markets were collapsing around us. Clearly none of the million (or so) readers of this blog took my direction!! It seems we have all indeed panicked. Here’s the post if anyone wants another chance to comply.
So what came first, a real recession or the reporting of such? Carr, who covers the media business and certainly has an informed perspective on the issue, connects the depths of this recession to the media’s coverage of it to date. After digesting the article I sent the link (again via Facebook) to Eric Blom, a journalist and business editor of the Portland Press Herald, our daily newspaper here in Southern Maine. In my message I asked him what his thoughts were on the issue. Please note: he and I have no professional relationship and he did not respond to me in his capacity as an editor of the paper; rather, as a smart citizen who has something to say about it. I know Eric by reputation and have met him once casually. And as I mentioned we are Facebook “friends”. Eric responded with his own informed, thoughtful and well-written take on this “chicken and egg” question. His entire response is below. I know I’m asking everyone to do a lot of reading here, but reading is good for you (that’s what I tell my kids). I’m interested in your own thoughts on the matter.
-Dave Goldberg
Hi David,
Thank you for sharing that interesting article. It really did spark a lot of thoughts for me, about the changing communications landscape, the role of consumer psychology in the economy and the history of financial downturns.
My conclusion would be different, though, than the one the author arrived upon. To me, modern communications – the proliferation of media, social networking, 24-hour commentary, etc. – is doing one thing: Ripping the Band-Aid of financial recovery off faster than in the past.
Economic problems don’t start because of the public psychology. They have their roots in some real-world problem. A famine. A war. Or, more commonly, greed coming home to roost.
The Dutch tulip bulb craze kicked off an economic decline because, at bottom, tulip bulbs don’t intrinsically have the value that people put on them as an investment. (In February 1637, tulip contracts sold for more than 20 times the annual income of a skilled craftsman.)
Florida real estate speculation, rampant purchasing of stocks on margin and other foolish financial practices kicked off the Great Depression.
And, more recently, the pouring of money into loans that people couldn’t possibly afford caused an explosion in real estate values that couldn’t possibly be sustained. People defaulted, prices declined and we were off to the races.
Of course, the idea that mass psychology drives markets and economies is widespread and has some truth to it. Consumer spending is two thirds of our economy. And people can act irrationally as individuals and as a mob, to the detriment of the collective population and themselves, when frightened.
My dad, for example, sold off all his stock after the Black Monday market collapse. The market recovered within the year, but he’d lost a large fraction of his nest egg.
People used to call sudden economic crises “panics,” as in the Panic of 1893 or 1907. FDR warned us that the only thing to fear is fear itself. People call me every day to say we shouldn’t run stories about how bad the economy is doing because that’s causing (or at least making worse) the situation.
I disagree.
I am aware that when I assign a story, it creates buzz about something, magnified many times: the radio reads from the paper in the morning, the television produces their own version of the story that evening, the wire picks it up, other newspapers pick up on the idea, people tweet about it with friends and share their concern with others via Facebook, IM, texting and conversation over lunch.
But if you look back at history, the thing that really fueled fear and bad decision-making was a lack of information. People didn’t know what was going on or how the system worked. So they really hunkered down.
Recessions of 5, 6 or 7 years were common. We had one in the late 1800s that lasted 23 years. The Great Depression lasted 10.
People weren’t wired back then. People weren’t being bombarded with the bad economic news. In fact, the hot media of the day – newspapers – were often boosterish, actively trying to put a good face on the news because their publishers felt that would help their local economies grow.
Think of the character Jimmy Stewart played in It’s a Wonderful Life. George Bailey has to try to explain the banking system to a crowd of his neighbors making a run on the savings and loan.
Now that everybody has telephones, television sets, radios, Blackberries and the Internet, recessions have been lasting a year or two.
It hurts emotionally to hear about all the problems that exist. People do hunker down, and that slows consumer spending and business investment in the short term.
But it also gives people the motivation to act to correct deficiencies in public policy, stimulate the economy and to find ways to innovate and be entrepreneurial in their own lives.
The constant hand wringing and chatter, as bad as it feels, rips the Band-Aid of recovery off far more quickly than if we still lived in an age when it took months to get a letter from one part of the world to another.
Thank you again for the article and the chance to share my two cents.
I hope you are well and enjoying the holiday season.
Best wishes,
Eric