Tuesday, December 22, 2009

Has America Lost Its Optimism?

Commentators, often on the op ed pages of more conservative publications (think the Wall Street Journal) are wont to say that America is losing its optimism. People no longer have hope for the future. They don't see how the country can recover from its current problems. Predictions are made for a permanent increase in unemployment levels and economic weakness.

This moodiness seems to spring from a sense of loss of control. As America grew and prospered, its citizens became powerless and dependent. The Industrial Revolution of the 19th Century fractured the extended family by pulling children to distant cities in search of jobs, often hundreds or even thousands of miles away from their parents and siblings. People became employees, usually paid enough to support themselves and perhaps their nuclear families. But they lost the means to self-sufficiency (i.e., ownership of farm land). Their continued prosperity depended on the success of the businesses for which they worked.

The financial system made people even more dependent by increasing access to credit. As wage and salary paying jobs created the appearance of a stable income, the extension of credit seemed less risky. If the borrower got a steady paycheck, the means to gradually repay loans seemed assured. Unlike farmers, whose ability to repay debt depended on the uncertain success of their crops, an employee with stable employment could pay according to a schedule. Put some numbers on paper, apply some middle school math, and debt looked like just another expense. Banks made it easier and easier to borrow more and more. Everything would have worked out fine if everyone stayed employed and paid their debts.

We now know it was all an illusion. Just like farming, modern economic enterprises have good times and bad times. Weather, locusts and other pests, diseases and a host of other unpredictable and uncontrollable factors can wreck a crop. Similarly, today's average citizen can lose a job for a host of reasons beyond his or her control, or even comprehension. A couple of years ago, who would have thought that the recklessness of a small group of mortgage lenders and derivatives dealers, together with an utter failure of risk management at a few large banks and other financial institutions, could throw most of the industrialized world into a major recession and send millions of workers in numerous industries into the ranks of the unemployed?

Today, almost no one has a family farm to go back to when times are tough. Modern income levels aren't high enough for siblings or parents to step forward and help much if one loses one's job. A government safety net keeps many off the streets for a while. (See http://blogger.uncleleosden.com/2009/07/survival-kit-for-layoffs-and.html.) But America doesn't provide an iron rice bowl--and neither does China any longer. Ultimately, we're each on our own. And given the unpredictability and, indeed, flat out incomprehensibility of matters economic, it's not surprising that some are losing faith in the future.

Hope, though, springs eternal, and not without reason in America. This is the nation of second chances, where innovation and risktaking are admired and encouraged. Failure here doesn't have to be permanent, not in a society where everyone can recreate themselves and try again. America was founded on dreams, and declared independence so that its citizens could pursue happiness. America today continues to embrace dreams and dreamers, and nothing drives economic growth as much as unvarnished aspiration.

Of course, we can't depend solely on cheerful talk. Reality must be dealt with, in government and business. The financial system, source of so many of today's economic problems, needs a substantial fix and soon. Much more effort must be put into getting people on Main Street back to work. That large and longstanding open wound on the body politic--access to health insurance coverage--must be healed. Wars should be limited and avoided. Many major empires--Roman, Byzantine, Spanish, and British--fell in large part because of the costs of warfare.

In the near term, the future may be uncertain. The economy seems to be recovering, and the stock market has rebounded to 1999 levels (we still have a decade of no gains). But these gains are built on the thin and potential weak foundation of lots of government spending and a whopping huge money print by the Federal Reserve. The 1999-2000 tech stock crash and the 2007-08 mortgage and credit crises teach us that when the economy and stock market rest on weak foundations, they will decline.

But over the longer term, the forces that propelled America out of the many recessions and depressions in its economic history remain intact. Most importantly, other nations just don't accommodate dreamers and innovators like America. This nation has market dominance in those respects. And like any company with market dominance, its chances of future success remain very good. Don't lose hope. Happy Holidays.

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