Fear and Financial Situation

There is no denying that our nation (and much of the world) is in an economic crisis. Foreclosures and bankruptcies have increased. People are not able to pay their routine bills. Companies are laying off employees at staggering rates. For some people, however, the crisis seems to be more hearsay than reality.

During a recent shopping trip, my wife and I had lunch at a restaurant that is part of a national chain. As we were seated, we noticed that the restaurant was not crowded even though it was about 1:00 p.m. and it is the Christmas shopping season. We asked our server how the restaurant had been affected by the economic woes through which our nation is currently going.

In response she said that in just 20 minutes, they had 24 people coming in for a Christmas lunch and, even though things looked slow at the moment in the restaurant, business had been good. The only slow time had been a couple of weeks after the presidential debates during which the candidates had talked about how bad things were. The server went on to say that "I'm not the brightest bulb on the tree, but even I realized that things were not good with the economy and that they were not good before the debates." In her view, it was when people were told that things were bad that they began to act as though things were bad. After a couple of weeks, however, it was "back to normal" with spending patterns.

At first glance, this episode seems to be saying that people act on the basis of perceptions, not on the basis of reality, or, maybe more precisely, people need to be told how things are before they will act appropriately (or inappropriately, as the case may be).

The question that comes to mind is "How bad are things if the restaurant experienced just a 'blip' in the amount of business?" Another question: "What is the appropriate response to a perceived or real economic crisis?" President George W. Bush received some criticism for the suggestion after the September 11 terrorist attacks that Americans should go out and shop. His reasoning, of course, was that America needed to show that the attacks had not fundamentally altered our way of life.

What are we to make of the current crisis and our response to it? A number of things occur to me. First, not all people have been affected greatly by the crisis. My wife and I began buying a home five years ago. Fortunately we paid off the adjustable rate portion of the loan as quickly as we could. Also, we are not contemplating a move soon, so declining prices and the difficulty of selling a house are not issues for us. We can afford to eat out occasionally. We can afford to give money to our church. We can afford to pay our bills. For people like us to stop living in a more or less normal way would not be helpful to the economy.

Second, there seems to be a real element of fear in how people are responding to the crisis. One of my frustrations with the volatility of the stock market is that it seems to be driven, in part, by fear-especially by fear of the unknown. FDR's famous statement, "We have nothing to fear but fear itself," seems particularly relevant in today's economic atmosphere. Our financial adviser told us that out of all her clients, only one called and asked to get out of the market. The next day, however, the client called back and said she had changed her mind.

Third, and finally, there is the danger of relying on the government. In my opinion, one of the greatest downsides to the New Deal instituted by FDR was the diminishment of personal responsibility and the substitution of a "big-brother" government that would meet all of our needs. The current bailout proposals are an invitation to future disaster as they push our country more and more into a position of being looked after and taken care of by the "nanny state." I grew up in a family that struggled financially. My parents had four children to raise. Three of us went to college, but we didn't complain that the government wasn't there handing out blank checks to cover our college costs. We worked. We took advantage of student loans (that we eventually paid back). We earned some scholarship money. We got through. All three of us eventually earned graduate degrees. One more thing: government has not exactly been the financially prudent institution we as a nation have needed over the years. There have been some good things that government has accomplished, but when it has attempted to straighten out the economy, there have been more failures than successes. As one radio commentator has said, politicians should get out of government and get real jobs and learn how the economy really works. Self-perceptions of competence on the part of politicians has been part of the problem with governmental intrusions into the economy. The self-centered perceptions of the general public has been another part. When people are willing to be pampered by a government that is willing to pamper them, we have trouble.

Once we buy into the idea that it is only the government that can transform our country into a prosperous nation again, we have reached a point where we should be afraid, because there are people just waiting to take advantage of crises in order to increase and solidify their power. Political parties are adept at using crises to increase fear to draw people to dependence on government. How ironic it is that a nation that was founded on rebellion against intrusive government is moving slowly but inexorably toward embracing intrusive government!

For many people it truly is the case that "We have nothing to fear but fear itself."