The Economy

Projecting feelings into forests and clouds is a great way to evoke moods, but it’s startling to see economist routinely doing this to the economy.  When poets do this to nature, we call it the “pathetic fallacy,” but what should we call it when economists do it to economic data?

The economist, Robert Samuelson, writing in Newsweek, noted many signs of the recovery:  spending is up, the trade imbalance is improving, and the housing market is slowly recovering.  But the problem he noted is that “the pervasive post-crisis gloom prevents us from acknowledging it.”

He summarizes the big picture:  “There is a curious role reversal. Foolish optimism led to the financial crisis and recession by assuming things would work out for the best. Now, reflexive pessimism weakens growth by ignoring good news or believing it can’t last.” (See, “Stuck in a Post-Crisis Gloom.”)

Samuels does not seem to be talking about something so simple as “consumer confidence,” our rough estimates about the future that leads us to spend on major items like cars or even washing machines.  It is plausible that consumers are cautious that way.  But this is more like the broad generalizations and snappy judgments that stock analysts make for public consumption about the behavior of markets.  The Wall Street Journal, for example, commented on yesterday’s stock markets: “Investor optimism was sparked by the G-8 saying the global economic situation is improving and the recovery is getting broader. The comments came as investors digested some mixed economic data.”  I marvel at the precision and certainty with which such sweeping assessments can be made – and I doubt it.

As a psychoanalyst, I am often trying to get people to acknowledge the role that unconscious assumptions play in their perceptions or the importance of emotions in their thinking.  But this is a case where emotions and influences are too easily attributed to masses of relatively sophisticated people.

I am not saying that economic decisions are not made in the basis of irrational factors.  Not at all.  But I am saying that it is not easy to know the real motivations behind people’s actions.  And it is all too tempting to believe what you want to believe or succumb to the clichés of conventional wisdom.  The poet who sees nature mourning the death of his love is indulging his emotions to offer his readers a deeper experience.  What are the economic analysts up to?

Two things, I think.  They are positioning themselves as experts, insiders who understand an arcane and complex subject.  In part, that’s how they make a living.  They get a lot of self-importance and visibility from the roles they assume.

But I also think they are indirectly expressing their own moral judgments under the guise of sophisticated analysis.  Samuelson judges the “foolish optimism” that underlay the credit bubble, for example, the home-owners, say, who bought houses they could not afford with 0% down.  But what about the predatory mortgage companies who encouraged them?  Or the banks who profited while helping us all believe the bubble could only continue?

His Olympian detachment not only must help to make him feel superior but also persuade others to think he knows too much to make any such foolish mistake himself.