Many people are cutting back on their spending because of the current “economy.” This makes sense — provided that these conditions are merely a reminder of what they should have been doing all along. Unfortunately, this isn’t the case for most people.
Many are hoarding their money for no other reason than what they’ve read and heard in the news. The news ‘tells’ them that the economy is in decline because fewer people are spending. But why are millions of people spending less? Well, some have indeed lost their jobs, or realize they spent foolishly (like buying a house they couldn’t afford). But a great number of people are making the same money as before — yet they are also spending less. Why? Well, the most common reason I hear is ‘ “the economy.” Apparently this is code for: “I hear on the news that the economy is bad. I must therefore be in a panic.”
I’m not knocking rationality and caution. I’m strongly in favor of the free market, and I’m well aware that it cannot function unless self-responsible people exercise proper judgment. But if all this cutting back makes so much sense now, then why didn’t it happen earlier? And if spending before was, for most people, feasible and justified, then why must it stop now?
For example, let’s assume that you really need a new car. If you’re making the same amount of money you did last year, then how does it make sense to not buy a car this year? Well, CNN, Fox News and all the rest are shrieking (every minute of every hour) that the economy is in a mortal tailspin. Well, of course it is. Nobody’s spending anything! Some people say, “It’s the media’s fault,” but people don’t HAVE to listen to the media. The media does nothing more than dish up whatever happens to be selling at the moment. Anxiety sells. And doomsday sells. With the bulk of media ‘reporting’ so overwhelmingly negative, people latch on to negativity as the all-powerful truth. From a psychological perspective, this is what worries me most: Have the majority surrendered to the false belief that life is ultimately terrible, and that good times are merely an illusion? If so, then things will never get better.
An economic system such as ours is nothing more than millions of people making decisions and transactions in the marketplace every day. Neither spending nor hoarding is intrinsically good. But with the media relentlessly hammering away that spending is intrinsically bad, irrational behavior can be the only result. My advice? Ignore the media and do what makes objective sense to YOU, in your own situation. Standing still is no more the answer than reckless spending.
My experience has shown that fear is the root of many problems, including economic ones. It’s ironic, because fear, based on reason and facts, is actually one of the most life-preserving impulses imaginable. But misplaced fear causes mental and behavioral havoc. This is borne out by many economic experts. “We are looking at record lows on confidence,” says Joel L. Naroff, president of Naroff Economic Advisors. “The level of despondence is so great that in the short term it is excessively depressing consumer and business spending.” According to Naroff, the “irrational exuberance” that used to worry policymakers has been replaced by “irrational despondence.” Rajnish Mehra, a leading researcher at the W. P. Carey School of Business, says, “People are scared. And as long as we are scared we are not going to get out of this.”
Much of the problem lies with disappointed expectations. ‘I thought the stock market would always go up. When it went down, I was devastated.’ Or, ‘I thought the price of houses would always go up. When they came down, it was the end of the world.’ I’m not an economic expert, but I have read history, and nothing in history supports either of these expectations. Over the years, market and real estate values have always fluctuated. If mistaken expectations do, in fact, lead to fear and depression, then which makes more sense: To wallow in paralysis, or to take advantage of the disappointment and learn something from it?
I like to approach things from a psychological angle, and this isn’t the place to get into specific policies. But I think most of us can agree on one thing: When acting on fear, politicians will often overreact. Their decisions will be less rational and intelligent than if they were not acting on fear. I like the quote that there’s ‘nothing to fear but fear itself,’ but I prefer to look at it this way: When fear replaces facts and logic, trouble is the result. If people want fewer things to be afraid of, then they have to stop paralyzing themselves by trying to control what they cannot control. We need to take a deep breath, turn off the self-serving TV news, observe, learn, and move on.