Do You Believe In Confidence Fairies?
July 6, 2010 - 2:17pm ET
Krugman commented on his blog about the wide-eyed belief among elites that "confidence" is going to rescue us from all this economic unpleasantness:
You see, while traveling I reread Barbara Tuchman’s The Guns of August, and there it was: Plan XVII:
Entirely offensive in nature, Plan XVII made extensive use of the belief in the mystical élan vital assumed to be instilled within every Frenchman – a fighting spirit capable of turning back any enemy by its sheer power.
Unfortunately, fighting spirit proved not very useful when charging machine guns. And I’m afraid that relying on confidence to deal with the downdraft from a financial crisis will work out no better.
Coincidentally, I recently re-read Guns of August is well and was struck by how much these martial cheerleaders reminded me of the famous Confederate belief that the south would win the civil war because every southerner was worth 10 Union soldiers. This kind of magical thinking is fairly common, I'm guessing, among people who want to justify something they know doesn't make any logical sense.
I wrote about the confidence fairy thing yesterday but I think I got it wrong. I was assuming that they were talking about "confidence" in the sense of average Americans having confidence and being willing to spend and invest in themselves and their futures. And that's a big problem right now:
In every recession over the last three decades, it has been America's small businesses — those Lilliputian companies with fewer than 100 employees — that stepped forward, began hiring and pulled the country out of the mire.
Not this time....A host of factors — some well-recognized and others seemingly unnoticed in the national debate over economic policy — are converging to restrain small-business owners from hiring. Among them:
* Near-stagnant demand for goods and services as a result of consumers' reluctance to return to their free-spending ways.
* A disturbing falloff in the creation of new small businesses.
* The devastation of the real estate market.
* Uncertainty about the economic outlook at home and abroad.
....The fact that many small firms are seeing little increase in demand for their services and products is decisive for Scott George, owner of Mid-America Dental & Hearing Center, which employs 55 people in the southwestern Missouri town of Mount Vernon.
"I'm not having any trouble getting money," said George, who recently got a $250,000 loan to renovate one of his buildings. But he's not hiring more workers because of little or no growth in sales.
I don't blame people for not spending. This is a tough downturn and the burden of debt left a lot of us hungover. But they aren't going to come out of that very soon if they are continually being hammered with a drumbeat of apocalyptic talk about the deficit and calls for even more sacrifice and austerity. If you are an average person you see nothing but black clouds on the horizon, from terrorists lurking on every corner to suffocating fears of a health catastrophe to crippling national debt that will require you to work until the day you drop dead from exhaustion --- and that's if you're lucky to have even a dead end job from which you cannot escape. What exactly is there to be "confident" about? Wealthy gasbags lecturing people to feel confident in the same breath that they calmly discuss the need for decades of austerity is a confidence fairy tale all right.
But then I thought about it and realized that this thinking is even more magical than I knew. It isn't that these leaders think consumer confidence will save us --- they don't care about the real economy at all. Growth is solely a measure of elite confidence that their wealth will continue to grow. Somehow, these people have so completely sealed themselves in a bubble that they think that their ability to keep their game going is the only thing that matters. The real economy has become the fantasy and their arcane financial instruments have become the reality.
I don't know what you do about this. It's irrational behavior and very difficult to counter. The global financial gamblers are unwilling to admit that the party's over and so they are going to steal money from the average workers to keep it going for a while longer. The "confidence fairy" is nothing more than the desperate bravado of addicts trying to avoid hitting bottom. And taking everybody else with them.
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