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Telling Us To Feel Better, Hoping For A Self-Fulfilling Prophecy

By Rodney Johnson⋅ October 13, 2009 ⋅ ⋅ Post a comment

Since the economy has not budged on the important items of demand growth, capital investment, capacity utilization, or employment, some of the major companies in America are taking action. Real action. They are advertising. They are telling us that things are turning brighter, that we are witnessing the dawn of a new age of prosperity! You just wait and see! The NYT reported this morning on spots by both GE (like this one) and B of A that are basically feel-good television. The hope is that they will capture and further energize what is seen to be a small but growing feeling of optimism.

I understand it. I want to be optimistic as well. I’ve no interest in being the “downer” at parties when people ask what our view is of the future. But I also prefer to be realistic. Even in the article the NYT states, “On a more functional level, once banks like B of A start lending again, corporations like GE start hiring again and everyone begins advertising again, the economic recovery will have some fuel.” That’s nice, but it avoids the much bigger question of why the cycle has slowed and what will revive it.

Larry Summers was much clearer. In a statement yesterday he said that “Lack of demand will be teh major constraint on output and employment in the American Economy for the foreseeable future.” He also noted that, “The combination of low capacity utilization and substantial leveraging of household balance sheets raises questions about the sustainability of demand growth going forward.” (WSJ, 10/13/09, A3)

I’d say that about sums it up. We can feel good about it, we can talk about all the potential, but unless there are clear reasons for and signs of demand growth, it all remains just that…talk. It reminds me of those eery commercials starring Jeff Daniels that speak of all the wonderful things in Michigan and why companies should move there. Knowing something of the economic climate in Michigan, I always wondered what the developers of that spot were thinking. Did they think that everyday business people would see a 60-second ad on TV and think, “Hey! Let’s move to Michigan!” without ever checking out the crime rate, the unemployment rate, the tax rate, the quality of life rating? Are we that gullible? Will we fall for advertising that wants us to believe things are better just because the idiot tube said so? I don’t think so.

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Discussion

4 comments for “Telling Us To Feel Better, Hoping For A Self-Fulfilling Prophecy”

Rodney
AS usual, a good post. There seems to be a growing sense of optimism in the general population, driven by the drivel on the boob tube. It is unlikely that everyday business people will pack up and move to MI for all the reasons you list and more. However, my wife and I had an enlightening “aha” moment recently. A sister in law was visiting and we made some comments about what we thought was happening and how we felt the Gov was probably just kicking the can down the road to a much bigger crash, etc. Her response made us drop our jaws (and quickly change the subject). She stated quite confidently that the elected officials had all of our best interests at heart, would do the right things and everything would soon be back to normal and she did not want to bother thinking about it as she was too busy with her family and job. By the way, her hubby has his own business closely tied to the real estate market and he feels the same. She is the 3rd or 4th person to make the same basic case. Too busy, everything will be like it was, don’t bother me. One of those is a high ranking officer at a Fortune 500 company and someone we thought pretty savvy. We are now calling this “don’t bother me, I’m too busy with my life, everything will be fine” the Sue effect after our lovable but naive sister. It seems to us that most of the boomers and their kids are under the Sue effect. They get their news from the talking heads at 6 and 10 if they watch at all and are completely oblivious. Meantime the rule of law, contracts, health care, salaries and the future are in the hands of politicians that think they have a mandate. There is no mandate, few care and most are not even aware of what is happening. The spoiled boomers and their kids are in for a very rude awakening.

Posted by mkern | October 13, 2009, 8:48 pm
I do agree with everything I’ve read so far on this posting. It also is backup by “energy transfer” equations in ecosystems. However, is it SOOOO painful when you are short.

Posted by RonWalkr | October 14, 2009, 3:49 pm
I agree with mkerns that the “Sue effect” seems quite prevalent, but there is a big flaw in this kind of thinking. The elected officials got us into this mess into the first place, why should anyone believe they will get us out? There are still many problems below the surface, and this optimism may well be whistling past the graveyard.

While I’m not enough of a risk taker to short stocks, as Harry S. Dent suggested in his video update, I’ve got a lot of my investments in cash and sleep better at night because of it.

Posted by Abitibidoug | October 14, 2009, 6:56 pm
mkern, I had something of the same experience recently on a television program. One of the other panelists was indignant that more was not being done by legislators in terms of financial regulation reform. I told him and the audience that I felt the problem was that voters were uninvolved and somewhat apathetic to this point. He turned to me and said that it was not the job of voters to be involved, that’s what we elected officials to do, and besides we are all much too busy leading our lives! I couldn’t speak for a minute as I had to let that sentiment sink in. How can it be that we don’t hold legislators accountable by 1) expressing our opinions as topcis arise and then casting ballots in each election? I think the sentiment will swing the other way, I’m just not sure how long it will take.

Posted by Rodney Johnson | October 15, 2009, 7:41 am