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Why We’re So Gloomy

June 18th, 2008 . by economistmom

That could have been the title of a post justifying the Concord Coalition’s general outlook on life, but no (plenty of time for that in the future)…

Today the Washington Post ran this Neil Irwin story on its front page.  (The Post’s title:  “Why We’re Gloomier Than The Economy”.)  Neil’s point:  Consumer confidence is at its lowest level in 30 years, yet the reality exposed in the economic data show the economy is not the worst its been in 30 years.  Neil goes on to speculate as to why folks are being unusually pessimistic in the current slowdown:  he cites rising fuel prices that American families feel daily–not just when we fill up our tanks but when we buy our food; and the falling value of our homes, which for many of us represent our largest stock of wealth (whether we originally viewed our home purchase as an “investment” or as “consumption”).  He also speculates that it could be the 24-hours-a-day, negative emphasis in media coverage these days, or just the fact that we’re not used to facing negative economic news–that the current climate is such stark contrast to the economic exuberance (rational or not) we lived through in the late 1990s.

I have a different theory.  I think the excessive gloominess in the current ”cyclical downturn” is because Americans are feeling as if a good part of the economic downturn might not just be cyclical (temporary)–that much of what we’re seeing in the short-run economy is symptomatic of longer-run challenges that aren’t going to go away within the next few months or even years. 

As we fill up our gas tanks each day, do we really think gasoline prices are going to go back to $2/gallon in a few months?  As we see our home values–and the equity we can tap into–falling, do we expect to get back to relying on that “wealth” to help pay for our kids’ college educations or our own retirements?  As our family budgets are squeezed by rising health care bills and wages that can’t keep up with even general inflation, do we have faith that the government will get that health care inflation under control soon?  As my auto-engineer sister and brother-in-law in the Detroit area worry about their job security, do they expect that on the other side of the current downturn, the layoffs will stop?  As we hear the bad news about this year’s federal budget deficit, are we comforted by what the presidential candidates are proposing?

I think there is this feeling of much more permanent unsustainability that we are seeing repeatedly in our daily economy–little doses of daily evidence that we have been living beyond our means, as the Post’s Steven Pearlstein had pointed out a few weeks ago, calling it the “fading of the mirage economy”, and as I referred to here as the “super subprime problem.”

We’re so gloomy because as we ride over this immediate “rough patch,” we notice the bumps keep coming, and we sense we’re slowly rolling downhill at the same time–about to veer off this crumbling road and crash into a ravine if we don’t somehow change course.  Right now it doesn’t feel like just a temporary “bump in the road.”

And speaking of this longer-run “crumbling,” note that if you have access to today’s print version of the Washington Post, you will find that right next to Neil Irwin’s front page (left column) story about why we’re so gloomy on the economy, is this front-and-center gloomy story (with gloomy photo) on how the infrastructure of the National Mall is falling apart.

Hate to be such a downer today… I’ll try to make up for it in the next few days, for the good news about the more lasting challenges we face is that it’s in some ways easier (and wiser) for policy to affect those longer-run trends, if we have the will to do so, than to counter the truly shorter-run movements in the business cycle. 

6 Responses to “Why We’re So Gloomy”

  1. comment number 1 by: rdan

    LoL. My metaphore today was The Shrinking of Treehorn, a wonderful story which you bring to life as well. I will update my post with yours. Thanks. Dan

  2. comment number 2 by: Jeffrey

    I know of one gurantee to assure high gas prices, gov’t intervention. The Democrats are now suggesting the gov’t should own refineries…Hugo Chavez would be proud.

    Are times tough? Sure, things are not perfect. Might they get worse? Sure, nothing in life is guranteed. But I do know, at this point in history, we are living wealthier, healthier, longer lives that at any point in recorded civilization. So why the angst? Maybe because a crisis requires the state to move, to spring to action, to do something, anything to alleviate the pain. Therein lies the problem. There are myriad factors behind the price of oil but surely a Democratic platform of restriction of supply (no offshore drilling, ANWR), regulatory overkill of nuclear energy & refinery build out and the subsidization of inefficient ethanol, wind power and solar energy has an impact as well.

  3. comment number 3 by: rdan

    So why did daddy GHW originally declare offshore drilling out of bounds in 1990, renewed by Clinton in 1998? Please Jeff, you can try to make this simply partisan, but do your homework, and quantify. Otherwise it is fluff and crude.

  4. comment number 4 by: susan kennedy

    Layoffs are scary but I see a lot of high paying jobs on employment boards -

    http://www.realmatch.com
    http://www.monster.com
    http://www.simplyhired.com

    Dont dwell on the layoff, look to the future!

  5. comment number 5 by: Androcass

    I thought this post was dead on, to the point where I based my most recent post on it:

    http://androcass.blogspot.com/2008/06/yes-you-get-it.html

    The continued insistence of the talking heads who get themselves on TV that everything is going to be OK amazes me. The U.S. simply hasn’t done the things necessary to remain in the same position; whatever benefits this may give to the rest of the world, it’s going to lead to a mismatch between what we expect and what we get, and we should prepare ourselves for that.

    Anyway, I like this blog a lot, check in on it often. It fills a real niche somewhat “below” the more academic blogs of DeLong and Thoma, and I hope it continues that down-to-earth, infused by real knowledge, feel. Thanks to EconomistMom for writing it.

  6. comment number 6 by: Unsympathetic

    Good try, Jeffrey!

    Want to blame everything on Democrats? First explain why your precious Republican “free” market has not solved the problem. Your government could have been funding research into alternative sources this whole time.. but no, that would decrease quarterly profit of the oil companies. That failure is directly at the feet of Republicans.

    Democrats are blocking drilling because Republicans offer no end to the drilling. If the oil drilling is transitional - say, the pump runs for 20 years and then it’s removed - I’m all for it.. because during that period the chief investment of the country has to be in nuclear / alternative energies that don’t include biofuel. ( peak potassium is just as much of a problem for farming. )

    Republicans, however, are purely interested in lining the pockets of oil companies. Until Republican interests are aligned with the entire country rather than merely the top 0.5%, their “policies” are worthy of laughter rather than actual consideration.