A couple weeks ago, Peggy Noonan had a hilarious column in which she noted the strange (to her) disconnect between the depressing economic information in the news and the apparently unchanged commercial bustle of her Upper East Side neighborhood, where “nothing looks different.” My friend Andrew Leonard eviscerated her for her “let ’em eat cake” obliviousness.
There’s a slightly different species of cluelessness at work in the premise behind David Carr’s New York Times column this morning, in which Carr muddily hypothesizes that the speed of new-media information transmission has accelerated the current economic downturn.
The piece is the sort of chin-scratcher that never sums up its thesis because it doesn’t quite have one. But the heart of it seems to be something like this: Things are bad, but even people who haven’t been directly hurt by the recession are cutting back on spending because they’re being bombarded by bad news in new, faster, more enveloping ways. “This recession got deeper faster,” Carr says, “because we knew more bad stuff quickly.” He describes the result as a sort of “emotional contagion” or “neurosis” that is fueling further economic slowdown.
I had my eyes glued to the screen during the last recession at the start of this decade, which was centered on my industry, the Internet. So the idea that there’s something new going on seems hard for me to buy. But the more significant mistake Carr makes is to suggest that the choices people are making to scrimp and scrub their budgets are “emotional,” “neurotic” — irrational. And that’s dead wrong.
What does it take to feel that a recession is real? Carr, like Noonan, seems to be waiting for the appearance of Hoovervilles. There are millions of lost jobs, and many more whom the labor statisticians miss whose hours have been cut back involuntarily. One in ten U.S. mortgage holders is a month or more behind in their payments. Any rational person ought to look at this situation and feel that things have indeed changed.
Yet the question keeps arising: For people who haven’t actually been laid off, “nothing has changed,” so why are they going all Scrooge-like on the economy?
What has changed, for everyone, is our picture of the future. For years we made our economic choices based on one set of assumptions. Even those of us who didn’t take on loads of credit card debt or leverage our homes or otherwise turn ourselves into family-sized debtor nations made assumptions when we looked at our financial plan for the next year or decade or retirement: our homes would grow in value, our 401(k)s would appreciate at a certain rate, we could send our kids to college if things kept going the way they were.
And of course now they are not. So any rational person is having those hard family conversations and scrubbing the personal budget. This is not acting on fear. It is neither “emotional” nor “neurotic.” It is acting rationally, the way economists expect us to act. Much as I am a lifelong skeptic of the classical economists’ hyperrational model of human behavior, in this case, the real world behavior fits the model pretty perfectly.
That it is deepening the recession is to be expected, not the fault of some new-media dynamic of hyperactive blogging but a sign that the signals we are receiving about the economy are strong enough today to shock us back into the “rational actor” mode. Carr implies that the Web jumped the gun on the recession: “The recession was actually not officially declared until last week, but the psychology that drives it had already been e-mailed, blogged and broadcast for months.” But the official declaration noted that the recession actually began a year ago. Of course we have all been talking about it for a year: We weren’t premature, we were reflecting the real-time event. It was the officials who lagged.
Watching your spending? Cutting out what you can? You aren’t being neurotic or irrational. The irrational behavior, it turns out, was what so many Americans were doing previously in this decade — cruising along obliviously and piling up debt while Wall Street concocted escalatingly baroque financial engineering schemes that exponentially inflated the risk at the root of our economy until the whole thing went bust. If a scary market has shocked such irrationality out of our system, let’s hope the effect is long-lasting.
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