I can’t sing a lick, but a tune from the Rodgers and Hammerstein musical South Pacific came to mind as I was thinking about the pervasive pessimism in so much economic and market commentary.
In the play, as you probably recall, Navy nurse Ensign Nellie Forbush reacts to pessimism about the course of World War II by singing:
I have heard people rant and rave and bellow
That we’re done and we might as well be dead,
But I’m only a cockeyed optimist
And I can’t get it into my head.
Although I have to admit there is plenty to be pessimistic about, like Nellie I can’t quite get into my head that “we’re done and we might as well be dead.”
I acknowledge the following negatives, which are only a partial list a pessimist might cite in advocating the “we’re done” side of the argument:
• Persistently high unemployment and anemic growth in jobs.
• Extraordinarily weak homebuying and homebuilding activity.
• Continued high levels of delinquencies and foreclosures on home mortgage loans, and continued declines in home prices.
• Huge current and future “structural” deficits in the federal budget and many state and local government budgets.
• Two ongoing wars in Afghanistan and Iraq that are still killing Americans and soaking up resources.
So, given all that, why not just dig a hole and hide in it?
One reason is simply the high visibility of the dark clouds. It’s not as if any of the negatives listed above are secrets. Financial markets have already absorbed a bunch of bad news. Obviously, it’s a bit easier to show growth when you’re starting from lower levels of business and economic activity, which is why you can find modest signs of economic progress even in this gloomy period.
I guess my own optimism is based partially on a sense of déjà vu. Seems to me that I recall similarly gloomy commentary about the investment, economic, and political climate in a few other periods:
• In the 1973–1975 period, as I was finishing college and entering the workforce, the national mood was downcast, and no wonder. We’d been through a very nasty recession, a 50% drop in stock prices, a messy end to the costly and divisive Vietnam War, war in the Mideast, and the Arab oil embargo, not to mention the indictment of a vice president and near-impeachment and resignation of a president.
• From 1979–1981, the lowlights included high unemployment, high inflation, short-term interest rates exceeding 20%, a second oil crisis, the seizure of the American embassy in Iran, a federal bailout of Chrysler, plunging home sales, and an assassination attempt on President Reagan.
• From 1998–2001, we had another presidential impeachment trial, widespread worries about the Y2K “bug” that some expected to devastate computer systems, and the bursting of the technology stock bubble.
It’s true that some of today’s problems differ from those of the past, but I don’t believe that the people and businesses of America are any less capable or resilient today than in the past few decades. If that makes me a cockeyed optimist, so be it.