Wall of Worry

All of us who have lived a relatively long life have seen many recessions come and go. We’ve seen unemployment near double digits, GDP drop precipitously, and politicians make myriad mistakes is addressing the underlying problems of an economic downturn. But with the exception of the very old (those who can still remember the great depression of the 1930s), none of us have seen anything like this current great recession.

Robert Samuelson gets past the numbers and accurately examines the bigger problem:

It is becoming clear that the Great Recession has left a deep and possibly lasting scar on the American psyche. From CEOs to ordinary families, we are a nation that is more cautious, more fearful and more risk-averse. This widespread and -- so far -- indestructible anxiety has hobbled the recovery and helps explain the slow pace of job creation. The economy's revival depends in part on risk-taking, but risk-taking is in eclipse.

There is a wall of worry, whose cause transcends the recession's severity. We now fear not only what we know but also what we don't. Things happened that were both unanticipated and unimagined: the collapse of major banks; the near-death of General Motors; the government's titanic economic rescue efforts -- the TARP, the Federal Reserve's massive lending, the gargantuan budget deficits. More surprises could loom. A full-scale European debt crisis?

It's possible, of course, to exaggerate pessimism and underrate Americans' traditional hopefulness. Even the weakened U.S. economy produces almost $15 trillion of goods and services a year and employs 139 million people. Still, the mass uncertainty and fright remain undeniable.

The problem, I think, is three-fold.

First, Americans who have relied on the fiduciary responsibility and maturity of major financial institutions and the government regulators who oversee them, now understand that these institutions are neither responsible or mature. In their rapacious grasp for big profits, these institutions and their leaders were perfectly willing to risk destroying the financial system. They almost did, and instead of paying a price, they were bailed out by the very people who suffered from their near-criminal failure.

Second, investment instruments that most American believed were stable became extremely unstable very, very quickly. Conservative 401-Ks lost 20 or 30 percent of their value in less than six months. Home prices that rarely declined into double digits lost 30 to 50 percent of their value over two years. This instability shakes the average person’s faith in the “system” and causes that person to become very risk averse.

Third, Washington’s complete failure of leadership during this crisis has reinforced the vague feeling that no one is in charge. The Obama administration and Congress have thrown money at the problem (e.g., cash for clunkers) without understanding the problem. They have bailed out institutions that should have been allowed to fail. They have exacerbated partisan politics when the citizens of this country want a concerted bipartisan effort to overcome this crisis.

Whether its adding still another 52 weeks of unemployment compensation to the 99 weeks already on the books, or reducing payroll taxes by 2 percent thereby increasing the fiscal instability of a massive entitlement program, or calling political opponents who have just negotiated a bipartisan compromise tax plan “hostage takers,” it again appears that we’re being led by venal children. This does not inspire confidence.

This economic malaise will continue until the American people regain their confidence. And that will not happen until they feel that there are adults in charge. Until then, the "wall of worry" will stand between us and a brighter future.