The global economy is placid. So why are so many prognosticators convinced it’s on the verge of total collapse?
FROM SLATE | May 1, 2014
lt is placid in financeland. Stocks in the U.S. and globally have been in a holding pattern since December; bonds as well. Overall economic data—limited though it may be and flawed though it certainly is—shows steady unspectacular growth in the United States and similar patterns worldwide. Not the most stirring big picture, and certainly one with many challenges—from wages to global stability—but hardly the most unnerving.
So why are a not inconsiderable number of people firmly convinced that we are on the verge of a stunning collapse? And why are many who don’t quite believe that so uneasy? Why do they treat the current lack of fear reflected in financial markets and the absence of clear evidence of impending implosion as evidence itself that the ground beneath our feet is about to give?
Take two books published in the past few weeks. One, by Peter Schiff, is called The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country. The other, The Death of Money: The Coming Collapse of the International Monetary System, is by James Rickards. The latter has been in the top 200 in the Amazon rankings, and Schiff has been warning of impending doom for years. His books, radio shows, and frequent television appearances suggest that the appetite for his message remains high.
These are hardly two lone examples. This past week at the Milken Conference in Los Angeles, a panel on risk featured warnings from the ever-cheery Nouriel Roubini that the Ukraine crisis could trigger a European recession that would in turn cause a global economic decline. Jim Rogers and Marc Faber are regularly cited for their view that we are on the verge of a massive stock market correction, as well as a global financial crisis brought on by the misguided policies of the Federal Reserve and other central banks. Such views may be expressed hyperbolically, but they are hardly fringe. A piece this week by Andrew Ross Sorkin, CNBC anchor and New York Times maven, asked: “Are We on the Edge of Another Financial Crisis?”
It’s not unfair to ask the question. After all, attending to risks and possible crises is wise given both past experience and the ever-present possibility that we are collectively missing some key vulnerability. And yet there is a world of difference between maintaining a watchful eye and foretelling doom. The continued traction of those who routinely warn that we are building toward a meltdown is not a sign of healthy debate. It is a sign of an unhealthy fixation on the downside and a media and financial culture that rewards it.
The cult of doom has been thriving ever since the meltdown of 2008. With so many having been caught off guard by the cascading crisis triggered by the collapse of Lehman Brothers in September 2008, a never-again mentality took hold, especially in the United States. Europe had its own reckoning over the euro soon after, and has been mired not just in stagnant growth but pessimism ever since.
The reasons for today’s caution verging on paranoia are understandable, but the effects are no less destructive. Trillions of dollars sit on corporate balance sheets unused as companies and their CEOs wonder whether now is a good time to spend. Banks, trying to preserve capital provided to them largely by government, have been reluctant to lend, though they are certainly doing so more now than in the immediate aftermath of 2008–2009. Believing that the financial system is imperiled by a Fed out of control and by trillions in debt, wide swaths of the political class emboldened by the Tea Party continue to sound the klaxon of austerity, forcing ever more shrinkage of what little government spending there is on infrastructure, science, and investment.
Meanwhile, those tens of millions of Americans with some retirement savings or funds to invest try to preserve their money in cash. They have been warned so frequently of possible collapse that keeping what they have seems more prudent than exposing it to the possibility of devastating loss. Even professional managers have been keeping unusually high levels of cash in mutual funds, a sure sign of caution, an indication of anxiety.
The media, meanwhile, in the business of generating buzz and attention, are ineluctably drawn to the drama of doom, largely because we humans can’t resist the desire to watch. Stability and calm are the nemesis of ratings and eyeballs, and so those who darkly intone that the smooth surface of reality is only an illusion soon to be punctured populate the spectrum.
As long as such views are fringe, they do no harm. And of course, sometimes fringe views prove right, which only fuels those who hold them. Remember the guy in Michael Lewis’ The Big Short who warned of a housing bubble for years before he was vindicated, and lost money until suddenly he made a mint.
But when such views percolate into the mainstream, they do considerable harm, as evidenced by all that unused cash, the relentless focus on debt, and general climate of fear and pessimism that precludes action. If you believe that we are heading for a fall, the only rational response is to hunker down, protect what you have, and pray that your strategy for preservation withstands the coming crisis. There is zero reason in the face of such views to invest, to start a new business, to suggest or support constructive collective action whether emanating from a local government or a national one, or even to spend or borrow for a college degree for yourself or your children.
Of course, we may be headed for a crisis. To brush concerns away would be foolish, because crises have happened and people have been caught by surprise. That does not mean, however, that we should listen to every Cassandra. Being attuned to the possibilities and paying attention to potential issues is imperative, but being drawn into the cult of doom is a step toward it. We can listen to the chorus. But join it? No.