There is an old saying that sometimes it is better to keep your mouth shut and let people think you unintelligent than to open your mouth and remove all doubt. President Bush’s assertion Monday that “Our financial institutions are strong and our capital markets are functioning efficiently and effectively” confirms the rule. It will join Herbert Hoover’s 1929 statement, three weeks after the stock market began to crash, that “Any lack of confidence in the economic future or the basic strength of business in the United States is foolish.”
Though it is tempting to ridicule outwardly optimistic officials, realize that they are in a tough spot. They will be criticized whether they are too optimistic or too pessimistic.
It is a fundamental aspect of human nature to want reassurance when we are afraid. Even the soldier who just lost a leg to an IED receives some comfort from a buddy touching her shoulder and saying, “It’s OK, Jane, you are going to be all right.” She doesn’t want to hear “You are going to go through months of pain and your life will never be the same again.”
Americans may claim to want straight talk from politicians, but many would be scared and angered if a president stepped up to a microphone and said, “The economy is in bad trouble and no one, including the Treasury secretary and the Federal Reserve chair, really knows what to do about it.”
Moreover, the impact of the national mood on unfolding events is different for financial crises than for, say, natural disasters. If a president visits the site of an earthquake and says, “A lot of people were hurt here and it will take years to rebuild,” it won’t renew the shaking. But acknowledgements of bad financial situations may become self-fulfilling prophecies by rattling financial markets and consumer confidence. At least that is the fear.
Unfortunately, people have been conditioned to discount optimistic statements by public officials. At best, they provoke the sarcasm of the disgruntled Bear Stearns employee who reportedly said, in response to the president’s comments, “They should have sent out Krusty the Clown, it would have been more believable.”
At worst, blithe reassurances by people in influential positions may provoke fears rather than soothe them. Some may wonder, “How can these guys be so out of touch with reality?” Another may see someone denying the obvious and think, “What bad news do they know that I don’t?”
Presidents these days must deal with public expectations that government should play a large role in managing the economy. Herbert Hoover provoked sarcasm with his Pollyanna-like statements. But when he argued that there was not much a president could or should do to cure the recession, many people agreed. Hoover merely reflected prevailing wisdom among economists of his era. That view changed slowly with the country’s embrace of John Maynard Keynes’ theories a decade or more later. Now presidents will never get off the hook again.
© 2008 Edward Lotterman
Chanarambie Consulting, Inc.