What role is human emotion playing in the prospects for an economic recovery?
Robert Shiller expressed his concern in this Sunday’s New York Times that a deflated population, burned by the excesses of the last decade, are feeling detached from the responsibility and opportunity to drive an economic recovery.
A USA Today/Gallup poll, for example, found this month that about two-thirds of Americans say they think that economic recovery won’t start for two more years, while 28 percent say it won’t begin for at least five years.
The workforce has been in a long period of disenchantment, Shiller suggests.
According to the Bureau of Labor Statistics, annual growth of business output per labor hour averaged 3.2 percent from 1948 to 1973, but only 1.9 percent from 1973 to 2008.
Ever since the long-term productivity slowdown became visible, the economist Samuel Bowles, now at the Santa Fe Institute, has said that its causes are to be found as much in the loss of “hearts and minds” of workers and investors as in technology.
This month at Yale, in lectures titled “Machiavelli’s Mistake,” he spoke of the error of thinking that a high-performance economy could be based on self-interest alone. And he warned of the overuse of incentives that appeal to individual gain.
The path back is to regain the interest and the energy of the people who make the engine go — workers and investors. A sense of the possible, combined with a sense of purpose, can have a tremendous impact.
Solutions for the economy must address not only the structural instability of our financial institutions, but also these problems in the hearts and minds of workers and investors — problems that may otherwise persist for many years.
What are the factors that can drive that feeling of potential?
As I read the Shiller piece, I wondered to what degree the emphasis on “inventing the future” during the technological and financial boom of the last 20 years has left the rank and file feeling disengaged and uninspired. Our business mythology off the last two decades has focused on hero-stories, individuals who have invented the future whole cloth, made great wealth, retooled the way business works.
But so many of these hero stories have ended up being all smoke: Internet companies sold for billions of dollars end up vanishing; the great wealth of the financial services economy evaporated almost overnight.
Our current mythos is of the worker as disadvantaged, of an economy that doesn’t make things, that is at a disadvantage.
If Shiller’s observations are right, and that the national character has been distressed by the economic downturn, then what can set it right? Is this as easy as picking the right narrative, picking the right goals to set, so that people can feel like they are picking the country up by its bootstraps and setting it right?
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Since then, the employment market has worsened, contributing to an increase in mortgage delinquencies and a continuing rise in foreclosures. The New York Times had a good overview of the state of the credit market today, explaining that the securitization market for mortgages has effectively dried up over the past year, and doesn’t show any signs of recovering without government intervention.
