Economy needs our urge to splurge

Hard Times:In downturns, people stop spending and economies contract, locking us into a much longer depression than necessary

ONE OF the most striking things about the emergence of the current crisis has been the realisation about how much economics is dependent on the collective mood or public confidence.

While of course such confidence (or sentiment as some economists call it) is not the only ingredient in a successful economy, it is a crucial factor.

In good economic times people feel positive enough about the future to spend and trust enough to borrow or invest money. In downturns this confidence and trust evaporate, people stop spending and economies contract.

Sometimes our collective economic mood can get out of control and become extreme. The Celtic Tiger was marked by a boom of over-confidence that became a self-reinforcing cycle – the more we borrowed, the more wealthy we felt and the more we spent.

We behaved as if we were suffering from a collective bipolar disorder as our borrowing and spending mania grew more progressively out of touch with economic reality.

This mania was stoked by all those who had a vested interest in our spending – the bankers, the retailers and the Government – who communicated the belief that the good times could go on forever.

However, just as the mania of a person with bipolar disorder can come to a crashing halt and descend into depression, so our boom was followed by bust and our collective confidence has been shaken as we enter extremely harsh economic times.

The danger now is that our collective mood will spiral downwards in the opposite direction and we will add to our problems by losing our confidence (in ourselves and in our leaders who got us into this mess) and lock us into a much longer depression than necessary.

The greatest challenge now facing our leaders is to manage the nation’s mood as much as it is to manage the nation’s economy.

In psychology, people who hold a balanced but generally optimistic view of events are the most successful and happiest in the long term.

This is different from the delusional over-optimism that leads people to be in denial of actual reality and serious problems (like our collective denial of economic reality during the Celtic Tiger days).

It is also different from pessimism that views the situation in the worst possible light, gets stuck in apportioning blame and saps the energy of all concerned to act constructively.

Balanced optimists are fully aware of problems and difficulties but still choose to take the best possible view of the situation; they seek to see opportunities in crises and to focus on how their own actions can improve a difficult situation.

In the face of the enormous economic challenges ahead in the next few years we need to cultivate an attitude of balanced optimism as a nation.

It is delusional optimism to think that we can just go back and restoke the madness of the Celtic Tiger, but more balanced and realistic to prepare for a more modest way of living.

Achieving a balanced optimism would allow us to see some of the potentials in the crisis we face such as possibly returning to a more human and less-consumerist society or as an opportunity to recreate our economy to make it more resilient and sustainable.

We could even use the crisis as an opportunity to make society more equitable (and reverse the inequity created during the Celtic Tiger) if we handle the downturn properly and ensure the most wealthy bear the brunt of the cutbacks.

So how can we cultivate a balanced optimistic attitude as a nation?

First, we need an honest reality check of the situation we are in and to understand the difficulties and challenges we face. Only then can we consider the potential opportunities and to decide on a course of action.

Though full transparency and appraisal of the reality is the first step to choosing a balanced optimistic stance, ironically up until recently, many of our leaders have done the reverse and tried to “talk up” the economy, while not fully disclosing the scale of the problems.

Great leaders communicate clearly about the threats and realities of problems, while inspiring a real hope and optimism, that galvanises people into collective action. It is heartening that Brian Cowen has begun to take on the leadership mantle in this way, though he and the current Government face the particular challenge of being associated with the delusional optimism of the last days of the Celtic Tiger. (Remember we were promised a “soft landing”, even though the reality was that every property boom in history always ends in a crash.)

Taking some responsibility for past mistakes could be an important stage in regaining the trust of the people. They could take a leaf out of Barack Obama’s book who, as well as being the master orator who can inspire hope and optimism even in the face of challenging times, has not avoided taking personal responsibility for mistakes and errors.

In Obama’s victory and inaugural speeches he did not deny the severity of the problems that his nation and the world were facing, but he did connect to his people’s strengths and dreams as he encouraged personal and collective responsibility to take action.

* John Sharry is a psychotherapist and director of the Parents Plus Charity