Sunday, May 3, 2020

Making America Great Again

Fundamentals can be the hardest to grok. The primary principle of economics still, after all these years, seems deeply counterintuitive. Even if you understand it intellectually, you probably don't feel it in your gut. Here goes: consumers lead the market.

There is absolutely a circle of supply/demand, but it's not like chickens and eggs. The circle is steeply tilted, and demand sits atop.

We are in possibly the strangest recession in all of human history. Commerce has dried to a drip but it's not due to the normal pessimism and gloom, nor are we distracted and disrupted by grand activities (e.g. preparations for war) shifting commerce to another footing. There's no footing at all, and confidence was perfectly fine until a few weeks ago. So we're like Wile E Coyote off the cliff, helplessly awaiting gravity. Business leaders are shutting their eyes, sticking fingers in their ears, and waiting fitfully.

You and I aren't just waiting, we've mostly made up our minds. When the virus comes under more control, very hard times will ensue where we won't behave normally. There will be an extended interlude as normality reboots in fits and starts, though, hey, maybe things will never go back to normal.

In both bull and bear markets, the most tenacious fountain of irrationality stems from exactly that exquisitely contagious thought: "maybe things will never go back to normal". That thought is the Great Destroyer (it's a kissing cousin to the fallacy that makes us senselessly aim for infinity.

Infinity aside, it seems a foregone conclusion that hordes of unemployed, hordes of unpaid landlords, and hordes of shuttered businesses who couldn't pay rent, will combine to create a vicious circle, dragging us all down. Inevitable!

And yet the CEO classes, again, are in Wile E Coyote mode: suspended in freefall, braced, worried, and waiting. They know what we disregard: public sentiment is everything. If we think hell inevitable, hell we shall bring. If not - if we remain partially tethered to the confidence seen before the outbreak - we'll immediately begin recovery. The key will turn and the engine will at least engage. This is what economists refer to as a "V" shaped recovery, where we immediately move toward recovery without a listless plateau. And it will be determined entirely by consumer psychology/sentiment/framing.

If the majority of the country which is not unemployed returns to buying things and doing stuff - eating out and driving cars - and the 19 million (!!!) American millionaires don't psyche themselves out by lapsing into austerity mode, the fall will be relatively mild and more swiftly self-repairing. But self-repair doesn't begin until the engine engages. And it is us who make it engage.

It's a perceptual framing issue. If we feel in the icy pits of our stomachs that we're in a depression, we'll behave in ways that drastically magnify the problem (again: vicious circle). There's little business can do to entice us unless we're willing to be enticed.

At some point, a corner is turned (it's 100% psychological, a question of framing, and it can happen anytime or it can stall for decades). The engine sputters, then fires, then recovery begins. The world always returns to some balance. We just need to release the irrational notion that perhaps things will never go back to normal.

Remember Roosevelt's "the only thing we have to fear is fear itself"?

So here's my proposition: There is one single thing Donald Trump is good at: selling. Salesmen are gifted at inducing certain specific types of reframings; of perceptual shifts. So, while I hate to admit it, he may be the perfect guy for the task. More so than an Obama or a Reagan. More than Roosevelt or Kennedy or Lincoln. He's the one with proven talent for inducing consumerist reframing at scale. This is his wheelhouse.

Wouldn't it be the ultimate irony if Trump's the guy who saves the nation from its worst depression ever? I thought America was plenty great in 2016, but we're at a critical moment, needing to re-spark the engine of economic greatness. It's not about metrics or conditions, it's purely about psyching ourselves up and shifting our perspective. We need a salesman, and we've been cursed and burdened for three years with a master salesman whose one tool was comically wrong for the least until now.

If that notion filled you with such rage and disgust that you'd root against it, then you've gone off the deep end. That's what hatred does; it makes you act against your own interest. It's one of several reasons I try not to hate, though I'd have given up fingers and toes for a change of president.

Of course, all this said, a second viral wave is likely in fall/winter, and a vaccine won't be ready until months after that, so Trump will most likely not be in office when we actually require his unique and narrow talent. So this is just speculative musing.


2 comments: said...

Thanks Jim, your thoughts are always interesting. This one is difficult to digest but certainly attests to the need for a positive attitude even when we are enveloped in bull shit. The salesman is necessary, we know the baggage the top guy carries and at the same time we are subject to the moment, perhaps sickened by our participation, but maybe aware that your point has merit, even though we are subject to a criminal enterprise. Those of extreme wealth may compromise and bend with greater ease while others of sufficient education burn with hatred maybe to their detriment. Your comments while worthy are uncomfortable to consider but thank you.

James Leff said...

Thanks for the comment. The way I see it, multiple things can be possible at the same time. A great salesman can make a horrendous president, and have lots of other issues and proclivities that make him worse still, but a great salesman also has skills that are useful to the nation at certain times. All those things can be true.

To me, it's not indigestible unless one needs bad things to be 100% bad. I opted out of that mindset watching Republicans indignantly rejecting conservative proposals the moment Obama embraced them, and shouting down patently reasonable statements/actions just because they came from Obama. That dynamic really disgusted me and I promised myself I'd never be twisted into that sort of irrationality and hypocrisy.

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