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The Economic Downturn and The Psychology of Our Culture


09Jul 2009

I am not an economist (thankfully). But economists, meteorologists (those who try to predict the weather), and psychologists are somewhat in the same situation — our ‘sciences’ are not very “hard” — that is, they often are not solidly grounded in data and they lack power to predict. For example, last night there was no prediction at all of any precipitation and we had a major rain and hailstorm in our area (up to baseball sized hail!). Part of the problem for all three of these sciences is that there are numerous inter-related factors (many of which are still unknown) that need to be accounted for in trying to predict what will happen.

The point is — no one really has a good handle on the future of the U.S. (and global) economy. Just turn on the TV or radio and you will hear numerous opinions on what is happening, and what needs to happen to make our economic situation improve.

But let’s take a look at the basics and this will give us some clues. Economic activity, at its core, is the exchange of goods, services or information for monetary value. Going back to some basic cause and effect relationships we can follow the following line of thought:

  • People work and receive money for their services.
  • When people don’t have jobs, they don’t make (as much) money.
  • When people don’t have as much money and don’t see the opportunity for more money come in, they either don’t spend as much, or spend on credit.
  • At some point, most people, when their income is reduced over a period of time, reach a limit of what they can buy on credit or realize it is not a wise pattern to continue.
  • Eventually, people begin to “cut back” on non-essential spending (eating out, recreational activities) and also tend to slow down the process of replacing existing belongings (new technology, new clothes, furniture, cars).
  • The lack of spending means businesses are selling less goods and services, receiving less income, and have to cut back expenses in their business, which includes labor. Hence, they reduce employees’ hours or lay off employees.
  • These people now have less money to spend.
  • And thus, the negative spiral of an economic downturn continues.

The key question becomes: how does this negative cycle turn around? This is where economics becomes largely theoretical, and an individual’s answer is related to their beliefs about economic activity and individuals’ behavior. President Obama and others believe governmental intervention is necessary. Others believe letting the free market forces drive the process. And obviously, there are combined approaches.

I believe that this is where understanding the psychology of our culture is important. In actuality, as in economics, there are actually two fairly diverse sets of beliefs that exist is our culture. And these belief systems drive different expectations and behaviors.

Cultural Belief System #1:

  • I deserve “x”. I have had “x” before, and I still want it. [Note: “x” can be a lot of things — money, a job, health care, free time, retirement benefits, a nice home, etc.]
  • If you have “x” and I don’t, you should share at least some of your “x” with me.
  • If I don’t have “x”, somebody should do something so that I can have it.
  • The problem (of whatever causes me not to have “x”) lies in a greater system of rules, organizations, factors that I don’t have much control over.

Cultural Belief System #2:

  • Life is what it is, including bad (or unfair) circumstances.
  • Some of my life’s circumstances are directly related to my choices; some circumstances come from factors outside of my control.
  • If I want the circumstances in my life to be different, it is largely up to me to figure out how to make that happen. There may be some larger system issues that may need to be changed, but I can’t depend on that happening.
  • Making my life’s circumstances better may require me doing things I would prefer not to — work long hours, do work that I don’t enjoy; relocate; be away from my family for a while; live a simpler lifestyle than I am used to.
  • I will do what I can to improve my circumstances, knowing there are no guarantees, and hope for the best.

And here we come to a critical factor that can impact a person’s future:  hope. Psychologists believe that the loss of hope is a key component of depression.  A person can go through a lot of negative circumstances — and become discouraged, worn out or sad.  But when they lose hope that “things will get better”, that is when more serious depression develops. They give up.

So here is what I predict, as a psychologist.

  1. The economic recovery is going to take longer than what most Americans want.  This is due to the economic reality that the ultimate recovery is related to job creation and the resulting economic activity that occurs, and this appears to be a long-term issue. And secondly, our culture is very present-oriented with little patience. We want things “now”, and this is unlikely to occur.
  2. There will be two groups of people that experience the economic downturn differently:

a)  There will be people who expect life to be “like it used to be”, and expect someone else to make that happen (largely, the government or maybe ‘big business’ or the wealthy.) These people will become increasingly impatient, angry, and demanding of others. Their focus will be on economic relief programs and governmental bailouts.

b) There will be a group of individuals who take steps in their lives to make the best of a bad situation, and who will ultimately (some, not all) find opportunities economically — to provide goods, services or information that others need and are willing to pay for. Their life circumstances will probably be difficult for a period of time but they will “deal with it” and continue on.  There will be a portion of this group who will find significant economic success as a result of their efforts (there are always people who find ways to make money in difficult economic times.)

I think it may be a good time for each of us to ask ourselves:

  • What do I believe about what is happening?
  • Which group do I want to be a member of?

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