Betrayed by Washington and Wall Street, We Find It Hard to Accept Good News
The financial crisis and stagnant economy have made us bitter. We've become a nation of complainers and critics. Nothing is ever good enough for us. The bailouts are misguided. The stimulus didn't work or wasn't enough. Reform is too weak or makes matters worse.
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It's one thing to call the glass half empty, but these days we deny the existence of tableware.
Understandable as it may be, cynicism is a damaging and unhealthy way of analyzing Wall Street. We're all for the free exchange of ideas, but when the conversation is dominated by the dispiriting, blindly disparaging discourse, it's not just a downer, it's dishonest.
Take, for instance, a recent report by Alan Blinder and Mark Zandi that examines the impact of the government's response to the financial crisis. "How the Great Recession Was Brought to An End" suggests that government policies saved about 8.5 million jobs, staved off deflation and boosted gross domestic product — hardly a radical assessment.
The report was released July 28, and in the two weeks that have followed the response has been nothing short of spiteful.
Critics including Lawrence Lindsey, former director of the National Economic Council, Arnold Kling, economist and founder of EconLog, Nassim Taleb, the noted risk expert and Stanford University economist John Taylor frothed over the report. They claim it was political and not up to academic standards. They questioned the theories, the conclusions and dismissed it altogether.
Mr. Kling was the most direct. He called the paper an "unseemly exercise in propaganda dressed up as research."
More on that later. But the most telling criticism and the one which characterizes the current climate of criticism of government came from the usually even-keeled fund manager and financial blogger, Barry Ritholtz.
|Economy Half Full? A Tale of the Tape: Difference in the U.S. economy without stimulus and market intervention by the government.|
|With Intervention||Without Intervention||Difference|
|Highest Unemployment||10%||16%||37.5% lower|
|GDP in 2011||$13.80||$12||15% higher|
An exasperated Mr. Ritholtz scolded, "That is now our standard — what was done versus doing nothing? That is truly the wrong counter-factual."
And that's really the issue here, isn't it? We can't look back on decisions made in a time of crisis and admire them by noting how effective they are, especially when those actions were taken by people who created the toxic environment. Estimating the impact of actions taken not only is "counter-factual" but — perish the thought — forgiving.
'A Protective Force'
That sort of assessment is surprising coming from professionals whose job is detatched analysis. Their judgment seems less to do with facts and has more in common with out collective battered psyche. The financial crisis has made many of us feel like victims who are nervous about being burned again, said Matt Wallaert, a behavioral financial psychologist.
"Cynicism is a protective force," Mr. Wallaert said. "If you don't let yourself believe that something good can happen, then you can't be let down when it doesn't. If you are suspicious of others' motives, you are less likely to feel tricked or betrayed by them.
"That's a big part of where we are as a country. We were told by the people in finance that they had it all figured out and all under control. Clearly, they didn't. And having betrayed the collective trust, the road back to being trusted is twice as long."
Protective cynicism goes a long way toward explaining the backlash to the Blinder-Zandi paper. But there's a back story too. Mr. Blinder, a Princeton economist and Mr. Zandi, chief economist at Moody's Analytics, have been somewhat bullish on the economy and government intervention. To some they've sounded a little too rah-rah in their outlook. Even the title of their paper, given the uncertainty of the economic times, seems to be a reach.
The study too has its issues. Mr. Blinder concedes that the economic models used for the report aren't fashionable in academic circles, but similar models are still used by the Federal Reserve, Congressional Budget Office along with other government agencies and private companies. And Mr. Lindsey has a point, "the math is fine, but it sheds no light on the policy issue" of stimulus. The authors agree somewhat, but argue policy analysis wasn't the mission.
Playing to the Mob
But conceding the issues, is the Blinder-Zandi paper worthy of the vitriol?
Of course not. Arguing the facts, theories, methods are all fair game. But admonishing a positive conclusion just because it's positive is cheap. It plays to the mob, not the serious.
To their credit, Mr. Blinder, a Princeton economist, and Mr. Zandi, weren't fazed by the barrage. Mr. Blinder even agreed with Mr. Taylor's criticism that the paper was somewhat incomplete.
"More research on this question is surely justified," he said.
Indeed, the authors note in their introduction that this was just a first step, and that they welcomed more analysis and a deeper examination by other scholars, economists and researchers.
Wish them luck. Anyone who follows this analysis can surely expect more knee-jerk hotheads to tear them down. We've been burned, after all. We won't get fooled again.
As Mr. Wallaert noted, "We're so sensitive right now to making sure that we don't get screwed a second time that we doubt everything they do, just to avoid that feeling of betrayal."
Even if it means shorting the truth.
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- Mark Zandi