Olsztynski Editorial: Keep Things In Perspective
A radio news report mentioned that cumulative valuation of U.S. stocks has declined some $60 trillion during the market's slump the last three years.
$60 TRILLION! With a T. That's an incomprehensible amount of money. It's about six times the annual U.S. Gross Domestic Product. If we were to print the number with all its zeroes, it would take up about half this column's width.
Yet, even more noteworthy is that despite the loss of so much paper wealth - and despite the hammering of the American psyche that occurred on 9/11/01, and the costs of going to war in Afghanistan and building up for one in Iraq - our economy still chugs along in pretty good shape. We did lapse into a couple of quarters of slight decline in the immediate aftermath of 9/11/01, but avoided the utter collapse that had been feared. Since then what so many people have been calling a recession is more accurately described as sluggish growth.
Our sluggish system is 60% larger than the world's second largest national economy, Japan's, and only slightly smaller than the economies of all 15 nations of the European Union combined. And even our presently lethargic rate of growth outpaces theirs.
Yes, blips of bad economic news may translate to hardship for tens of thousands of U.S. citizens, but the big picture still shows that the vast majority of us are living normal, comfortable lives. We may buy fewer trinkets than we did a few years ago and endure other tiny deprivations, but from any reasonable perspective the current state of the American economy is one of the wonders of the modern world.
You wouldn't know that from reading the headlines, though.
Case in point is a headline I saw in late November that read, "Housing construction plunges." It reported an 11.4% drop in housing starts last October, the biggest monthly decline since 1994. Sounds ominous, although the article went on to note that the "plunge" came on the heels of a 16-year high in September, and the annual rate of 1.6 million starts in October still was a healthy pace by historical standards.
All in all, balanced journalism, except a headline counts for much more than paragraphs of explanation. Heads shape the perception of a story and frequently they're all people read. Also, readers take cues about the significance of a story from the emphasis given to it. A more appropriate headline would have been along the lines of, "October Shows Housing Correction."
The Long ViewIt's a fact of life that bad news tends to crowd out the good, whether about business or anything else. Sure, the Enrons and WorldComs deserve to be raked through the coals for their malfeasance, but overall there is a lack of perspective in so much reporting about business and economics. Here's my take on things.
I got my start in this industry on the staff of Supply House Times in 1977. Those were tumultuous economic times. Our industry was enjoying one of the biggest booms ever, with housing starts topping 2 million units and product shortages being one of the biggest problems. But trouble was brewing. Inflation was raging and setting the stage for a new phenomenon that came to be known as "stagflation" - a receding economy coupled with inflationary money. By the end of the decade interest rates were rising toward the high teens and many leading economists feared we might be headed toward the type of hyperinflation that led to the collapse of Germany's Weimar Republic and various South American regimes.
The recession of 1981-82 was the steepest decline in our economy since the Great Depression. Pundits called it the "Reagan Recession," in honor of the president who ascended to office more or less coinciding with its onset. Of course, it was policies of the previous administration that set it in motion, but then as now the Beltway babblers were incapable of seeing beyond the nose on their face.
Reagan's economic team, led by Fed Chairman Paul Volker, stuck to their guns with a monetarist approach that increased pain over the short term, but set the stage for unsurpassed prosperity during the ensuing two decades. The good times peaked in the 1990s, and since then we've experienced a relatively gentle rollback compared with the boom-bust cycles of previous eras.
This is what I mean by perspective. Economic activity in this country is governed by the collective psychology of its citizens. Unwarranted negativism runs rampant in the media and distorts our thinking, which in turn impacts what we do with our money.
Trust me. It's okay to buy things and invest your money.