Every time I switch on the television or open my internet browser, I am bombarded with discussions about the US economy. It’s a complicated issue with a large number of variables, yet the news media and financial pundits keep making predictions as if they had a crystal ball. The problem is that a lot of their confidence is false.
Let’s start with the numbers. As anyone who keeps up with the latest figures can attest to, economic indicators have become increasingly unreliable. From employment, housing and manufacturing sector numbers to market indices, the numbers cannot be used to gauge anything except near-term trends, mainly because they keep fluctuating unpredictably. It’s gotten so bad that even someone with a banking background like myself is left scratching my head, wondering whether the economy is truly going up or down.
I think the way to assess the situation correctly is to ignore the numbers, not because numbers are not good predictors but because they are no longer good predictors in a high-tech global economy that has become so complex and interdependent that conventional models used for evaluating economic indicators have become outdated and frankly, useless. In this climate, we are better off evaluating the economy through the application of personal observation and common sense.
There is a lot of chatter in the press about how the economy is suffering because of a misguided stimulus plan. Let’s look at that. Back at the end of 2008, our economic system came dangerously close to complete and utter collapse. Had the big banks been allowed to fail, every commercial enterprise in the US would have failed in a domino effect. The banks provide capital to every other sector, which means that Bush and Obama did the right thing in preventing a major collapse from occurring. So, right out of the gate, things were not nearly as bad as they could have been.
Sure, there have been layoffs and credit tightening, but both of those are inevitable after a market crash. The question is not what occurred but whether things have improved since then. The fact remains that the number of layoffs have slowed down considerably and credit has loosened up, at least in credit cards and auto loans – just not to previous levels and not enough to provide us with the easy money we grew accustomed to. While unemployment is still unacceptably high at 8.1%, it is mainly due to the shockwaves from 2008, which are bound to ripple through our system for at least another year. When the market goes into a severe panic, as it did in 2008, it’s natural for every part of the private sector to react unfavorably, and this includes the labor market. Nevertheless, job creation is on the rise, but again slower than we would like. As for credit, excessive debt was how we got into this mess in the first place and the new reality may be unpleasant but will be healthy for our country in the long run. We have to learn to live within our means and that is exactly what is happening now.
The other thing to remember is that all shockwaves eventually fade. The current cycle of unemployment, wavering consumer confidence and credit uncertainty is exactly that – a cycle – which will likely continue till the end of 2013 and then reverse its direction as our nation recovers. While we keep hearing sensationalist stories of how bad things are, they are nowhere nearly as bad as they were, and they are getting better. For every foreclosure there is a new home owner, for every business that shuts down, a new one takes its place with a leaner, more efficient business model. This process may not be pretty but it’s certainly not the end of the world.
Most importantly, economic recovery is not just about the numbers but about optimism. The same faces around you who last year were depressed or in an outright panic are now calmer and looking forward. Some of those faces belong to people who are doing the future planning for companies, who are starting new businesses, who are hiring new workers and who are spending more money on goods and services themselves. The reason it’s hard to believe this is because financial pundits show up on television to confuse us. Just when we think everything will be fine, someone with more brains than sense tells us that it won’t, which then frightens the optimist in us into a coma and creates a self-fulfilling prophecy.
Don’t let that happen. Don’t let over-analysis fool you into believing that things are not moving in the right direction. Don’t let statistics that keep fluctuating wildly inform your own economic decisions. Most of all, try to see through the economic predictions of so-called “experts” and recognize them for the speculations that they are. Try to also keep in mind the fact that both politics and financial self-interest plays a major part in the assessment of these individuals, which compromises their opinions.
In the end, your best guide to our economic condition is your own common sense, directed at the community around you, as well as an acceptance of the fact that recovery takes time. If you got sick, you wouldn’t expect to recover overnight but gradually heal with time and optimism. That’s exactly the case here. Our economic mess is a disease and our recovery will not happen as quickly as we would like it to, but if we don’t believe in it, it never will. Your optimism doesn’t just keep you sane but also contributes to the very recovery that you are after.
Sanjay Sanghoee has worked at leading investment banks and hedge funds, and is the author of two novels. Please visit www.sanghoee.com for more blogs and to sign up for updates.