A Letter from the Provinces: On Confidence

by Patrick Baker                                                                November 26, 2008

A lack of confidence in America – in both senses of the phrase – is wreaking chaos at home and in the provinces. First it caused the mortgage bubble to burst, then giant insurance and financial institutions to collapse, and it has now forced the Big Three to their wobbly knees. If only we could restore confidence in American housing, financial, and automobile markets, then we could get out of this hole. Or so we are being told.

    From the perspective on the periphery, however, things look a bit different. That is, they look to be exactly the opposite. It seems not to be a lack of confidence that has caused these problems or contributes to their dreaded permanence, but rather its contrary: overconfidence. Our financial and governmental habits have been characterized by overconfidence in an ever-rising housing market; in the “no-risk” version of the free market, thought up on Wall Street in the mid-nineties; in a stable, low price of oil; in the value of inherently worthless things; in the beneficence of greed; in the relationship of Chevy or Prudential to the solidity of rocks, rather than to their rate of acceleration in freefall; in the ability of corporations to regulate themselves; and in the assumption that there has been a captain at the helm of our Ship of State – in the form of either Congress or the Executive – even a sleepy one, or one who happened to be deaf, dumb, and blind, or even just plain dumb. All these versions of overconfidence have reigned in America at least since the Gingrich Revolution.

    And to the extent that Americans buy into the “confidence-problem” theory, they will once again be guilty of overconfidence, mired in an exaggerated and unfounded faith that this problem can be solved by government, especially the current one; or by money, either real or imaginary (since, not being backed by gold or anything else of durable value, our money is essentially imaginary); or by the same “captains” of industry who got us into this mess. If Edward Smith had survived the Titanic, would we be so eager to give him the next vessel in the shipyard? Thinking in these terms, why would anyone ever listen to Robert Rubin again? About anything.

    We should not think of the economy as some teenage boy who’s got everything going for him except the nerve to ask out the blonde sitting next to him. The economy does not need a pep talk or an encouraging glance to make its move. Nor does it need a blank check. It needs a reality check, which means first and foremost deflating the overconfidence that has allowed it to soar beyond its capacities. The economy as we have known it in the last decade needs to be popped, not propped up. It simply merits no confidence. Should we pretend otherwise only so that the unscrupulous can continue to profit before we really crash?

    So it would seem better to think of the economy rather as an airplane whose pilot is dead and whose cockpit is on fire. If we, the passengers, manage to land this thing, it would be wise not to take off again until the structural problems have been repaired and a competent captain has been found. The only thing worse than not resolving this crisis would be to relieve it through an unwarranted injection of undeserved confidence. Such would be equivalent to dismantling the warning lights that keep flashing on annoyingly as the pilot anxiously fondles the throttle.

    Saying this is all fine and good, but, as always, we passengers are powerless. Fasten your seatbelts, America – our captains have returned from the bar and are about to be cleared for take-off. I just hope they don’t crash in the provinces.

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