Economic Optimism
I watch so many movies about the wars of the 20th Century that I find myself wondering what it must be like to be facing the world with nothing in your pocket and no particular prospects for things getting better soon. The two movies I watched yesterday were of this sort. The first was a real D-list movie called Air Strike. This was a 2018 film that was made in China and represents an attempt by the Chinese producers to climb on the Willis brand name, and an attempt by Willis to get work in the twilight of his career regardless of the quality of the production. It is about the feeble efforts of the Chinese Air Force to fend off the Japanese air strikes being inflicted on China in the early days of WWII. The relentless bombing and destruction of the old capital in Nanjing by the Japanese and the removal of the capital to the far western provincial city of Chongqing gave the Japanese a path to bomb huge swaths of China far inland. The movie shows the total destruction of a countryside that was not particularly well-developed anyway, but at least provided some degree of sustenance for the local population. This was only 85 years ago and yet we see whole masses of people left with nothing and no particular prospects for things getting better soon. It had a very desperate feel to it and that made it likely very realistic. When I see similar destructive scenes from the same time in Europe and places like Poland, there is a similar sense of paucity that I’m sure laid over the entire population like a wet blanket.
When we see massive poverty and deprivation in Africa, it is hard to relate because these agrarian societies seem more afflicted by things like drought and less by wartime devastation. In places like South America, poverty seems focused on the tropical squalor, but not necessarily on things like bombing. The places where wartime impact seems the most dramatic are places like Eastern Europe and Russia as well as China. These people seemed to have found a way to survive and even thrive locally, but then that is eliminated by external aggression. When one asks what is worse than not having something, the logical answer is having lost something you had and then not having anything. Losing a wallet seems somehow worse than not having a wallet. It is hard to imagine how desperate that must feel. How does one get optimistic in that place?
The second movie we watched last night was The Boys in the Boat. That is an even more complex story of deprivation that takes place before WWII, but with a backdrop of impending war (at least with Nazi Germany). Like movies of the same era like Water for Elephants, Of Mice and Men and Seabiscuit, it is set during the depths of the American Great Depression. It is far more relatable to us because there is no external force like bombing that is depriving people of economic sustenance and hope. There is simply some vast malaise that is overlaying the lives of regular folks. They can’t see the enemy and therefore they don’t know who to fight or how to fight it. The despair and psychological devastation are equally severe and the common element is that economic optimism is totally absent. One of the things all economists understand is that a central component of economic prosperity is economic optimism. Without it, people are quick to consume rather than invest. There is no concern for the future, only the present. If people are getting bombed and everything they have is being taken from them or if they are despondent by virtue of having nowhere to turn to gain a foothold on getting resources, they share an abject lack of economic optimism. They are in survival mode and growth for the future is not on the table.
I think that is all hard to disagree with and it is even harder to ignore if you are trying to build some economic momentum. During COVID, we came to a collective point of societal survival. We shut down our economy in order to try and stay safe from an invisible external agent of destruction. The bombs that were being dropped were viral, but they were just as destructive to our sense of economic optimism. I was even surprised to see that the wet blanket of COVID didn’t have a greater impact on our economic outlook. And why did things not get as bad as I feared? Mostly because enlightened leaders understood the imperative of fiscal economic stimulus. The economy needed a jolt as much as a person who’s heart has suddenly stopped needs a defibrillator. It’s amazing to me to see people worrying about the cost of the electricity needed for that economic shock when it was clearly a case of life or death…perhaps even for them or theirs.
It has concerned me to see the American electorate not buying into the economic miracle that Joe Biden has presided over during the past three years. He has taken the American coronary patient and not just resuscitated him, but made him considerably stronger for the future. That prosperity has been ignored by many who aren’t prepared to give a nod to Bidenomics and Joe Biden’s popularity ratings have suffered accordingly. There are plenty of issues that BIden stands by that I can understand are unpopular by some in the country. Issues like abortion and immigration are at the top of the list. Even issues of national security and foreign policy are always open to debate by those who are globalists versus those who prefer a focus on nationalist priorities. But what really cannot be debated is the economic miracle that has come about over the past three years and led to an economic table for the country that is set for both current and future prosperity. Wages are up, employment is up, inflation is down, strategic investment is up, and the stock market is way up at record levels. As they say, what’s not to like?
Without some sense that the outlook is good, this would become a wasted economic moment because the absence of optimism will have to result in worse economic performance, almost by definition. I tend to think that politics has been getting in the way of generating that optimism, but now even the MAGA alternate reality scenario, spearheaded by Trump saying he wants the economy to crash to help his electoral chances, has begun to fall by the wayside. Yesterday’s releases of the Michigan Consumer Sentiment Index showed that January sentiment has surged for the second month in a row. This is the best improvement in that index since 1991, more than thirty years ago. It tells us that the population has finally had to admit that things are looking good and that they are actually becoming economically optimistic again. While there are plenty of bumps in the road, especially things like the embattled and hardened political rift that is coming to a head in 2024, for now, people are seeing the economy for what it is, strong and vibrant.
I understand that there is always a debate as to cause and effect in both economic and political consideration, but incumbents are generally tied to the economic reality that exists when they are up for reelection. Joe Biden might finally be getting his due for Bidenomics, a fiscal approach that those Keynesian’s among us will say are necessary ingredients for prosperity and quite central to generating economic optimism. Go Joe!