Turning the corner
Last November, according to the New York Times-CBS poll (which has as good a record for soundness as any), nearly twice as many Americans were pessimistic as were optimistic about the future of their country and the future of their own well-being.
According to their latest poll the proportions of pessimists to optimists has reversed. Many more now think the future both for the country and for themselves is promising. On the question of the future for their personal lives , 40 percent are now optimistic against only 18 percent who think things will get worse.
Did you notice in this connection that the price of gold continues to sag on world markets, while the dollar is going up?
This is another measure of public assumptions about the future. Gold is a hedge against inflation. People who think inflation is here to stay, and going ever faster, buy gold. People who think that the American economy is going to improve and that inflation will decline have no reason to buy -- except for teeth or ornament.
But notice, please, that this change in public assumptions cannot be due to the actual impact on the lives of people of President Reagan's policies. None of his major policies has yet been put into operation. His policies are all still in the planning and the legislative stages. Government spending has not yet been cut. Not even the rate of government spending has yet been cut. And taxes? Both houses of Congress are expected to vote for the President's new tax proposals, perhaps with modifications. But you and I are still paying taxes at the same old rates.
The actual impact of Reagan policies on payrolls, take-home pay, prices, taxes, productivity, employment is still well in the future. No one can know for a fact that the changes Mr. Reagan proposes will do the things they are supposed to do. And yet the polls and the price of gold assume that they will have the stabilizing effect which they are supposed by their framers to have.
In other words, the psychological attitude of the country has changed remarkably, without there being much hard, factual reason for the change.
True, there is some factual basis. All spring we have been hearing about an oil glut instead of an oil shortage. The price of gasoline has stopped going up. Indeed, in some places it has gone down a little. And there seems to be a possibility that it will go down even more. Food prices have more or less leveled off. Price stability is no longer only a memory among members of the older generation. It has suddenly become a conceivable prospect for all.
And what about wage stability? If the mass of people think prices are going to stabilize, then employers will be less willing to grant wage rises than they have been when all prices and all wages were based on the expectation of more inflation. Remove the expectation of more inflation and both price and wage stability become possible.
There is rising resistance to the idea of ever higher wages. One exception to what is said above about the actual impact of Reagan policies was the settlement between the government and the wage demands of air-traffic controllers. Government granted what it was prepared to grant. It did not give more. Inflation is not over. But it would seem that the rate of inflation has been checked and is declining. There is even talk of getting the inflation rate below 5 percent before Mr. Reagan's term is finished.
Which has more impact on the future of the country: what operating policies actually do, or what people think they will do?
There can be little doubt that the attitude of the American people has turned right around since Ronald Reagan took over the presidency. Whereas the people were pessimistic under Mr. Carter they are now optimistic under Mr. Reagan.
Does it really matter whether his policies and his personal attitude have done this? Suppose it is just coincidence. The effect is likely to be the same. Psychology is immensely important in economics. What the majority of people think will happen can determine what does happen regardless of the plans of presidents and the votes of legislators.
Franklin Delano Roosevelt transformed the attitude of the American people from the moment he assumed the presidency. People thought they were on the way up, instead of down, even though actually economic recovery was years in coming. Mr. Reagan seems to be repeating the Roosevelt transformation.