How to close America's confidence gap
Obama's actions, more than his speech, will have a big role to play in easing the historically bleak consumer mood.
The signal from the stock market and polls is clear: Restoring Americans’ economic confidence will require something more than throwing federal dollars at banks, businesses, and consumers.Skip to next paragraph
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The issue of lost confidence – and how to revive it – is playing a more pivotal role in this recession than in others. The reason is that today’s problems are centered on the markets for credit, which is really just another word for trust.
On Tuesday, an index of consumer confidence fell to a low not seen in four decades of surveys. Stock indexes are on a parallel track, having dropped this week to levels not seen since the mid-1990s.
All this comes despite – and perhaps partly because of – extraordinary government intervention on the economy’s behalf.
Consider that the biggest bank, the biggest insurance firm, and the biggest automaker are all seeking more government support this week.
Many Americans are worried not just about their jobs or the value of their homes, but about whether the public rescue efforts will work, how much tax money they’ll cost, and when there will be clarity on the scope of government’s role.
The challenge for President Obama and other policymakers is how to revive the spirits of a marketplace economy even as the government takes an unusually large role in that marketplace.
“There’s no confidence that we know what the rules are yet,” says Brian Battle, a bond trader and vice president at Performance Trust Capital Partners in Chicago. It doesn’t help, he adds, that “the administration has spent a lot of time talking about how bad everything is.”
He’s not saying that the government shouldn’t be taking strong action or that a pep talk is all that’s needed.
But the goal, Mr. Battle says, is for markets to start functioning normally again. That still hasn’t happened.
Public dislikes bailouts
He’s not the only one concerned about the scale and nature of government involvement in the economy.
A new USA Today/Gallup poll finds that Americans largely disapprove of spending more money rescuing companies such as automakers and banks. The public generally supports spending to create jobs and helping homeowners avoid foreclosure, but people have serious worries about the overall cost and the danger posed by rising federal deficits.
All this gives Mr. Obama a complicated task.
He’s spending much of this week on the theme of fiscal discipline, to reassure Americans as well as foreign lenders that the government is determined not to borrow its way into a deeper hole.
Priming the pump
But for now, big government spending is needed, many economists say, because the normal pillars of the economy – consumer spending, business investment, construction, and trade – have simultaneously fallen on hard times.
More evidence of difficulties has been piling up lately:
• The Conference Board’s consumer confidence index sank to a level of 25 in February, down from 37 last month and 76 a year ago.
•Stock market indexes closed at 1997 levels Monday. The stock slide reflects ongoing worries about the overall economy and, in particular, the core financial system. The concern is that more bailouts may put some large banks effectively under government control.
What’s needed to turn the dismal mood around?