The impact on the broader economy and the financial markets of the problems in the subprime markets seems likely to be contained. - Ben Bernanke, Fed Chairman, March 2007 [emphasis mine]Was Bernanke expressing incompetent truthful optimism or competently untruthful optimism? What our system really hinges on is how people perceive events and vote with their money and ballet. The moderating "invisible hand" of the markets portrayed as some kind of supernatural force* is really a myth.
I caught a few segments of a public radio show as I did errands this morning. The show was on what the Fed really does. It was interesting to note how much of the economy is based on perception. Our whole economic system rests on the peoples trust in our money supply. Invisible hand or not, people are the ones who vote with their money. They decide whether or not to buy the latest slicing gadget on the boardwalk. They also decide whether to take their money out of the stock market and banks based on what might be whispered in their ears by the media.
Oddly, after missing most of this radio show, which I would have enjoyed very much had I not wanted to finish all my errands, the next show was on the biggest media fiascoes of the decade. Blame President George W. Bush all you want for the "mission accomplished" banner, but it seems as if he was sort of duped by the press like we all were. While I don't believe his generals were duped, I think, the president may have just wanted to bask in the glory the press had created. I don't know, I haven't gotten to that part of his book yet. :) (I have so many books to read and Perry Mason is quite a draw over Decision Points.)
This second public radio show began with an account of the biggest press mistake the show's creators could think of and that was the sensationalistic coverage of the toppling of the statue of Saddam Hussein. Apparently, the square with the famous statue was very close to the reporters' hotel. The reporters gathered here in this square because the American military was containing this small area and it seemed much safer than their hotel which had been bombed the night before. Most were just going to a safe place. Some very good reporters were calling in to argue that there was a bigger overall picture to see and they were heading that way. After CNN's coverage of the square with the statue these veteran reporters were told from their home offices that they were just not "getting it." The journalists were citing their years of experience in covering wars and trying to show they knew what they were doing in trying to cover the overall picture. However, they were told by the guys in the suits that the story was in that square; the money shot, so to speak.
And the story? It went something like this: when the military vehicles started arriving, a soldier radioed in that we ought to pull down that statue. His commanding officer thought he was not concentrating on the main objective of securing the area and denied the request. Soon some Iraqis started climbing the statue. Noticing this, and the fact that the square seemed secure, a soldier radioed and asked if he could at least give them some rope and a sledge hammer. Yes, the answer came, go ahead, but DON'T use military vehicles to assist. As the small number of Iraqis started to hit the statue, it became obvious that they could not bring it down. And soon it became obvious to the commanding officer that with CNN covering this one shot wall to wall, if that statue did not come down it would symbolize failure. Soon the military helped pull the statue down, symbolizing and portrayed by the press as a microcosm of our total victory. A wider shot of the square would have shown basically an empty square except for a few Iraqis and a bunch of journalists filming and standing around in an outer circle. In no way did this small secured area symbolize anything important.
Again, we can blame President Bush for the banner or we can blame the media for the coverage of "victory." Honestly, it doesn't matter why the people were misinformed about the extent of the problems we were facing in Iraq, nor how they would soon be compounded. What the press wanted was to put things in terms of something simple that Americans were familiar with. They totally lost me as lawlessness and looters reigned. I remember the ideas expressed that Iraqis were now free, as if that freedom was an answer to all their problems. and as a consequence the resources needed here in Iraq compounded the problems in Afghanistan and eventually in our economy. The important thing to me is that most of us were wrong minded. Where I am now once more lost is the result of recent elections showing we cannot remember back just two years. Certainly we have no clue about the 1930's when the same kind of panic caused problems that decades could not fix. Without the trillions the Fed and the Federal government has used to moderate the Bush Depression, we certainly would be a lot more knowledgeable about the problems we are facing. Things would look much more like a free and open capitalistic system. So, why not trust the invisible hand a little more than we have?
God may be perfect, but we are not. And He doesn't make up the "invisible hand" as the phrase subtly implies; we the people, make up the "invisible hand" that coordinates markets and government policy. And often guided by greed and not God or real values, we, like even financial geniuses like Ben Bernanke, are often sadly ignorant at many key junctures in history, likely as not.
* In my mind, the "invisible hand" concept is the basic underlying principle of our way of life and economics. It has an almost religious significance. I'm sorry to keep repeating the phrase, but much of my later arguments will be in regard to how this simple phrase and the man who inadvertently created such a powerful phrase have led us into a simplistic way of thinking that does not take into account many factors that that are extremely important but might be harder to understand.