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|The Importance of Optimism|
Corriere della Sera - November 1st 20098
It has been called the worst financial crisis to have occurred in the past 60 years. Others have said it is simply unprecedented. Even Alan Greenspan, the famous chairman of America’s Federal Reserve Board for more than 18 years, has called it a “global tsunami”, and a “once-in-a-century” event. Given the dramatic falls in share prices, volatile movements in currencies, and extraordinary boom and bust in the price of oil, you would be foolish to say that what has happened in the past two months has been just normal or unimportant. But there is a problem with all this extreme, hyperbolic language. It is that it is likely to make the crisis worse. Indeed, it already has done so.
Any financial crisis is in reality a crisis of confidence. All finance is based on trust, on a certain faith that loans will be repaid, that money is safe, that banks will survive. When that confidence disappears, so markets collapse and banks may collapse too. The question, though, which has been unanswerable ever since this credit crisis first became obvious in August 2007, and then became dramatic in September of this year, is what effect this loss of financial confidence might have on ordinary people, on the normal economy of shops, offices and factories.
In both Europe and America, we are just beginning to see that impact emerge. News of falling orders, declining spending and rising unemployment is all around us. It is still quite early to judge, but the indications are that the recession could be quite severe. Just like in the financial markets, it is a matter of confidence: banks have lost the confidence to lend, companies feel reluctant to borrow, consumers feel less willing to spend.
This process is self-reinforcing. If we all spend, lend or borrow less, than everyone’s business and income declines, and so we have even less money to spend, lend or borrow. Admittedly, this happens in every recession. But there is something extra, something unusual about this one. It is the intensity and speed with which optimism has turned into extreme pessimism, and how that pessimism is being magnified by the dramatic assessments that have been made by politicians, central bankers, economists and, yes, even the media.
Of course, they have to be realistic if they are to retain their credibility. They cannot pretend that all is well. But they also need to be careful that their language does not make things worse, and to be careful to offer hope as well as accuracy.
It may be true that banks face their most difficult times in more than half a century. But that does not mean that this recession must inevitably also be the worst in that time. To achieve that label would require unemployment in Britain, America or Italy to rise by more than 50% above its current level. This can, in principle, be avoided, through the government rescues of banks that have already taken place, through the lowering of interest rates and raising of government budget deficits, and by encouraging people and companies to keep their nerve.
What is needed is a more optimistic form of language from political and economic leaders, focusing on our ability to deal with problems, to rescue ourselves from difficulty, to find ways to change. My country’s prime minister, Gordon Brown, finds such optimism especially hard to convey, for he is an austere, rather serious man. Silvio Berlusconi is certainly better suited to such a role. All Europe’s leaders should, however, be paying attention to the language used by Barack Obama, during the final days of his campaign to be elected as America’s next president.
Optimism is a very American trait. Yet Senator Obama is running for president at a time of great pessimism, of economic crisis and of a crisis of American power. So is he gloomy? Not at all. His smile is radiant. He stands, he says, for hope, for change, for the ability to get things done. His task, assuming he is elected president on November 4th, will be tough. But he will enter office with a smile on his face and the hopes of the world lifting him up.