We can look at this problem through different lenses. From behavioral economics, there is considerable research showing that beings are more concerned with avoiding loss than with moving towards gains. And this is accentuated under stress. If we assume that this is a stressful time, then it is likely people are working to protect what they have, no matter how depleted, rather than focusing on opportunities for growth, no matter how promising. In our current situation, possibilities that could mean growth opportunities or areas of positive action are discounted in favor of maintaining the status quo. Learning is stalled.
Equity theory provides a somewhat different lens. It is a little more complex but still I think informative. Equity theory posits that in any situation people look at what that contributes and what they derive. This ratio is then used to compare to what another contributes and derives. When basically equal people evaluate this comparison, 3 outcomes are possible. 1) The 2 ratios are even, meaning fairness is experienced. 2) The first views his ratio less than the others, meaning under-reward is felt. 3) The first person views his ratio as greater than the other. Each of the last 2 produces tension and you try to reduce that tension.
If there is over-reward between equals, the resulting feeling is guilt. Several realistic options are available. I can try to increase my contributions. Think about Valentine's Day. You give a box of candy and your significant other gives you a Rolex watch. What do you experience? I suggest guilt. What would you do? I suggest that you will not give the watch back. Instead, you will try to increase your contributions, perhaps act more friendly, pay for more meals, do more work, etc. Or maybe, just think you deserved the watch and do nothing.
Now, if there is under-reward a more complicated state occurs. You gave the watch and got the candy. What happens? I suggest anger is felt. Here you have 2 options. You can try to increase what you derive from the relationship. This seems to produce negative behavior like theft or cheating. You can also try decrease what the other derives. How? By back stabbing or rumor mongering.
I suggest we are seeing both in our current situations. A lot of people performed poorly. But bankers who took the bonuses and the magnificent bathrooms are over-rewarded. The average American feels increasingly under-rewarded as they lose their houses and jobs. These differences are large, intractable, and gaining in aggressivity.
From this, blame and rationalization become rampant. I think we can see this on the news and talk programs. However, these seem more indicative of denial of the problem than progress toward a solution, more tied to identifying villains and victims. Unfortunately, villains and victims tend to view themselves as innocent and passive, only taking whatever comes their way. In this way, government money, whether corporate or individual, only breeds dependency. This is exacerbated by the escalation of demands, which AIG has recently proved to be an exemplar. Recovery involves seeing that we are complicitous in the consequences that befall us. This acknowledgment allows people to make amends, turn active, and find opportunities. Recovery is based in renewed confidence.
As we move into the new stimulus package, hope and finger crossing will not help us. Hope is no substitute for confidence in recovery.
(There are two other historical situations that might be able to shed a psychological light on a resolution to our current situation; the 9/11 attack and the Great Depression. In 2001 the Al Queda attacks shook our fabric to the core. But that attack was acute. It was contained and did not reoccur. The fear receded gradually and the control was reestablished. The threat was managed reestablished through the invasions Afghanistan and Iraq.
The Great Depression, on the other hand, was a more chronic condition lasting, according to some historians, until the attack by Japan and World War II. What makes both of these different than our current state is that they were both resolved through a common enemy. A common enemy galvanizes the national spirit, gives a specific mission, and a specific object of comparison. It also gives a benchmark to tell if we are succeeding.
Another lens is attribution theory. To be simple here, this theory holds that when it comes to success and failure people look to understand what has happened to them. Their frame is based upon: was the outcome due to me or due to circumstance? And is occurrence of outcome, relatively stable or unstable? Four different sources of outcomes result: ability, effort, task difficulty or luck. Ability flows from me and does not change appreciably, effort flows from me but changes appreciably, task difficulty is function of the environment and is stable, luck is a function of the environment and is highly unstable. If we attribute a failure to luck or task difficulty (bad mortgage brokers or irresponsible bank) because the source of our failure is outside ourselves, we learn little; and it is found our behavior in a next similar situation our performance does not improve.
Homeowners who blame the economy for their difficulties or corporations who blame the economy for their failure are taking no responsibility. Giving money here would be disastrous. A better possible solution, proposed by Dan Ryan, former CEO of BCS Financial Corporation, would be to make mortgages 60-year instruments. This would allow for mortgage payments to be reduced and people staying in their houses and banks would have to keep the paper. Everyone must accept responsibility for his or her actions and then learning is a real possibility.
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