Psychology and the Economy

Trying to implement innovative ideas and change the normal is a tortuous process even in stable times and under times of great upheaval. Recovery from this brooding financial debacle would seem to be the central focus for all Americans. Instead, there is a lingering, devastating resignation that has settled over the nation. Each day it is reinforced with news about how dark things are: unemployment rising, foreclosures increasing, banks collapsing, and the stock market imploring. Even the stimulus package that everyone sensed was the answer to our situation, was first delayed and is now denigrated by bipartisan bickering. Problems are escalating, and there are no clear answers. Given this, the national pessimism is not an unnatural reaction.

For the average American, there is little sense of personal control. What can one do to deal with unrelenting turbulence and no place of rest?

The President talks of hope. In fact, he even authored a book entitled the 'Audacity of Hope'. I would suggest that hope is our anathema. Hope is the reason that people buy lottery tickets. Hope enables. What we need is confidence. Confidence liberates. Hope is based on loss; it is the last grasp when all else has failed. Confidence is based on experience - "I've not handled this before but I have handled something close. Let me use those skills in this situation". Unfortunately, few are talking about restoring confidence.

Confidence comes from knowing the connection between your efforts and the rewards you receive. The stronger the connection, the more confident the person. The weaker the connection, the less confident the person. In fact, over a long enough time or depth of disconnect, helplessness can occur. And this has catastrophic effects as people begin to give up. Energy is depleted and productive effort vanishes. It is not that people do not do anything. It is just that efforts many times turn toward escape and other deflective behavior, even alcohol and drugs. More importantly, progress is stalled as learning is inhibited. For only when you see a connection between behavior and consequences can you learn from events.

With the stimulus package giving money back to people, it may not be the answer. People are receiving something they have not earned. While it may help people in the short term it has longer-term negative consequences. People will not acquire a stronger connection between what they do and what they get, which is the hallmark of confidence. Until that is restored, we will not have a renewed sense of control.

This not only applies to individuals, but also to corporations getting TARP money or bail out funds. They have failed. Even if we give them money they may know what they've done wrong but they still don't know what to do right. Giving money alone won't improve learning.

Part 2 will explore how we can improve learning.