Talking Ourselves into Recession

Enough! Americans are working themselves into a state of high anxiety this summer. August angst is replacing holiday fun as people fret about the future. It's as if we have shifted from irrational exuberance to irreversible depression. If this negative psychology keeps up, we could conceivably talk ourselves into a double-dip recession as everyone becomes risk-averse. Already individual investors are pulling billions out of stock mutual funds and CEOs are in a defensive crouch, refusing to invest capital for growth. People are so fearful and weighed down by the recent past that they are blinded to the remarkable progress being made in reforming the economy and securing the nation. It's time for Americans to get a grip and get back in the game.

Of course, this has been a year like few others, transforming our lives in ways that are not yet clear. Assumptions about personal safety, economic security, and ethical leadership have been undermined. There are lingering fears about terrorism and deep insecurities about retirement. Talk about invading Iraq and new revelations about corporate corruption are keeping people on edge. Finally, the looming anniversary of September 11 and the prospect of seeing terrible images once again is unnerving.

But nerve is just what America needs most now. The extraordinary resiliency and flexibility of the U.S. to respond to crisis, even multiple crises, is evident everywhere. The markets have revalued corporate earnings and behavior in a brutal and efficient manner. Big changes in corporate governance are already in the works as the stock exchanges demand new, independent boards of directors. Credibility is being restored to financial statements as CEOs rush to meet an Aug. 14 deadline set by the Securities & Exchange Commission to swear under oath that their books are true. Standard & Poor's is beginning to estimate core earnings that do away with the flim-flam of the '90s for all companies. The Justice Dept., the SEC, and state attorneys general are busting crooked CEOs and companies and forcing reform on Wall Street analysts. Even Washington, usually slow to act on most issues, rushed through the Sarbanes/Oxley Act of 2002 to boost regulation of the accounting profession that so failed America in recent years and to tighten criminal statutes against law-breaking executives.

The truth is that the U.S. has just experienced a new era of economic reform unlike anything seen since the 1930s. It has happened at lightning speed--too fast, perhaps, for investors and business managers to recognize how much progress has been made in restoring integrity and fairness to the system. Stuck in a paralyzing malaise, people are not seeing the progress in raising not only the quality of profits but profit margins themselves. They are ignoring sustained gains in productivity growth, a small but real bounceback in capital spending, and a rebound of the dollar, which is evidence that foreign investors may be returning to U.S. stock and bond markets.

What is needed now is confidence--confidence in ourselves and in our future. The nation's psychology has yet to catch up with the reality of the changes put in place. The field is getting level again, the rules are more transparent, and the game goes on. It's time to get back in.

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