Self-Fulfilling Prophecies

Coyote Blog makes an excellent point:

At what point do politicians bear some public accountability for their public statements and the effect those statements have on the economy? I almost want to ask Obama and Pelosi — what is the minimum size of pork-spending bill you will accept so we can just go ahead and pay the money and get you and your cohorts to shut the hell up on trying to convince everyone we are in the Great Depression. Because, to some extent, such statements can be a self-fulfilling prophesy. . . .

Now, I suspect that I would have a different observation if I lived in Detroit, but I ask every business owner or manager I meet for the personal evidence they have of economic cataclysm. Is their business down? And in a surprising number of cases, I get the answer that their business is doing OK, but they are cutting back because surely the worst is soon to come, based on everything they see in the media. And do you know what? I have done exactly the same thing. I had one bad month, but since then things have been pretty steady, but I am cutting like crazy anyway, because I can’t ignore the only other information source I have on the economy, which are pronouncements in the media.

I strongly believe that public pronouncements of doom, starting last October with Henry Paulson and continuing now to almost daily excess by Obama (today’s statement: the economy is in a “virtual free fall”) have measurably contributed to job losses in this country. Many people who are on the street without a job today can probably trace their unemployment to “just in case” cuts made more in response to government assurances of doom as on actual declines in output.

Another data point, a pretty big one: at a dinner last week, I happened to be seated next to a Wal-Mart recruiter. He said that the CEO of Wal-Mart USA just issued a complete hiring freeze, canceling all open positions. If anyone at Wal-Mart corporate wants to hire anyone for any position, they have to write up a new job description and prove the necessity for it. The recruiter added that Wal-Mart has done fine so far, but that the CEO took this step because he wants Wal-Mart to have a "nest egg just in case" the economy does continue to get worse. But of course, when companies the size of Wal-Mart issue a hiring freeze without any business necessity beyond apprehension about the future, that contributes to an economic downturn. I suppose it's a collective action problem as well: if everyone could simultaneously agree not to cut back on hiring, things might stabilize, but as an individual company, you don't want to be the only one who failed to cut expenses when everyone else fired the workers who now can't afford to shop at your firm's outlets.