When did America get so pessimistic?

By Zachary Karabell
November 15, 2012

Barely had the counting ceased in last week’s presidential election when the news took a somber turn. Two of the next day’s headlines read “Back to Work, Looming Fiscal Crisis Greets Obama” and my favorite, “America has Sown the Seeds of Its Own Demise.” Politicians either celebrated or decried the results, but regardless of party affiliation most warned of formidable challenges and a perilous future.

How did it come to pass that even the resolution of a contested election brings almost zero relief from the relentless focus on problems and threats? How did a country that for much of its history exhibited a (sometimes naive) willingness to ignore obstacles and plunge forward become a society that struggles to turn its gaze away from the dangers that loom just ahead? In short, how did the United States become so pessimistic?

Some of it surely has to do with how the past decade has unfolded.  Without question, this has been a challenging time for America and much of the Western world. We can all recite the crises, disasters and failures: Y2K, the bursting of the Nasdaq stock market bubble in 2001, 9/11, Iraq, Afghanistan, Enron, WorldCom, the bursting of the housing bubble, the Wall Street implosion of 2008, the euro zone’s troubles, chronically high unemployment, anemic growth, the continued emergence of China as a global economic force. I could go on.

The bleak attitudes of the past decade are in stark contrast to the giddy optimism of the 1990s, a consequence of the Internet revolution,a soaring stock market and the end of the Cold War. Yet even then, the growth model that so many Americans took for granted was showing signs of strain. Manufacturing jobs were quietly evaporating, and incomes for the middle class were stagnating. And so we have come to a point where even the conclusion of a peaceful, contested democratic election offers no pause in the drumbeat of negativity.

Few today are unaware of the problems that beset us. There is ample informed commentary, analysis and prognostication describing  what is going wrong and could get worse: increasing deficits, waning economic growth, high unemployment, unstable financial systems, stock markets crashes, inflation spikes, geopolitical conflict, renewed recession, destructive gridlock, rising inequality, etc. No one could argue reasonably or rationally against the possibility that these issues will undo us or lead to worse times ahead. The problem, is that few argue consistently or cogently that our fears may, in the end, just be fears and that we will do more than muddle through.

That is the goal of “The Edgy Optimist,” my new column. It will examine what might go right and how, and what is going right and why. To deny the challenges and perils of our world, particularly the changing nature of our material and economic lives in the West and how we can ensure sustainable prosperity and growth in the years to come ‑ well, that would be foolish. But it is equally wrongheaded to dismiss arguments to the contrary as foolish, unlikely or ill-informed. Behavioral psychologists have shown that when people feel fearful, anxious or pessimistic, warnings about the dangers that lie ahead sound smarter and wiser than alternate views that suggest more constructive outcomes. Alliance Bernstein recently sent a note to clients charting how the Dow could quietly reach 20,000 within five years. The reaction? Anger and outrage. Bernstein was flooded with complaints that they were naifs. Had they released a paper with the title “Dow 5000” they likely would have generated just as much reaction, but from clients wanting to know how to prepare for what seemed like a credible scenario.

None of these outcomes can be known, by any of us, of course. Some seem more credible because they reinforce our view of the present, but unless you give a date at which all goes to hell, no argument about future peril can be falsified. This column won’t change the minds of those convinced that the road ahead leads down, but it will at least offer an alternate view about what is possible ‑ without donning rose-colored glasses or ignoring the risks.

That brings us to the election and the reaction. You would think the fate of the U.S. economy hinges on the election and that what government does will be the prime determinant of whether America rises or falls in the next few years. Yet government is only one piece of the three-dimensional chess game that is our economic system.

Yes, it accounts for as much as $6 trillion of the approximately $16 trillion of U.S. economic output. Much of that $6 trillion is necessary and productive ‑ it pays for schoolteachers, firemen, police, Federal Aviation Administration controllers. But even if you write that off as less productive spending, that leaves $10 trillion that has nothing to do with government.

And what about government regulation? There, too, the emphasis is almost entirely on costs rather than on the uncalculated benefits. But what is added to overall output by a judicial and legal system that enforces contracts? What boost is there to output because of rules against excessive pollution that reduce the healthcare expenses that would be required to treat those harmed? We are very good at looking at the inefficiencies and calculating the harm of over-regulation. We are less adept at weighing those against the benefits.

Non-governmental activity remains incredibly dynamic. With that comes the vertigo of rapid change and disruption. So much of the structurally morphing labor force is a function of disruptive technologies and the various forces of globalization. These forces have led to stagnant wages in countries such as the United States, Japan and Europe, while China, India and much of the rest of the world begin to make more.

That need not be a recipe for despair, nor proof that the future is grim for those societies. The flip side to the struggles of the developed world is billions of people entering the global middle class. Also, a porous global system has and will continue to yield benefits. (Whether our macroeconomic statistics and indicators are designed to measure that is another matter.) All those iPhones and iPads are possible only because of the fusion of American intellectual property and Chinese manufacturing ‑ as the recent focus on working conditions at Apple’s manufacturing contractor Foxconn has powerfully shown.

The election and the looming “fiscal cliff” have managed to add to general anxiety, but one is a validation of a functional political system and the other is a problem with obvious solutions. That makes the present challenges enviably easy to meet, whether they are met or not. No one can say what the future holds, but the chances that it will see our fears realized only increase when the consensus is that they will be. We know the risks; it is time to pay attention to the possibilities.

PHOTO: Confetti obscures the stage as U.S. President Barack Obama celebrates after winning the U.S. presidential election in Chicago, Illinois, November 7, 2012. REUTERS/Philip Scott- Andrews

32 comments

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The way forward is clear. America is living beyond it’s means, thus our ever-increasing borrowing and debt. Both parties are pretending to be horrified at the impending “Fiscal Cliff” but yet both are essentially committed to yet another increase in the Debt Limit. Hello? Anybody home?

Until BOTH parties agree to NO MORE INCREASES in the debt limit, it will be spend, spend, spend ad infinitum. I certainly agree that Democrats and Republicans would come up with an entirely different list of NEEDS to be funded, and an entirely different percentage and priority for available funds. But NO ONE dares prepare or engage in such dialog because such truths inevitably would slay many “sacred cows” and those active and responsible will be widely reviled and ultimately rejected at the polls.

So politicians of both parties will continue to point accusing fingers at their peers across the isle until Hades freezes over as the “reason” nothing ever changes in Washington. And every evening they will get together for drinks to toast us dumb suckers who accept such drivel year after year. Nero fiddles while Rome burns, AGAIN!

Posted by OneOfTheSheep | Report as abusive

Your first comment was as gloomy as ever. Please, do something good with this new column. We do need to hear an optimistic viewpoint. Things are not all bad.

The media is partially to blame for this pessimism. Yes, they are speaking the truth, and truth that needs to be heard, but there are still reasons for optimism. The United States still has huge potential. The world has even greater potential. Together we can do some wonderful things. I’m glad to hear that you’ve decided to try this out.

Posted by canadianeh65 | Report as abusive

I wasn’t giddy in the 1990s, and I’m not gloomy now. I reckon it’s alright to “mess with mister in-between,” despite what Johnny Mercer said.

OneOfTheSheep – Perhaps you’ve mistaken Reuters for a Primal Scream Therapy Center.

Posted by MoBioph | Report as abusive

For anyone who’d like to get a grip (OneOfTheSheep?), see “Confessions of a deficit denier” by Anatole Kaletsky (Reuters, November 15, 2012).

Posted by MoBioph | Report as abusive

Why was your article pessimistic? You didn’t really state anything optimistic. I’ll read your next article maybe it will be fool giddiness.

Posted by M.C.McBride | Report as abusive

When lying and cheating as a way of life became so culturally accepted that we dont even blink an eye when the Senate Mojority Leader says you arent doing your job unless you cheat or when the Fed blatantly adjusts just in front of the election to favor their preferred candidate or when the data collectors of government report data so obviously massaged to look better to favor the incumbent or maybe when hundreds of precincts have frankly Russian or Cuban type results where the challenger gets not one or two but 0 votes. Or maybe when the Chief Justice of the SCOTUS confirms once and for all that we no longer have a central government of limited and enumerated powers. Welcome to the country formerly known as America.

Posted by t0mmyBerg | Report as abusive

Thanks to our government officials, we’re pretty screwed for the foreseeable future.

Obama re-elected? Screwed.

Romney elected? Screwed.

I’m just praying we don’t get sucked into a war against some Israeli enemy, or the dollar bubble doesn’t collapse, or that the trillions sitting in banks coffers and on the Fed Res balance sheet don’t come out into the open market and destroy my already meager purchasing power. Yup, rainbows and sunshine belching from my butt.

Posted by Jameson4Lunch | Report as abusive

$125 Trillion in unfunded liabilities.
Wars all over the world.
Divided nation.
Overreaching and unconstitutional government.
Boomer generation retiring during economic meltdown.
Global economic meltdown.
Failed global socialist experiments.
Rising international tensions and military build up.
Incompetent Political Leadership.

What’s to worry about Pollyanna?

Posted by FreeTexas | Report as abusive

Congratualations for having the courage to buck the trend and look at the good side – here’s hoping this starts a more constructive direction in our outlook. Thank you!

Posted by markrosswill | Report as abusive

Sounds like a suprised obama voter.

Posted by wisehiney | Report as abusive

It is not surprising that most American’s (European’s too) are feeling down. Most have been living beyond their means & it has caught up with them. They did not save, they borrowed too much, & did not expect problems could happen. When your lifestyle stagnates or decreases, most are unhappy.

We see the world going in the wrong direction. Spend hours at the airport & remove your spleen for scan because of terrorism. Politicians arguing & promoting but not fixing. Old adversaries like China & Russia starting to look scarier again. Long term & new conflicts erupting with our a good path for resolution.

Pessimism is not good but it sure beats pie in the sky optimism. We have been living on that crack for too long, & now we are suffering the withdrawal. Eventually though, you get used to what you have, settle down, and (hopefully) become a realist who will start working toward improving what you have instead of regretting what you lost or expected to have.

Posted by slotowner | Report as abusive

When did America get so pessimistic?

Nixon. Next question, please.

Posted by AlkalineState | Report as abusive

For me the pessimism started in 2008, with TARP. Our government has been fundamentally unamerican since then (opposed to freedom, opposed to personal responsibility, opposed to equality under the law, opposed to rewarding merit, in favor of rewarding political connections, in favor of divisiveness, picking winners and losers, and acting with absolute disregard for the constitution).

You claim that “Much of that $6 trillion is necessary and productive ‑ it pays for schoolteachers, firemen, police, Federal Aviation Administration controllers.” The lie of the first part of the sentence is shown by the examples at the end of the sentence. We had “schoolteachers, firemen, police, Federal Aviation Administration controllers” when government spending was measured in billions rather than trillions. So what are the new trillions being spent on? They’re being spent on things that you don’t list when you want to make the case that government spending is being done wisely.

“But even if you write that off as less productive spending, that leaves $10 trillion that has nothing to do with government.” Are you kidding? The government is reaching into every aspect of our lives, the government dictates which cars are available, then makes us fill them with a government-specified mix of corn-based fuel and real gas, and then monitors the gas station’s price to make sure they don’t charge me a price that’s too high OR too low. The government tells me how much soda I can buy with my lunch. After I invest in one company the government hands over cash, tax breaks, or special rules to a competing company. The government decides when CEO’s should be fired, when bankruptcy and tax laws should be disregarded, and which companies have to comply with Obamacare and which ones don’t.

On regulation you say “But what is added to overall output by a judicial and legal system that enforces contracts?” For one thing the legal system enforced contracts when the government was a tenth the size it is now, so where’s the benefit in that additional 90% in spending? For another, the legal system is now LESS likely to enforce contracts than it was when government was 50%, 75%, or 90% smaller than it is now. In every year that passes judges come up with more and more reasons not to enforce contracts because doing so would be contrary to what they consider to be a more important social good or public policy.

The reason I’m pessimistic? Because I’m paying attention.

Posted by Bjartorius | Report as abusive

We got pessimistic because all of our institutions have been failing us — e.g., congress, political parties, wall street, healthcare industry, catholic church, and now there are even problems with the military.

Even our voting system (e.g., FL, OH, AZ) is run like a third-world country.

Posted by Leftcoastrocky | Report as abusive

But that’s what politicians are supposed to do, solve problems. What did you think?

Furthermore, however good things are, they are never perfect, and it is only human nature to want to tackle the next challenge.

Posted by Calvin2k | Report as abusive

Negativity is snowballing. Congratulations for having the courage to stop the momentum and look at the positive side. There are so many good things happening – we shouldn’t just take it for granted.

Posted by markrosswill | Report as abusive

For whatever reason, people have a strange fascination with bad news. Flip on the Discovery Channel, the Learning Channel, National Geographic TV or the History Channel, and you’re likely to see a show about a monster tsunami devastating Hawaii or a long dormant volcano coming to life and burying North America under 100 feet of ash or rogue meteorites crashing into earth or all sorts of nasty events predicted by Nostradamus. The Nostradamus shows first made the rounds on cable TV about 20 years ago, but none of the stuff he predicted on those shows came to pass. Oh well, fast forward 20 years, and you have a new batch of people needing their fix of gloom and doom.

Posted by jambrytay | Report as abusive

It appears to be odd that the author concentrated on economic and financial issues only. Well, the situation in France is not any better. But the Hollande’s course “social progress-never-ends” is supported by the French.
Somehow the Nation’s Divide is missing. It’s something never seen for 150 years. It gives enormous pressure on the nation’s psyche.
And I agree with Leftcoastrocky’s comment above. Though only the Electorate College institution is openly discussed, there is absence of confidence that all institutions are truly functional: the Constitution; the unprecedented (!) two-year term for the Lower House members and all things related to the Legislation; the Judicial branch where Mr. Roberts decides the fate of the country; the Executive branch – seemingly mighty but dysfunctional, due to the Fedralism and the legislation system’s gridlock. And yes, the two-party system.
I have been following the after-election discussion on both sides. There is no discussion as a such. Very bright and intelligent people just can’t utter anything regarding the really huge volume of problems. They prefer to take easy topics: Hispanics, demographics.
Right. If the recession is over, the U.S. economy will deliver. With the tough social system and the unique self-reliant people, this economy is still the most efficient. However, the problems can not be solved by the economy alone. Maybe the Bill’s words were about me…

Posted by OUTPOST2012.NET | Report as abusive

I am reminded of a story:…. there I sat…all alone a blue…. when I heard a little voice say…”cheer up … thing could get worse”… so I cheered up…. and sure enough…. things got worse…

Posted by raptor666 | Report as abusive

For many Americans born in this country, we feel we live in someone else’s country, not our own. Everyone else came from somewhere that generally would welcome them back “home”. Many of us feel we no longer have a “home”. We have rulers. This is a big difference.

Living with a strong feeling of being unimportant to the Government and society as a whole leaves feelings of strong doubt and fear. This is a great anxiety. Government has the power to take and exercises this with self-generosity, but also focuses on not providing benefits to those of us who were promised them and charged for them for a half century. Most people, the 90% of us with less money, feel like we have no friends in power at all, and fewer every year.

Why should we feel any optimism when the solution to every problem is to harm us??

Posted by usagadfly | Report as abusive

It’s all bad kharma for invading Iraq. Bush killed 4,000 U.S. soldiers and spent one trillion dollars…. on nothing.

There are consequences for stupid actions.

Posted by AlkalineState | Report as abusive

Poeple are pessimistic because we have structural problems in or economy, politics, and the world at large that are not being addressed. The election a mess with most of our problems hardly being addressed.
It took a hurricane to bring up the global warning. And nothing will be done about pollution.
Our national debate on the economy was about minor spending cuts and budget adjustments. Under Obama the best case scenario is 2-3% GDP growth that produces low wage service jobs and that is the best case. Romney would have brought a new recession with spending cuts that affect the poorest and bigger deficits from upper income tax cuts. Inequality was never seriously debated. We are governed under a 20th century institutions with a 21st century economy.
Furthermore the people want change but this will not ever happen in a two party system governed by money. So in 4 years we can get a R then lets get the change of a D and so on. Coke or Pepsi

Posted by straydog | Report as abusive

My biased opinion is that the negativity is the fault of the right wing in America. Yes, the economy is crappier now than it has been in decades, but remember, even during the booming 90′s (balanced budgets, stock market on fire, no major military conflicts) the Republicans still tried to kick Bill Clinton out of office.

Back then it wasn’t the economy, but that the president and his cabinet were flushing America down a moral sewer. Also, I remember a magazine cover (Time? Newsweek?) touting the fall of the white male. I can’t remember why white males were in so much trouble back then, but Rush and Pat R and Pat B certainly thought so.

When Obama took office, Rush famously stated he hoped the Obama administration failed. In other words, he hoped America failed, and the congressinal gridlock that followed seemed to echo that sentiment. I think that pretty much sums up the view of the right. If they are not in charge, they are just fine w/ the country as a whole failing and they will do everything they can to steer it in that direction.

It’s like someone poking a hole in a dam and then crying “flood”.

Posted by mcoleman | Report as abusive

Yes, we are at the crossroads. The world is changing (in many ways thanks to America), and America is adapting to the changes that we helped to bring about (computers, Internet, first black American President, even China advances… just to name a few).
Change is painful, frightening, not always straightforward. So people are scared, people argue. Folks that benefited from the old ways are adamantly defending them. They surely have gained enough money and influence so that they do have many followers… But all this is also proving that we ARE changing, and changing for the best. I have no doubts about it. It is proving we ARE a democracy, and, despite all of its shortcomings, democracy works.

Posted by UauS | Report as abusive

The world is still a very beautiful place and for that I’m grateful and thankful. I had a great career and was able to retire early and with dignity, grateful again. I’m most grateful for the good health of my family.

I am a pessimist with regard to our economy though.

The reason is that I earned a Bachelor of Science Degree in Economics/Finance from a good private school here in New York.

Some of the older readers at this site might recall a comedy troup from the seventies called The Firesign Theatre. They produced a record in 1974. It was called….

Everything You Know is Wrong.

I fondly remember that title every time I read comments made by most Presidents of the various Federal Reserve Banks and by most members of the ECB.

That’s why I’m pessimistic. I do not understand how unlimited QE and open ended ZIRP are helping our economy. In 2008/09 I was OK with this, but now I’m just plain frightened and well pessimistic.

So, how do you get a scared and pessimistic soul like me to open up his wallet and spend?

Posted by Missinginaction | Report as abusive

America’s place as the dominant global power is under threat. This is actually a good thing, with countries like China, India, Brazil etc… industrialising at a furious rate, trying to join the ranks of the rich west we are going to see expanded competition for trade and goods but also a huge expansion in global markets. The world economy may be in the doldrums for the next period but ultimately things look rosy. No doubt the world is going through a transitional phase in the power games and change always bring angst and fear, and truly America’s role will be somewhat diminished, but again this is a good thing, it’s brutish foreign policy of the last decades is hardly something it really wants more of. Anyway the world stage is set to become a more cosmopolitan and exciting place for eveyone. How’s that for positive?

Posted by thinker72 | Report as abusive

If you read the news and look at the quality (or lack of it) in our government, and the challenges that face us, one can’t help but be deeply concerned. By almost every measure, this nation is on a path to third world status, and our “leaders” either don’t get it, or don’t care. This is the simple reality. I will begin to become optimistic when I see our nation start to get real about the big problems that face us, and considering the quality of our educational systems, the circus that is our media and government, mass illegal immigration, and $23 trillion in unfunded liabilities, I’m not there yet.

Posted by actnow | Report as abusive

When did America get so pessimistic? This gets space on the op-ed? Reality mean anything to you? I’m guessing you’re fairly comfortable and thus a bit detached from that reality.

Posted by TheUSofA | Report as abusive

Fear is a way to motivate people politically. No one ever made a profit by betting against America over the long term.

Posted by Bob9999 | Report as abusive

PROFESSIONAL HUBRIS

{How did a country that for much of its history exhibited a (sometimes naive) willingness to ignore obstacles and plunge forward become a society that struggles to turn its gaze away from the dangers that loom just ahead? In short, how did the United States become so pessimistic?}

Easy, people came to believe during the Reaganomics years the “sustainable excellence” that quacks like Karabell keep feeding them – in the forlorn hope that excellence means profits and profits are the sine qua non of an economy.

Let’s cut the BS. America went binging on cheap-credit not excellence – which was just another catchword to be bantered about by “business gurus” feeding off an ill-conceived notion that all technological innovation is almost certainly American born and bred.

Believe that as you will, because, though important, it is not just THE prime mover of an economy. The other is excellence in political governance, meaning economic policy making – which is at the heart of our domestic economic mess.

Three points sustain that above argument:
*The first is the cheap-credit nonsense that prevailed throughout Greenspan’s reign at the Fed, that nourished the realty-bubble built on fraud that has burst all over us to cause the Great Recession.
*The second are two disastrous wars that cost trillions of dollars and seriously indebted the nation.
*The third is our disbelief in the early 1990s that China, coming out from behind its bamboo curtain, would displace un- and semi-skilled manufacturing jobs in the US. Which is what has happened, much to our chagrin, and is permanent in nature.

What sort of “excellence” does the above demonstrate. One of professional hubris that dominates America’s business leadership.

America has a reason to be pessimistic. A dogmatic political party largely responsible for the three lamentable errors cited above insists that it has done no wrong and insists upon its political legitimacy. Which is certainly not excellence in politics.

Posted by deLafayette | Report as abusive

I would go back a little further as to the origins of modern American pessimism. It started with the assassination of JFK, followed by the folly of the Vietnam War, and the Watergate scandal, topped off by the Arab Oil Embargo and the taking hostage of 400 Americans in our embassy in Tehran, Iran.

And it hasn’t helped that we have more than doubled our population since 1950, and yet, know-it-all elites insist we must grow our now 312 Million even more to, “keep up with China, and provide workers to support the millions retiring,” even though we can’t create enough jobs for the people we already have.

And what do most politicians say is the solution to a shortage of skilled workers, doctors, engineers, etc.? Do they propose more intensively educating, re-educating, and retraining our own people? No. Most of them talk about importing skilled and mathematically inclined foreigners, while abandoning our own.

It may be comforting to know that people have said that the United States was headed for destruction since before the ink was dry on the Constitution. Maybe FDR had it right when he said, “the only thing we have to fear is fear itself.”

Posted by ZenGalacticore | Report as abusive

All our systems are based on growth. Some regions do not grow any more, so we tried to fix that pumping cheap money into the economy. This caused various bubbles and we see them burst one by one. We are all over our heads in debt, in an order of magnitude that defies common sense. The proportion of real value to monetary volume kept diminuishing, the very definition of a bubble. Everybody is happy because, well, there is cheap money to be had. Only at some point, the trust is gone, the money bubble bursts. And this is something, our politicians will deny until their (political) dying day.
Why does that amaze you?

Posted by Alexander12 | Report as abusive