Blunting the Psychology of Recession

Market securities powerhouses say we’re in a recession, and the thunder of exiting investors already echoes.

But in reality, what does that mean? Considerable evidence exists that many prolonged economic downturns – read “recession” – come about through self-fulfilling prophecies. Believable pundits transform negative retail and durable goods data into fearsome oracles. If millions of Americans respond with a strengthened faith that the sky is indeed falling, then yes, Virginia, we will indeed be in a recession by virtue of collective consumer behavior. Fearful of perceived major losses, businesses and everyday people will postpone major purchases and stop buying overpriced cups of coffee. The ripple effect thus takes its dreaded economic toll.

Having been through seven service recessions, two in Indiana and five in Southern California, my concern focuses on the carnage that businesses unnecessarily wreak on themselves when talk of a potential recession reaches fever pitch. Fear of the unknown freezes hires, R&D budgets, cash reserves and investments in growth. When that happens, major opportunities start sliding by. In Indiana, just when everyone seemed to finally awake to the fact that a manufacturing-centric economy is actually not a bad thing, I’m waiting for rhetoric to heat back up about how the Hoosier state needs to kick its manufacturing dependency once and for all.

Consult any strategic planning resource and you’ll find that making and executing fear-based decisions typically does not lead one into prosperous times. Few will quarrel that with high energy prices, a decidedly weak housing market and burgeoning unstable food costs, Indiana faces more than a significant economic challenge or two over the next 12-plus months. But what actually do we have to outright fear?

Consider this: unremitting demand for highly qualified information technology professionals is possibly the highest it’s ever been in the state. These jobs often pay triple the state average. Real overall unemployment has bottomed out. Worldwide demand for Indiana’s agricultural products remains enthusiastically high, with Pacific Rim countries even clamoring for leftover Dry Distiller Grains (DDG), the byproduct of corn ethanol production. Hundreds of new promised jobs from sustained economic development are rolling out. With this as a backdrop, a different view emerges. Should we possess intelligent concern? Absolutely. But, please, let’s not indulge in self-fulfilling recessionary groupthink.

A half a century ago, when major recession fears rolled through the late Eisenhower years, Time magazine cited a major bank president’s view: “Psychology,” the national banker said, “is the joker in the economy’s deck of cards.” If we buy into fear, we can fashion a very real recession right out of an otherwise sound economy.

So that leaves Indiana businesses with the quintessential binary solution set: indulge in fear-based frenzy, or live in the moment and seize opportunities made possible by other people’s bad decisions. If history proves anything, recent recessions have averaged eight months in duration. If you believe the 4th quarter business media oracles, then that means we’re already a quarter of the way through. In fact, it will take at least six more months of a sustained downturn before anyone can officially call this time a “recession,” which means we could well be out of it by the time everyone agrees.

As Indiana manufacturing expert John Layden says: “The forecast is always wrong. Get over it.” Indiana beats recessionary rhetoric with productivity gains and real innovation. Instead of worrying, permit the economists to figure out the labeling. Let’s go compete.