It’s a cliche—but true—that a huge obstacle to a per economic recovery is the lack of confidence in a p recovery. If consumers and businesses were more confident, they would be spending, hiring and lending more freely. Instead, we’re deluged with reports suggesting that, because the recession was so deep, it will take many years to regain anything like the pre-crisis prosperity. Just last week, for example, the McKinsey Global Institute released a study estimating that the country needs 21 million additional jobs by 2020 to reduce the unemployment rate to 5 percent. The study was skeptical that this would happen. Pessimism and slow growth become a vicious cycle.
Battered confidence most obviously reflects the ferocity and shock of the financial collapse and the ensuing recession, including the devastating housing collapse. But there’s another, less appreciated cause: disillusion with modern economics. Probably without realizing it, most Americans had accepted the fundamental promises of contemporary economics. These were: First, we know enough to prevent another Great Depression; second, although we can’t prevent every recession, we know enough to ensure sustained and, for the most part, p recoveries. These propositions, endorsed by most economists, had worked themselves into society’s belief structure.
Embracing them does not preclude economic disappointments, setbacks, worries or risks. But for most people most of the time, it does preclude economic calamity. People felt protected. If you stop believing them, then you act differently. You begin shielding yourself, as best you can, against circumstances and dangers that you can’t foresee but that you fear are there. You become more cautious. You hesitate more before making a big commitment-buying a home or car, if you’re a consumer; hiring workers, if you’re an employer; starting a new business, if you’re an entrepreneur; or making loans, if you’re a banker. Almost everyone is hunkered down in some way.
One disturbing fact from the McKinsey report is this: The number of new businesses, a traditional source of jobs, was down 23 percent in 9,010 from 2007; the level was the lowest since 1983, when America had about 75 million fewer people. Large corporations are standoffish. They have about $2 trillion of cash and securities on their balance sheets, which could be used for hiring and investing in new products.
It’s not that economics achieved nothing. The emergency measures thrown at the crisis in many countries exceptionally low interest rates, "stimulus" programs of extra spending and tax cuts—probably averted another Depression. But it’s also true that there’s now no consensus among economists as to how to strengthen the recovery. Economists suffer from what one of them calls "the pretense-of-knowledge syndrome." They act as if they understand more than they do and presume that their policies, whether of the left or right, have benefits more predictable than they actually are. It’s worth remembering that the recovery’s present slowdown is occurring despite measures taken to speed it up.
So modern economics has been oversold, and the public is now disbelieving. The disillusion feeds stubbornly low confidence.
The McKinsey report is mentioned to show().
A.unemployment rate will be kept high for some time.
B.economic recovery is made slow by lack of confidence.
C.lack of confidence pervades the present economic culture.
D.lack of confidence results mainly from slow growth.
