Earn What You Spend

I wrote a while ago that we are facing a record crisis of confidence.  It is remains true, perhaps now more than ever.  The other day I read a particularly interesting quote:

“Normally markets are driven by fear and greed,” said Brian Gendreau, a strategist at ING Investment Management in New York. “Now it’s fear and fear.”

In today’s NYTimes, Tyler Cohen writes an excellent article about the current crisis of confidence we’re facing.  (If you didn’t know it already, Tyler blogs at the must-read Marginal Revolution, one of my favorite blogs). 

Tyler writes

Rebuilding confidence might seem a small matter, but it is not. The truth is this: America is a wonderful and magnanimous nation when it is a winner, but Americans are not used to losing and Americans are not used to panic.

…

Rebuilding confidence won’t be easy. If our next president seems flip or overconfident, observers will be skeptical above all else. Denying our basic economic problems will erode credibility, but those problems — most of all our debt and a collapsed financial sector — need to be acknowledged in a way that shows a path forward.

It reminds me of the challenges Robert Rubin wrote about in his recent book: believing the market is stable and safe for investment can be as important as any of the actual fundamentals of the economy.  Psychology is as important as economics when leading. 

And so here we are, facing a crisis of confidence within our own country.  Businesses want to jump in, to make investments, to begin the process of re-growing.  But everyone is terrified of what is going to happen next, and no one will make a significant investment until that confidence is restored. 

Turning around this crisis of confidence won’t be easy, but it is where we must start.