"To resore our confidence" is how President Carter summarized his task of revitalizing the economy. President Hoover saw his job in much the same way, but with notably ineffective results.
Herbert Hoover was an intelligent and compassionate man who knew he had a serious economic problem, much of which wasn't of his own making. In the first year of his presidency, the decade-long boom of the 1920s came apart, starting with the spectacular crash of the stock market in October 1929.
As the economy declined, Hoover looked to the most respected conventional economists of his day for advice, but that was a mistake. The most respectful conventional economists of Hoover's day had made their reputations developing and advocating the policies that led to the Depression in the first place. Confronted by a problem that they helped cause but didn't understand how to cure, the conventional economists of Hoover's time recommended palliatives such as attempts to restore confidence.
President Hoover did his best to be positive, but the only lasting effect his attempts had was to change the English language. In an attempt to restore confidence, he avoided emotionally charged words such as crisis. Instead he used the then innocuous term "depression," but the events of the 1930s became so bad that depression came to mean the worst possible economic catastrophe.
Like President Hoover, President Carter is an intelligent and compassionate man who has a serious economic problem, much of which isn't of his own making.
To solve his economic problem, he has turned to the respected economists of our day, but that has been a mistake. Most of the respected economists of today are old Keynesians who made their reputations stimulating the economy in the 1960s. That stimulation led to today's central economic problem of inflation, but Keynesian theory is notably ineffective against that problem. Confronted by the problem of inflation that they helped cause but don't understand how to cure, most of the respectable economists today are notably silent, ineffective, or both.
Confronted by a lack of effective economic advice, President Carter has chosen to try to restore confidence. That approach mistakes the symptoms of the disease for its causes and probably will be no more effective now than it was in the early 1930s.
Attempts to restore confidence can be very effective when a nation is facing a clear and present danger, particularly an external one. Winston Churchill in 1940 did a superb job of inspiring and mobilizing his nation in the face of crisis.
The lack of confidence that President Carter correctly perceives today isn't due to fear of a foreign danger. It isn't even the prime cause of the problems facing our economy. Instead, it is the result of an accurate popular perception that the economy is not working well.
Restoring confidence won't solve the economy's problems of inflation, energy, recession and a soft dollar. Solving these problems, however, will restore confidence.
Those economic problems have yet to be solved. In spite of years of struggle to get an energy program through Congress, a viable one isn't upon us. The administration has fought inflation with half-hearted efforts and commensurate results. Now that a recession is beginning, inflation and a soft dollar limit the administration's ability to respond to it. Perhaps the only decisive and effective economic measure in the last three years was the defense of the dollar last November, but that kind of short-term crisis management isn't likely to restore long-term confidence.
The most effective way to restore confidence in the economy is decisive action to solve its major problems rather than paralyzed inaction in the face of them. President Hoover demonstrated how ineffective attempts to rebuild confidence are when unaccompanied by concrete action. Confidence will return once people perceive that the economy is well managed and moving in the right direction, but not as a direct result of attempts to restore it.
Attempting to restore confidence is as futile as attempting to pursue happiness. Confidence, like happiness, comes as a rewarding byproduct of doing the right things well. CAPTION: Pictures 1 and 2, no caption