In Praise of the Stick

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Much has been said lately about hope, some of it quite inspiring. The best passages give one the heady feeling that all things are possible, even the things that clearly aren’t. But I’m not here to quibble, at least not about that. For the moment, I’m willing to grant that hope is a good thing, most of the time anyway. But what about fear?

Not much has been said lately about fear, and what has been said hasn’t been very nice. One is left with the impression that fear is a sordid little emotion conjured up by nasty people who want to use it to block out sweet reason and thwart progress. We are given to believe that fear has nothing good to offer. What follows is an attempt to balance the ledger.

In a nutshell, hope is the feeling that things will turn out well and fear is the feeling that they won’t. What a fitting twist, then, that fear can, and often does, nudge people to behave in ways that help things turn out well. To be fair, it is rare for extreme forms of fear to help in this way. Terror and paranoid delusions contribute little to happy endings. But a measured, homeopathic dose of fear, whether of death, pain, suffering, or even inconvenience, can render us cautious and help us avoid tragic outcomes. Fear of this sort fosters both prudence and diligence. It is the small voice that asks the pertinent questions on the eve of ventures great and small.

“Did you fill the tank?” Yes. “Check the oil?” Yes. “Check the weather forecast?” Looks good. “Did you turn off the hot water heater?” Yes. “Set the security system?” I did. “Are the bars in the windows?” Yup. “Does Michael know he has to move the garbage cans?” Uh-huh. “Is all the gear here?” Yes. “Did you restock the first-aid kit?” Er. “Oh, hell.” (Funny, that small voice sounded a lot like my wife’s.)

Or consider the fears that a young couple may face when they set out to buy a home. Is the price too high? Foundation cracked? Market falling? Termites? What’s the current rate on a 30-year adjustable? Is the neighborhood going downhill? Graffiti? Is the HOA payment reasonable? What’s that smell? The list is endless.

Things may, in fact, not turn out well. Just think: foreclosure, bankruptcy, having to move back in with the parents. What should a young couple do? Listen closely to the small voice. Look for a good deal. Check out the house and neighborhood thoroughly and then, when the little voice mumbles, “Oh, okay,” buy the house. And yes, they should probably pass on the adjustable rate mortgage. Those things can bite.

Let’s broaden the scope. Is it possible that an inoculation of fear could benefit a larger group of prospective homeowners?

In the run-up to the bursting of the latest housing bubble, millions of new homeowners were filled with hope. They felt that things would turn out well. Home prices were going crazy, fancy mortgages fitted out with booby traps were being touted on every street corner, and the air was thick with risk. But giddy optimism prevailed. (Alan Greenspan, referring to an earlier bubble, called the feeling “irrational exuberance.”) Now, hope is a good thing, most of the time, but in this case, for millions of new homeowners, things did not turn out well at all. Even Treasury Secretary Geithner rented out his house in June after failing to sell it for less than he had paid.

Did it have to happen? No, not if people heeded the little voice. Here is what it was saying: “Look out below.” Had people listened, there probably wouldn’t have been a bubble to burst.

But let’s broaden the scope again. Besides safer road trips, successful home hunting, and more stable housing markets, how else might fear contribute to a healthy economy?

At the most fundamental level, fear and hope make the wheels of prosperity turn. Among the fears are hunger, bankruptcy, homelessness, and unemployment. People work very hard to see to it that fears such as these never materialize. Among the hopes are a round-the-world cruise, a lO,OOO-square-foot mansion, a 700-series BMW, rhinoplasty, and a key to the executive washroom. People will go to incredible lengths to see to it that hopes like these are realized. This is very old stuff, really. It’s straight out of “Poor Richard’s Almanack.”

Of course, things are not as simple as that. People differ. Their hopes and fears differ. While some crave shiny and sparkling things, others long to cure swine flu. Some don’t really like to work at all. Others want a hot car. Some are keen on salvation. Many harbor the fear that they will be thought uncool. Then there are those who want to remake the world as it should be. Because of this diversity, generalizing about human motivation and behavior is difficult. But not impossible.

Here is a fairly safe generalization: if hope were removed from the economic equation, many people just wouldn’t work very hard. But what would happen if fear were removed? Here the consensus breaks down.

There are those who think that fear does nothing good for the economy, that what we really have to do is get rid of all the impediments to things working out well. They feel sure that if only good clothes, good food, a good home, a good education, and good medical care were provided to everyone, then fear itself would disappear. Franklin Roosevelt included these things in what he called the Second Bill of Rights. The strategy proposed is, very cleverly, to fine-tune the tax rates and entitlement programs in such a way that everything is guaranteed to turn out well for everyone. Sounds simple enough, right?

Before the merits of this strategy are weighed, please note that it is not the goal of easing human suffering that is under scrutiny, but the strategy proposed for achieving it. Moreover,. it should not be assumed that certain methods – say, the threat of starvation – should be endorsed even if they were judged likely to achieve the goal. Having said that, and accepting for the moment the premise that fear can be excised from the beating human heart, a few questions arise.

If fear were eliminated, would its benefits disappear as well? With little or nothing to fear, would people be less prudent, less diligent? Would the people who worked so hard to ensure that their fears did not materialize put their shoulders to the wheel with a tad less oomph when those fears were gone? People differ, but it’s probably safe to say that a good chunk of humanity would experience a detectable slackening of resolve. They’d lose their edge. If you did not know it already, let me assure you, there are many here among us who do not wish to do much more than they absolutely must. The passage of the Second Bill of Rights would, for them, be party time. Others, of course, might press the wheel harder, if their absent fears were replaced by hope.

But if the good clothes, food, home, education, and medical care were paid for with money taken from people who already had these things, wouldn’t those same people be less able to realize their own hopes? Sure, not all hopes come with a visible price tag, but those that do would suddenly become less affordable. To be blunt about it, if you were one of those people, unless your fondest hope was to give back to the community, it would be less likely that your fondest hope could be realized, if it cost much. There is no free lunch and no free Second Bill of Rights.

Whether by raising taxes, adding to the public debt, or debasing the currency, the bill for the goods would have to be paid. As a result (here’s the kicker), the path to prosperity, even for the newly hopeful, would be precisely that much steeper. In other words, any reduction of fear would cause a roughly proportional reduction of hope. When combined with the lost diligence, it devolves into a less-than-zero-sum game. Economics is not called the dismal science for nothing.

A sustainable, comfortable standard of living is the product of thrift, forethought, industry, and perseverance, not of government largesse. It would be nice if these virtues could be bought with a government check, but, sadly, such a check is more likely to erode them than to build them up. And when these virtues erode, eventually, the checks stop coming.

Fear and hope together turn the wheels of prosperity. Take away fear and its benefits go with it, slowing the wheels. Try to bury the fear in cash and what you get is less hope, not more. Take away hope and fear? The wheels of prosperity grind to a halt, and then fall off. The strategy is sure to backfire. Ask the Chinese; they know. Hope is a good thing, most of the time anyway, and fear is not all bad.

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