Restore confidence. That is George Mason economics professor Tyler Cowen's number one piece of advice to President-elect Barack Obama when he takes office January 20, 2009. Cowen, who also runs the world's largest economics blog "Marginal Revolution," said in a NY Times op-ed Friday that Obama "will need to appear calm and purposive" when he takes on this economic crisis:
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.
Often we respond to negative events badly, so we need to be especially careful when we are in a losing or risky position. Very bad events can cause a panic among the citizenry or its leaders, which translates into subsequent bad decisions.
It could already be said that we have responded poorly to the economic meltdown. The Bush Administration took a somewhat haphazard approach, first scaring us into believing a bailout was the only antidote to some poisonous bite, and that the antidote would only work if we used it immediately. This shocked the market.
Then the best they could come up with was unlimited powers for the Treasury through the "Paulson Plan" that would have no checks or balance. And when they couldn't defend that the Bush Administration looked confused and unsure. This shocked the market some more.
Then Congress was indecisive and dragged its feet on action while saying action was vitally important (and completely ignoring those of us who urged calm, composure, and no rash action). The vote down, then McCain-Obama in Washington saga, and everything surrounded it certainly didn't do anything to help the market.
A good first step for the Obama Administration will be to restore confidence in the market by dropping the doom and gloom language, realizing that the market always goes in cycles and that if we allow ourselves some breathing room, the nation will thrive once again.
Read all of Dr. Cowen's NYTimes editorial here.