What I don’t know about economics and monetary theory could fill several large volumes, and if someone asked me what we should do about the current financial crisis, I’d probably stare at them like a Shropshire sheep, then come up with something along the lines of “homina-homina.” Fine; my reaction — or lack of it — doesn’t mean anything to the global economy. But when people we’ve entrusted with running the country and the economy display the same kind of indecisiveness and incoherence, it can lead to all sorts of unpleasantness. It’s not that they don’t have the answers; economists will argue about the granular stuff, but it’s the appearance of confidence and having a solution at hand that matter.
Stock markets are like herds of cattle or flocks of pigeons; they respond to input — either positive or negative — without really thinking; they just take off in a flurry before processing the news. But they also pay attention to the attitude, and when the leaders — or the presumptive leaders — actually do something that indicates they will take charge and do something, the markets respond positively, even if the ideas and stimulus come from President-elect Obama, who has no power whatsoever. Action brings confidence and relief.
There’s been a lot of discussion about whether or not this financial situation is comparable to 1932 when Herbert Hoover did too little too late to try to bring the nation out of the Depression. The nation and the world waited on the verge of panic for the new administration to come into office in March 1933, and when Franklin Roosevelt took the oath of office and declared that we had nothing to fear but fear itself, it was almost cathartic. It wasn’t his solutions that worked — many of them put in place in the first 100 days and the years after didn’t do all that much. It was just his attitude of confidence and belief that Americans would be able to get through it, and he was the leader to get us going again. As Will Rogers noted at the time, “If he burned down the Capitol, we would cheer and say, ‘Well, we at least got a fire started somehow.'”