Our economy began to crash in 2006, when the real estate market began to collapse. The collapse was blamed on bad decisions by banks and mortgage brokers, who had allowed people to get loans even though they didn’t have the money for the loans. More and more people were buying homes priced far beyond their means, and meanwhile the housing market was ballooning ever upward, based on this increase in buyers who were borrowing what they couldn’t pay back. The bubble burst when buyers began balking at paying the loans and banks began foreclosing homes.
I don’t think this real estate collapse was because of bad decisions or erroneous policies. I think it had to do with human denial: the tendency of humans to want only to focus on the positive and not the realistic picture.
Next, the stock market collapsed. On Monday October 6, 2008, the stock market started a week-long decline in which the Dow Jones Industrial Average fell 1,874 points or 18.1%. Investors had been investing more and more money in stocks, and the stock market had gone way up. Like the real estate market, the stock market had become a bubble ready to burst. Investors were investing borrowed money, so the rise of the stock market did not reflect real economic growth but false growth. Hence came the collapse, and one by one the stocks started to tumble. Experts again blamed this on misguided policies. I blame it on human denial.
Next the automobile industry collapsed. It was the same problem. Automobile dealers and the companies who financed them were giving out car loans to anybody who asked, and the car industry was soaring, based on the false sense of well-being based on loans to buyers who couldn’t afford the cars they were buying.
Next, people began to stop spending their money, and this caused the economy to fall even more. Then the unemployment rolls began to swell.
Early on the government stepped in and tried to save the economy by giving out trillions of dollars in loans to banks, car makers and other corporations. At the same time, they ordered the federal treasure to print up trillions more dollars. Both Presidents Bush and Obama followed this policy. And both increased our national debt; in fact our debt increased more during the terms of Bush and Obama than it had in America’s entire history. Now the government was doing exactly the same thing the banks and the real estate and automotive industries had done, borrow money in order to make it seem as if our economy was on the up-swing. Bush and Obama rationalized that they were taking measures to bolster our economy. I say they were both in denial about the reality of the situation.
Now some experts are predicting a second collapse as the reality of our national debt and our inability to sustain our economy becomes another bubble that is bound to burst. David Wiedemer, et. al, in their book, Aftershock, note that Bush and Obama increased the annual deficit by 550%, from $250 billion in 2007 to 1.6 trillion today. At the same time, they pumped up the money supply by 200%, from $800 billion in 2008 to more than 2.4 trillion today. This, he believes will eventually lead to inflation that will go as high as 200% a few years from now. “Exactly when this aftershock will hit is hard to say because there is no easy way to predict governmental actions or investor psychology.”
There is an old saying about “throwing good money after bad.” This saying perhaps underscores what has happened to our economy. Gamblers do this when they keep throwing more money on the table, hoping that their luck will change. And our businesses and governments are now also doing it, by borrowing money to pay back borrowed money.
Again, in my opinion, it all goes back to denial. In psychoanalysis, denial is a defense mechanism, first discovered by Sigmund Freud, in which people refuse to face facts that make them feel uncomfortable. Denial can manifest itself in different ways; people can deny something outright, as when an alcoholic denies he has a drinking problem. Or they can minimize the problem, as when the alcoholic says he may have a slight problem. Or they can use projection, as when an alcoholic says he has a drinking problem, but it’s not his fault, it’s his wife’s fault for nagging him.
All three of these aspects of denial have become apparent in our present economic crisis. In the beginning, before the bubbles started bursting, the real estate and banking industries, the stock market, and automobile industry completely denied there was a problem. Anybody who said there was a problem was viewed as an alarmist. (Anybody who tells an alcoholic he has a problem is likely to be told much the same thing.) Later, after the first collapse, they tended to minimize the problem. “Yes, things took a dip, but we are recovering,” they seemed to say. All of them looked for people or agencies other than themselves on which to put the blame. The real estate industry said it was the government’s fault, citing their failed regulation policies. The government said it was the real estate industry’s fault-citing their easy loan mess.
Denial has plagued humankind from the beginning. Early in the history of civilized humans, we denied that the world was round, despite overwhelming evidence. Then we insisted that the world was the center of the universe, again despite increasing and overwhelming evidence. And now we insist we are in touch with reality when we are not.
If we are to overcome this economic collapse, all of us–businesses, the government, and we the people–will have to face reality. There is no easy way to stop drinking. You just have to face the fact that you’re a drinker and do what’s necessary to stop.
Gerald Schoenewolf, Ph.D., is a licensed psychoanalyst, professor of psychology and author of 20 books.