Goldman Sachs CEO Says We're Too Pessimistic. I Think He's Right


In July 2008, former senator Phil Gramm said America was suffering from a "mental recession." "We have sort of become a nation of whiners," he said. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline." Six million people lost their jobs over the following year. We didn't hear much from Mr. Gramm after that.

Goldman Sachs CEO Lloyd Blankfein made a similar, though less blunt, comment today. Will he look as silly as Gramm in hindsight? I don't think so.

Here's Lloyd, quoted by Business Insider:

People might wonder why the country isn't growing faster. Because of the negative sentiment, people are scared and afraid to make mistakes, [Blankfein] explained.

So what are his solutions?

"Less negative reporting and less negativity," he said.

"Culture of America has gotten too negative -- Is that a trend or a cycle? I think it's a cycle...I'm optimistic, but I will say there's a moment where sentiment is more negative than the facts command. And sentiment matters."

Yes, it's easy for him to say. Blankfein just bought a $33 million mansion in the Hamptons. Five million Americans lost their homes to foreclosure since 2007. Blankfein has personally earned $161 million since the financial crisis began in 2007, according to S&P Capital IQ. Most Americans, um, haven't.

But I tend to agree with Blankfein. We've got problems. And a lot of Americans will continue to have it hard for a long time. But on net, we may be entirely too pessimistic right now.

And there may be a good explanation for that.

I've always been fascinated by this chart. It shows when the U.S. has been in a recession going back to the 1860s:

National Bureau of Economic Research.

There's a clear trend toward fewer recessions over time.

Why is that important?

Because the more familiar something is, the less risky it feels. That's why tens of thousands of car accidents never make news but two people dying from a new flu strain scares us silly.

We used to have a recession about every three years. Losing a job wasn't any less painful back then, but since it happened consistently, over and over again, I have to imagine pessimism faded quickly once the freefall ended. In his book Only Yesterday about life in 1920s America, Frederick Lewis Allan wrote:

Like an overworked businessman beginning his vacation, the country had had to go through a period of restlessness and irritability, but was finally learning how to relax and amuse itself once more. A sense of disillusionment remained; like the suddenly liberated vacationist, the country felt that it ought to be enjoying itself more than it was, and that life was futile and nothing mattered much. But in the meantime it might as well play -- following the crowd, take up the new toys that were amusing the crowd, go in for the new fads, savor the amusing scandals and trivialities of life. By 1921 the new toys and fads and scandals were forthcoming, and the country seized upon them feverishly.

The economy was a mess, but people just got on with it.

I think we've seen some of that since the depths of 2009, but probably less than is rational. We've only had three recessions since 1982. That's rare enough that when they occur it feels unusual, and out of place. Like something that shouldn't be happening. And since it's unfamiliar, we get overly pessimistic.

If true, this is a good problem to have -- I'd rather be shocked at occasional recessions than get used to frequent ones. But I agree with Blankfein that we're in an emotional cycle. It just might be hard to break.

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