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When Recessions Come, Who is to Blame?

Updated on February 13, 2012

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Simplistic Explanations for Complex Problems

The modern economy of the United States is astronomically complex. Billions of financial transactions of countless types occur every day, and it is difficult to find an industry that is not tied in some way to our increasingly global trading network. There are plenty of economists out there who claim to have some insight into current economic trends and to possess the ability to predict the future. But given their track records, particularly in recent years, it is clear that much of what they do is guesswork. It’s just too damn complicated, and future events that are impossible to predict can throw even the most thorough analysis way out of whack.

You would think that at some level, everyone knows this, but all of the time, I come across people with simplistic explanations for the economic performance of the past or present. This is particularly true when times are bad. And depending on people’s experiences or political ideologies, they will offer up various scapegoats as the causes of our ills: President Obama, President Bush, illegal immigrants, greedy Wall Street financiers, jacked up oil prices, lazy welfare cheats, cheap overseas labor, their stupid boss, machines replacing people, or God exercising his wrath. Some explanations are more plausible than others, but a rational, objective person will quickly realize that no single person, group, event, or trend can completely account for the health of such a complex economic system. The problem, however, is that we humans are not a particularly rational species, especially when it comes to questions of basic survival.

Periodic recessions - generally referred to as panics in the 19th century - have been a part of our country from the beginning. But when the Panic of 1819 happened, many Americans hardly noticed. Since most Americans were still farmers who produced much of what they consumed for themselves, it did not affect them very much if some banks failed or if unemployment was high in urban areas. But as time passed and American society transitioned from a primarily agrarian to an industrial society, an increasing percentage of Americans were impacted by these periodic economic crashes. And if a factory worker was laid off one day due to an economic downturn, he would not find much comfort in an objective, thorough analysis provided by a trained economist. The simple fact that the economy inevitably follows a cycle of growth followed by recession would not be comforting either. That laid off worker needed a job immediately, and he did not lose his job because of any particular mistake that he made. So there must be someone to blame, and there must be something he can do, in addition to going job-hunting, to turn the situation around.

In the pre-industrial world, people had a sense that they could control their economic destinies. They knew that natural, political, and other types of disasters could threaten their survival, but if nothing drastic occurred, farmers could count on eating each year. But in this new world in which everyone relies on trade to survive, people live in a state of mutual interdependence. When times are good, they live happily under the illusion that they completely control their own destinies. But when the inevitable bad times hit, they might find that illusion shattered, and through no fault of their own, they may find themselves unable to meet their basic needs. And those who are fortunate enough to still have a means of supporting themselves worry that they could be next, and at minimum, their standard of living could take a hit. Economic hard times, for all but the very rich, force people to recognize their dependence on complex forces that no one can fully control nor comprehend. Often, only a threat to our basic needs is enough for us to come to grips with this brutal reality.

The human brain, however, resists with every fiber of its being both complexity and a lack of control. We are hardwired to find order in the chaos, to separate the friend from the foe, the benign from the dangerous, and the good from the evil. If we become overwhelmed by the complexity of the world and our inability to control circumstances, then fear, confusion, and a feeling of helplessness will paralyze us. In other words, we will fit the description of a person with chronic depression. So for the sake of survival, evolution has given us a brain that places external stimuli into clear categories and seeks a course of action. Essentially, our brain is programmed to look for someone or something to blame when things go wrong and to then do something about it. We then feel a sense of empowerment, and if nothing else, we can vote in politicians that will respond to problems more effectively than those other politicians. And if we are not convinced that this will work, we can always do a lot of praying, yell at some illegal immigrants, go to a protest rally, or rant and rave on Facebook.

So how do we fight our natural compulsion to gravitate toward simplistic explanations? How do we use our irrational brains to fight the natural inclinations of our irrational brains? If nothing else, the fact that I am even writing this indicates that I am aware of the need to use my reasoning powers to overcome my instinctive, irrational impulses. Whether or not I can pull this off consistently is another question. But I have met enough seemingly rational people in person and online to give me some faith in our species’ ability to develop rational courses of action. Unfortunately, however, I have also interacted with many people who are perfectly comfortable with their well-ordered, simplistic worldviews. So maybe our best hope is that one of the groups of political/economic fundamentalists is right and that this group is able to carry out its program, and people like me, who are often overwhelmed with the complexity, are just messed up in the head, suffering from various degrees of chronic depression.

So if our brains are inclined toward finding scapegoats anyway, I may as well get in my two cents worth. One of the amazing things about our current situation is the degree to which the real estate and financial sectors have gotten off of the hook. If ever there was a time when there was a primary root cause of a bad economic situation, it is right now. Because of a desire for quick, short-term profits, real estate companies, investment banks, and government-sponsored enterprises behaved in an incredibly irresponsible fashion, leading our country (and world) to the brink of an economic catastrophe. And today, as far as I know, none of the significant players in the mess have been prosecuted for any crimes. Instead, many of the large financial institutions (that survived) are more powerful than ever (thanks largely to taxpayer funded bailouts), and many of the prominent individuals who led us to the brink are still powerful people in the public and private sectors. And meanwhile, many Americans are more riled up about the differences between Democrats and Republicans, illegal immigration, gay marriage, or God knows what else than they are about getting scammed by wealthy financiers. It’s amazing how a species inclined toward finding scapegoats can be so easily distracted away from the biggest, baddest scapegoat of the last eighty years.

Of course, the details of the financial crisis get complicated, and as I said, we humans don’t do complicated very well. To be an ideal scapegoat, the culprit must do something that is relatively easy to understand. So if we have to choose between blaming everything on President Obama (or Bush) or getting angry about mortgage-backed securities that were based on poorly underwritten loans originated by short-sighted irresponsible brokers, we’ll go with blaming the president, especially if he happens to be a member of that other political party. Who has time to make sense out of all that complicated stuff anyway, and you can’t vote all of those stupid bankers out of office.

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    • Freeway Flyer profile imageAUTHOR

      Paul Swendson 

      7 years ago

      Thank you phdcast and Kathleen. It's always refreshing to hear from other people who are also tired of the hysteria and name-calling.

    • Kathleen Cochran profile image

      Kathleen Cochran 

      7 years ago from Atlanta, Georgia

      Well said!

      "It’s amazing how a species inclined toward finding scapegoats can be so easily distracted away from the biggest, baddest scapegoat of the last eighty years."

      And who do you think is doing the distracting? Whoever they are, they are extremely good at it!

    • phdast7 profile image

      Theresa Ast 

      7 years ago from Atlanta, Georgia

      Wow! A rational approach. No hysteria or name-calling.

      I am so impressed, I almost don't know what to do. Actually, I do know what to do. I will copy one of your statements, in the hope that other people will read it and get it.

      "...but a rational, objective person will quickly realize that no single person, group, event, or trend can completely account for the health of such a complex economic system." [Freeway Flyer]

      An astoundingly simple and totally accurate statement. How absurd that politicians, groups, and citizens keep blaming each other as if any of us, including the president, actually had the power to control such a vast, complicated and interlocking system.

      And your comments about the damage caused by the real estate and financial sectors is right on target. Thank you for an excellent, much needed Hub. SHARING

    • cprice75 profile image

      Chris Price 

      7 years ago from USA

      Glass-Steagall was a New Deal Act that separated commercial and investment banking. The thought was that this would cut down on risk-taking and avoid massive economic collapses in the future. It worked for about 60 years, until its repeal was forced on Bill Clinton in 1999. Banks get loose with their speculation, and lo and behold, what happens? Those who do not learn from the past are doomed to repeat it. The bankers made tons of money, then there's a collapse and they lay off thousands in the process. Then they get bailed out (unfortunately necessary, but heads should have rolled) and cry about attempts to regulate them. Go figure.

    • Freeway Flyer profile imageAUTHOR

      Paul Swendson 

      7 years ago

      Under normal circumstances, I agree. But when the financial sector was especially stupid as in the late 1920's and the 2000's, more drastic measures were necessary. The trick is preventing crises like this before they occur with reasonable, well enforced regulations.

    • dahoglund profile image

      Don A. Hoglund 

      7 years ago from Wisconsin Rapids

      Generally politicians feel some sort of obligation to do something. Herbert Hoover raised taxes in the depression which was bad and probably against his conservative principles. FDR followed Hoovers policies although his propaganda blamed Hoover. Mostly what they do does more harm than good. Left alone the economy would probably work things out on its own.

    • Pcunix profile image

      Tony Lawrence 

      7 years ago from SE MA

      In a word, greed.

      That is a place where we can make a difference. If we made greed something people are ashamed of, some things might change. All it takes is pointing it out when you see it. Alone, your speech means nothing, but if many of us express the same thoughts, it can have a powerful impact.

    • Freeway Flyer profile imageAUTHOR

      Paul Swendson 

      7 years ago

      Mindy,

      Yes, it would be nice. You would think that stockholders would find a way to get rid of some of the idiots on their Board of Directors.

      Christopher,

      Yes, in the end, we have no choice but to try and get by as best we can. A little bitching, however, can also be a relief, so expect to read some more rants in the future.

      Cprice,

      It's refreshing to find someone who recognizes the degree to which times have changed, and of how much a Libertarian fantasy would turn into a nightmare. Maybe it takes a fellow student of history to realize this.

    • cprice75 profile image

      Chris Price 

      7 years ago from USA

      I think you are dead on when you point out that many people in the early days of the republic had little knowledge of panics. Those who are extreme rugged individualists crack me up, as do those who think we can run the country as it was run in 1800. Times have radically changed. When there was free (or almost free) land available to anyone who would farm, there was the possibility of making it on your own with no help or interaction from anyone. These land sales and tariffs tended to fund the entire government. Federal land is usually not sold today, and we all know the attitude toward protective tariffs. Hence the need for new sources of revenue. Today, with people buying stuff from all over the place from domestic and overseas producers, there is a huge need for infrastructure. Governments have always taken care of this because of the sheer size of the task. Also, back in the day, there was little likelihood of a plant in the middle of the country polluting your water source or your air. In other words, there was no need for governmental regulation in that regard. There is no turning back the clock to the early nineteenth century, regardless of what some people would like.

    • christopheranton profile image

      Christopher Antony Meade 

      7 years ago from Gillingham Kent. United Kingdom

      This is probably the closest you have come to a "rant" on HubPages". It is good.

      My recipe for economic recovery is that everybody should concentrate on doing their own business as effectively as they can, and not worry too much about what other people do.

      Also let's ditch the "blame game" folks. We are all responsible in some way.

    • profile image

      Melinda Kellhofer 

      7 years ago

      Although, voting "all those stupid bankers out of office" does have a nice ring to it! If only we could find a way to work that! ;)

      Thoughtful analysis, as usual.

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