Just when news of stock market gains and a jump in home sales made us feel as though the recession was over, economists and market analysts began to systematically plant the idea in our minds that this could turn into a double-dip recession. The reason for this approach is clear. If we’re prepared for the worst, bad becomes the new good.
Nothing gets our attention like fear. When leaders or experts make extreme predictions, such as a second downturn in the economny, we initially react with alarm—it’s something unwanted and undesirable. However, at the same time we begin to prepare ourselves psychologically for the possibility. Paul Krugman, the Princeton professor and Nobel-winning economist, is predicting a double-dip or W-shaped recession. In a recent Business Times interview he said “some of the support measures, especially fiscal stimulus, will reach their peak later this year, and then recede. If weak labor markets continue to act as a drag, a W-shaped recovery is quite possible.” The New York Times’ Economix blog highlights half a dozen other economists who also forecast a double-dip recession.
Unlike normal recessions, a double-dip is one where the bubble bursts and there is an initial correction in the market. As the market begins to improve, investors feel there’s a return to normalcy. Corporations can temporarily improve the bottom line by reducing salaries and other expenses; however, the trend can’t continue without an actual increase in sales. If companies can’t eventually make profits, the recovery begins to unravel and this leads to the second major drop in the market.
The U.S. witnessed a W-shaped recovery during the Great Depression in two separate downturns—one from 1929-1933 and the other from 1937-1938. The only other double-dip recovery, according to the National Bureau of Economic Research’s official business cycle dating committee, was the twin recessions of 1980 and 1981-1982. And now there’s fear that history is going to repeat itself with the Great Recession of 2008-2009.
Fear is a powerful incentive to change our attitudes, beliefs, and opinions. Politicians have scared us into believing that unless the U.S. government uses billions of taxpayer dollars to bail out our financial systems, we will sink into a Depression. Messages like this are intended to change our attitude so we feel better about where our money is going. They’re also intended to assure us that our politicians are doing their job.
This is a tool of influence that I’ve used for years as an FBI counterintelligence agent. I frequently introduced an “extreme message” for the purpose of persuading the targets of my investigation to shift their attitude and settle for a less dramatic alternative. I called it “inoculation.” One of my targets was an old-style Soviet spy who took his wife shopping every Sunday. One day she was caught shoving an XXL girdle into her vinyl handbag and was detained by store security. The target was told that the FBI would be notified of the incident. Shaken, he knew that if the Soviet Consulate found out, he would be labeled a “security risk” and sent back home with his career, and pension, in ruins. For days I watched his standard-issue trauma—shaking, not eating, sticking to the ceiling every time the phone rang—so that by the time I interviewed him, he was expecting the worst. He was so inoculated with fear of what the FBI would expect of him that when I proposed something far less painful, he jumped at it, and thought it a good bargain at that!
Inoculation as a tool of influence is effective because after the threats of a worst-case scenario—in this case, a double-dip recession—we’re more than likely to accept a mediocre economic recovery with enthusiasm and support for our politicians. This is, of course, in keep with their plan. Can Americans be persuaded to batten down the hatches and weather out another financial storm? I think so. And we’ll feel good about it, too, because while we’re preparing for the worst, it won’t be as bad as it could have been.
