"Self Confidence, the Missing Ingredient"

Sydney M. Williams

Thought of the Day

“Self Confidence, the Missing Ingredient”

September 29, 2010

The dictionary defines confidence as “full trust; belief in the full powers, trustworthiness, or reliability of a person or thing.” Self confidence: “a belief in oneself and one’s powers or abilities.” While slower than historic growth is likely a given (i.e. “new-normal” as characterized by Bill Gross of PIMCO) after the debt-driven growth of the past several years, it is the absence of confidence that restrains future growth. Confidence is certainly missing from people’s belief in their government, but it is the absence of self confidence that, in the longer term, is most damaging. Restored, we will thrive; without it we wither.

Much has been written about confidence or more aptly the lack thereof, in our economy. It is the single most important factor in driving Independents away from the Democratic Party and, at least in part, responsible for the Tea Party. At the peak of the financial crisis, two years ago exactly, confidence in the banking system hit record lows. A measurement of confidence in the credit system, the TED spread, had widened from 50 basis points in July 2007 to 465 basis points by early October 2008. (The TED ratio is the spread between three month LIBOR and the Three-Month Treasury Bill.) Acting decisively, Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke and then New York Fed Timothy Geithner convinced Congress to guarantee money market funds and to pass a TARP Bill (Troubled Asset Relief Program), a program through which banks could sell to the government “troubled” loans. The program was later amended allowing the government to take equity stakes in troubled banks. Despite Monday morning quarterbacking, the plan worked, in that confidence in the banking system returned as manifested by a TED spread that declined 300 basis points by the end of December 2008. While it was still high, the immediate crisis had passed.

Unfortunately what has not returned is confidence in the economy. Confidence is a tricky matter. It is an intangible; it must be sensed and encouraged. It is elusive, so difficult to restore. While the President exudes self-confidence, he has been unable to instill in the people a belief in their future. His mistake, in my opinion, has been emphasizing a confidence in government, rather than a belief in the individual. He blames former President Bush and Wall Street for the morass in which we find ourselves, and claims that the answer is government. In contrast, when Ronald Reagan was President, and faced with rapidly increasing inflation and prohibitively high interest rates, he emphasized his faith in the individual, that government was the problem, not the solution. The Obama administration’s emphasis on government, as opposed to the individual, reminds one of the old Chinese proverb – give a man a fish and he eats for a day; teach him to fish and he eats for a lifetime. For employers to rehire, they must feel comfortable about the future. For individuals to buy homes, they must feel confident about their job.

In yesterday’s New York Times, David Brooks – “Tom Joad Gave Up” – wrote: “Sometimes it’s hard to remember what good government looks like:..government that inspires trust.” Mr. Brooks blames the crisis (he is writing of California, but the analogy is applicable) on both Parties: the Democrats for granting too much power to the public employee unions and to environmentalists who supplanted reason with ideology. Republican, he says, were simply blind to the public sector’s role in creating prosperity within the state. George Melloan, in the August 24, 2010 issue of the Wall Street Journal wrote: “The Fed can flood the banks with liquidity in an effort to stimulate economic growth (if it is willing to run the very real risk of inflation). But that will not necessarily stimulate a demand for this money.” Later he quoted George Fisher, President of the Dallas Fed, who stated that “no amount of further monetary accommodation can offset the retarding effect of heightened uncertainty.”

The increasingly bitter partisanship that has marked Washington (admittedly heightened by the fall campaign) adds to this lack of confidence. Attempts to find a middle ground are immediately demonized as a sign of weakness. A recent case in point was John Boehner’s response to a question a couple of weeks ago. Barack Obama, on the stump, had said that the “Party of No” would let all taxes rise, if those earning over $250,000 were not included in a bill to extend the Bush tax cuts. Mr. Boehner said that, while his preference was clearly to extend the cuts to all people, if the only bill feasible excluded the top earners then he would support it. Conservatives, goaded by the Press, immediately jumped down Boehner’s throat, claiming that he had fallen into the President’s trap. It was as though he were a traitor. Have we traveled so far down the road toward incivility that compromise is no longer possible? This incessant bickering adds to uncertainty and decreases confidence.

More than anything, people need a strong dose of self confidence – to be told that they can achieve whatever their aspirations, as long as they are willing to put in the time and the effort. It was Reagan’s genius that he recognized that fact. The future is always unknowable, but it is in the belief each one of us must muster in ourselves that overcomes doubt and leads to success. As Sir Edmund Hillary once said: “It is not the mountain we conquer, but ourselves.”