The subjective dimension of crises

A few days ago, INSCOP published data from the new edition of the Economic Sentiment Index (here). Of course, the first question would be whether, under the pressure of the real economic crisis, what people think about the crisis still matters. Well, it does. For example, nothing annoys me more than the analysts who pull predictions out of thin air on television, saying that petrol will reach 15 lei, that energy will become increasingly expensive, even though the money paid by ordinary people goes more into a speculative merry-go-round than into infrastructure and the hard, hands-on side of work in the energy sector. Their mere prophecy adds to the price and provides justification for possible price increases. Of course, that is not all that matters and, if you ask these people, they will invoke their right to an opinion. But if you ask them a month later why prices have risen, they themselves will cite the rumors and signals that destabilized the market.

So yes, in a world where rumors, public opinion, and subjectivity only add to the crisis, knowing how the public as a whole assesses the evolution of the market tells you a great deal about the real chances of being resilient in the face of the crisis or of sinking deeper into it through self-fulfilling prophecies.

What the Economic Sentiment Index shows us is that a prolonged crisis changes people’s mindset in all their roles: consumer, employee, small investor. Until recently, experts scolded the people for consuming, but now they are desperately fretting over the collapse in consumption. In minute four of the program, they tell you that low wages have destroyed consumption; in minute eight, that people must understand that wage pressures are too great for the economy and that if they do not also work for lower wages, the whole house of cards will implode. Now, ordinary people have entered a state of prolonged uncertainty because the crisis, too, has been prolonged. And rightly so: lately, we have had more macro-crises than anything else. The public is not a mechanism whose consumption you can stop with the press of a button to rebalance the system. Nor can you turn it on whenever you want, because the stars have aligned for the exit from the crisis and, there you go, boys, starting tomorrow, begin buying cars so we can get the economy moving. Or houses. And ten years later, at the next crisis, when they no longer have money for their installments: “Well, you consumed too much again; did we make you take out loans for cars and a house?” “Well, yes, you pretty much did.” And that is not a bad thing—after all, that is what people work for. Ultimately, the art of governing is to reduce the gap between periods of crisis and periods of growth, so that the public feels a certain consistency, even in its understanding of these cycles. But if, on the downward curve, you can no longer pay the installment on the house bought on the upward curve, then either you made some wrong choices, or the state, as well as the stakeholders in the economy, failed to do their job. It remains to be seen how we calculate whose fault it is.

So let us not be surprised when uncertainty causes consumption to fall and tension to rise. It is an entirely normal adaptation, especially to long crises. And in a society dominated by mistrust, there is no notion that politicians work for the benefit of the public; consequently, moderating consumption when we are told to and accelerating it again when we are given the signal is not possible in a climate where the notion of the collective good is shaky and certainly is not seen as being in the politician’s emergency kit. 44% of Romanians say their incomes have remained the same over the past year, while 42% say they have decreased. 45% expect them to remain the same over the next six months, and around 35% expect them to fall. A devastating 86% say that prices will rise over the next six months. The cherry on top… sorry, more like the candy on the funeral bread: 60% of Romanians feel that they will have no control over their economic situation in the coming years. A veritable paralytic spray for work, investment, and plans for the future. Even assuming an economic miracle in the near future, including the fact that in good times people want to consume and be optimistic, a relatively long series of crises creates this idea that… your well-being does not depend on you. This is important, because it also leaves its mark on good economic times—and encourages that gangster-style consumption (“let’s have fun today, because tomorrow we don’t know where we’ll end up”). It also favors businesses of the same kind and with the same kind of ethics—“let’s make money today, as much as we can.”