Avoiding economic anxiety

Andy Haldane, chief economist at Bank of England in this speech says we shouldn’t become over pessimistic which is a disease by itself. He points how economic indicators have improved since March and we should avoid excessive economic anxiety and fear:

The economy faces uncertainties that are extraordinarily large and risks that are skewed to the downside. In this environment, caution is natural and understandable. It is important policymakers are vigilant to these risks and uncertainties and responsive to them with their policy actions. It is important they provide, as they have so far, economy-wide insurance to support businesses and households during these troubled times.

That has been the approach of the MPC so far and it will continue to be its approach if new risks arise. At the same time, it is important the unexpectedly positive progress the economy has made so far this year is not overlooked. The economy has recovered further and faster, and has shown far-greater robustness and resilience, than anyone expected. This positive news has received less attention than it deserves, both on its own terms and because of what it may tell us about the economy’s resilience to future shocks.

My concern at present is that good news on the economy is being crowded-out by fears about the future. This is human nature at times of stress. But it can also make for an overly-pessimistic popular narrative, which fosters fear, fatalism and excess caution. This is unhealthy in itself but, if left unaddressed, also risks becoming self-fulfilling. I have a Rooseveltian fear of fear itself.

If the economy were sat on a psychiatrist’s sofa, the diagnosis would not be especially difficult. A propensity to dismiss good news and dwell on bad? To catastrophize about the future? The sense of events being beyond our control? These are the psychological symptoms of anxiety. And collective anxiety is as
contagious, and could be as damaging to our well-being, as this terrible disease.

Averting an economic anxiety attack calls for a balanced and flexible approach to the words and actions of businesses and policymakers. Planning for the worst is important, but needs to be accompanied by hope for the best. Encouraging news about the present needs not to be drowned out by fears for the future. Now is not the time for the economics of Chicken Licken.

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