Polling data indicates that Americans are more positive than Europeans about economic outcomes. The question is whether this positive attitude represents economic realism, or, to put it another way, the ability to accurately assess risk? Does the American attitude reflect a gap between reality and belief that harms our ability to assess what policies politicians should be enacting? On the flip side, are politicians enacting policies that properly assess economic risks to the American middle class?  I argue here that our attitude does not reflect a proper assessment of risk, and that this harms our ability to properly set for the right policies.

To illustrate my point the polling data, I decided to look back at polling from 2005, a period of economic growth as per the GDP:

* In the U.S., a 47 percent plurality expected "life in general" would be better (with 37% expecting no change). This compares with 31 percent of Europeans expecting their lives would be better.
* When it comes to expectations for their economies, 29 percent of Americans but only 17 percent of Europeans expected improvement, while 44 percent of Europeans, compared to 33 percent of Americans, expected their economies would get worse.
 * Only 21 percent of Europeans, compared to 38 percent of Americans, expected the financial situation of their households would get better; 24 percent of Europeans expected their financial situation would get worse, compared to only 15 percent of Americans.
* While Americans were split 29 to 31 percent between those who thought the employment situation would get better or worse (with 29% saying it would remain the same), almost a 3-to-1 plurality (48% to 15%) of Europeans thought it would get worse.

http://www.harrisinteractive.com/harris_ poll/index.asp?PID=533

The take away from the polling data is that many Americans are more positive in attitude toward economic issues whether those issues are the general economy or job prospects. I choose this period of time because it reflects the time period where you expect attitudes to be at their height, and to tell us whether people are generally planning for the future based on risk assessment about business cycles.

This issue of the inability to properly assess risk is one that permeates throughout our culture. It is not new. There have been whole books written on the subject. Indeed, the most recent book by Barbara Ehrenreich called "Bright-sided: How the Relentless Promotion of Positive Thinking Has Undermined America" is being discussed at the moment by Paul Rosenberg over at Open Left:

http://www.openleft.com/diary/15888/morn ing-maybe-the-tribute-band-of-open-left- diaries

The most striking element of the book for the purposes of this diary is the following:

"Americans are an upbeat and optimistic people. We smile and greet each other on the street and perpetuate the image of a gregarious and positive nation to the world. We all want to embrace this positive spirit-cheerfulness and good humor-especially in times like these: with unemployment on the rise, and foreclosures forcing thousands of Americans out of their homes, the need and desire for good news is undeniable. But America has embarked on an unwholesome love affair with Positive Thinking-meaning the belief system that refuses to consider the problems at hand; a conviction that by merely thinking positively and having a positive attitude, you can get the things that you want; that by focusing on the good, the bad will cease to exist. Avoiding reality, as recent history has shown, can be disastrous.

... * the refusal of the business community to consider negative outcomes-like mortgage defaults-and the groundless optimism of CEOs have replaced risk analysis as the basis for company decisions"

The later point in a nutshell is a huge problem with assessing risk regarding economic activity. The old adage, "hope for the best, but plan for the worse" seems to have been replaced with "believe that the best will happen."

In politics, this issue can be seen repeatedly with neoliberal idealogues, who make up the majority of economic thought leadership in both parties right now. I think of President Obama Administration's decision to pursue a smaller stimulus than was advocated by people like Paul Krugman. Many called out Krugman and others like  him as Chicken Littles or excessively negative. But, the truth is what they were doing economically is what any smart business decision maker would do- thinking of the worse case scenario based on the facts, and advocating policies to address the worse case scenario.  

Ultimately, the neoliberal argument is that things will work out. The proper rebuttal is the question, "What if things do not work out?" There are other examples at the macrolevel regarding assessing risk such as the risk of premium increases compared to historical data, whether banks should be allowed to be too big to fail, focusing our energy supply in one type of energy source, structural issues regarding employment, etc. These are the macrotrends of how we fail as a society to assess risk.  

However, they are not the only examples and to me seem to be reflective of a general problem that individuals have with assessing risk. One of the central tenets of microeconomic thought, especially neoliberalism, is that individuals are rational economic actors. For more information, please read this:

http://en.wikipedia.org/wiki/Rational_ac tor

But, it is the case that we are not rational actors:

"For hundreds of years, the study of economics has rested on the principle that human beings act rationally, all the time. More recently, academia has caught on to what many of us have known for years - that immediate gratification is a far greater motivator than rational thought or profit maximizing. From that seed grows the emerging field of Behavioral Economics, which combines psychology and economics to reveal why people so rarely act in their own best interest, particularly when it comes to money."
http://www.connectsavannah.com/news/arti cle/101253/

Thus, our ability to assess risk may not be rational. Even if it were, game theory tells us that information is always incomplete, and complete information is required for a perfect market:

http://en.wikipedia.org/wiki/Complete_in formation

Without this information, one can not properly determine risk much less choice of action.

That's why a book like "What's the Matter With Kansas" only partially gets it right. It is not that people are simply distracted by hot button issues like abortion. It is that they probably lack the information and rational ability to discern the economic issues.

The issue is not one of left versus right. It may be one of human nature. If that is the case, then we need mechanisms for assessing risks that go beyond the expectation that people will properly determine risk factors in our society. Indeed, given both the way economic indicators are reported as well as the shifting of risk that is occurring in our society, there is even less of an ability to accurately assess what risks one is taking in today's global economy when one acts in an economic sense:

http://www.mydd.com/story/2009/10/29/104 455/61#commenttop

http://www.mydd.com/story/2009/10/29/104 455/61#commenttop

So, if we have both a political culture geared neoliberalism, which does not properly assess risk, and greater society that also does not properly assess risk- what then can be done in terms of pushing toward an economic realism that properly assesses risk?

After all, the problem we face is a) taking people as they are rather than as what we hope they should be and b) entrenched, powerful status quo interests that gains from a lack of critical risk assessment in America. The solutions are not easy.

Part of the reason one does not want the American people to properly assess risk is that it would get in the way of the consumer economy that has been the economic engine for decades.  If people began moved toward a greater level of assessing risks, they would save more and buy less. They would discern to a higher degree the questions of what are economic things they can affect as individuals and what they can not. They may appreciate this statement written in the New York Times:

"The link between success and luck is stronger than many people think."

http://www.nytimes.com/2009/04/26/busine ss/economy/26view.html?_r=1

As Robert  H. Frank stated:

"Contrary to what many parents tell their children, talent and hard work are neither necessary nor sufficient for economic success. It helps to be talented and hard-working, of course, yet some people enjoy spectacular success despite having neither attribute."

This is the most dangerous statement that one can make against America's version of capitalism: That cream does not always rise to the top. Some part of all Americans not engaged in ideological denial knows this, and that may be the solution to taking people as they are. The emotions behind this are what we need to push forward. We need to ignore conservatives when they say that these sorts of things are class warfare. This is a derailing tactic meant to end the discussion over risk. The first goal must be to change the narrative about what is happening in America by not allowing the positive thinking to bury the reality. This is not a short term project, and nor is it one that will be resolved with one politician or policy.

There are some short term solutions that might help, but they do not address the greater narrative changes that must occur. Refocusing economic activity on building real assets rather than a finance based paper economy is one. One example is to refocus capital gains on small and medium domestic company financing only rather than other types of investment. Another practical example is when addressing politicians whom you are supporting- ask them how they addressing risks to the average American voter? If they don't know what you mean, ask them what are they doing to reduce the cost of education? Not simply financing higher costs, but reduce the cost. Do they support requiring the Federal Reserve to open up its books to the public? There are many more.

The problem I am describing here is not an easy one. Trying to determine the ways in which our inability to assess risks harms our political culture and economy are not easy in a globalized economy. There may be others with better solutions. The point here is to describe the need for moving toward an economic realism based on risk assessment rather than the power of positive thinking that pervades neoliberalism and American style capitalism.