The Advantage Of Being Prepared: Swine Flu Pandemic Vs The Global Financial Crisis

Last week, a reader forwarded me an interesting article appearing in the New York Times by Simon  Johnson, who is a former chief economist of the International Monetary Fund, the international body responsible for coordinating the stabilization of global financial markets, especially those of developing markets.  The article, entitled Swine Flu vs. Financial Panics, centers around the violently different ways society has handled the global financial crisis, now over a year old, and the recent swine flu outbreak.

Reaction To Swine Flu

Consider the reaction to news of the spread of swine flu: people are perhaps a bit overly frightened, but life goes on.

• Governments, including our own, have for the most part reacted confidently and without hesitation to contain the disease, mobilizing the public health community, enacting quarantines when necessary, and even going so far as to post detailed H1N1 flu information (swine flu on the CDC site) on government websites.
• The media has done its part to contain hysteria, publishing “fact sheets” about the disease and educating people of the simplest and easiest way to prevent yourself from being infected:  wash your hands often and avoid contact with those already infected.
• Even fellow bloggers have gotten in on the act of spreading swine flu awareness.

In short, we were prepared for an outbreak.  Perhaps the reaction wasn’t perfect, but it was more than adequate.  The American public health sector is very good at what it does and the American population, on  the whole, has confidence in the system.

Reaction To Financial Crisis

Contrast the above two paragraphs with how the world has reacted to the recent financial crisis.  In almost every case, the reaction has been the opposite of what I’ve written above.

• Industrialized governments have enacted wildly different, uncoordinated policies that are generally poorly-thought out and nobody has confidence in.  Our own congress has debated for months the correct course of action and still hasn’t come to anything resembling a consensus.  Lack of confidence amongst our leaders breeds lack of confidence amongst the people, causing panic.
• There has been no concerted, dedicated effort to turn this thing around.  Instead, we’ve enacted certain policies, tried them for a bit, and then changed course before the previous policies had any reasonable chance of success.  In short, we haven’t stayed the course because we lack confidence in our ideas.
• The media has fermented what amounts to panic, publishing stories every day focusing on the negative, such as the recent shameful 60 Minutes piece on 401k plans (about which Bad Money Advice wrote an excellent blog post).  These stories offer no solutions and exist for the soul purpose of making money for their producers off the misery of others, which is a shame.  60 Minutes in particular could have made a real difference by educating the public about the dangers of investing too aggressively.  Instead, they levied a blanket attack on the 401k plan itself (full of horrible inaccuracies, I might add) without suggesting ways we might try to improve the system.
• Americans on the whole mistrust Wall Street, the Treasury, and even the U.S. government itself when it comes to managing their money and securing their retirement.
• People distrust the system itself, not just its results.

What a difference!  The dismal savings rate, I believe, is due as much to this lack of trust in the system as it is to materialism.  Why invest in the market if you believe it’s a scam to begin with?

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Why The Disconnect?

I believe Mr Johnson hits the nail on the head with several of his observations.

1. Public health is a science while the study of economics, for all its benefits to society, is still a regimented art at best.  Advances made in the public health sector over the last century far outpace the advances made in economics.  We know how to prevent a pandemic before it happens, but still have no idea how to prevent a recession.  In fact, we don’t even know whether or not it’s even possible to prevent a recession at all!
2. The health industry has a vested interest in keeping us all worried.  Public fear means more profits for them and more jobs in the public health sector to assuage those fears.  Public health officials inform us we are potentially at risk and should take certain precautions, and guess what?  We listen.  The financial industry, on the other hand, has a vested interest in convincing you there’s nothing to fear.  Simply hand them your money and go about your life!  You don’t have to worry about risk (according to them) because your money is in the hands of highly-educated professionals.  Clearly, this is a recipe for a disaster.  Show me an investor who doesn’t bother educating themselves about the basics of finance and I’ll show you an investor who is guaranteed to get ripped of.  Sadly, this type of investor is in the majority, not the minority.

One additional point I’d like to add, which I see as a vitally-important difference, is that governments themselves don’t pretend to be experts on public health.  They take the advice of doctors, epidemiologists, and experts in the field when it comes to making policy decisions.  That is, public health officials have the freedom to do what they know is best without too much political pressure.  Contrast that with the government’s constant meddling in the economy.  In Washington, it seems as if everybody is an economic expert and has their own ideas on how to best run things.  Unfortunately, most politicians are lawyers, not economists.  Most don’t have a clue how the economy works and are completely ignorant on the intricacies of job creation, international trade, finance, and other such sub-fields.  That doesn’t stop them from telling the economists how to do their job, however.  I have an idea:  why not let the economists deal with the economy the same way we let public health experts deal with public health issues?  You’re a congressman, not an economist, and you have no idea what you’re talking about.  So get off it, already.  You’ve already done enough harm.