Goldman Sachs CEO Says We're Too Pessimistic. I Think He's Right

In July 2008, former senator Phil Gramm said America was suffering from a "mental recession." "We have sort of become a nation of whiners," he said. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline." Six million people lost their jobs over the following year. We didn't hear much from Mr. Gramm after that.

Goldman Sachs (NYSE: GS  ) CEO Lloyd Blankfein made a similar, though less blunt, comment today. Will he look as silly as Gramm in hindsight? I don't think so.

Here's Lloyd, quoted by Business Insider:

People might wonder why the country isn't growing faster. Because of the negative sentiment, people are scared and afraid to make mistakes, [Blankfein] explained.

So what are his solutions? 

"Less negative reporting and less negativity," he said. 

"Culture of America has gotten too negative -- Is that a trend or a cycle? I think it's a cycle...I'm optimistic, but I will say there's a moment where sentiment is more negative than the facts command. And sentiment matters." 

Yes, it's easy for him to say. Blankfein just bought a $33 million mansion in the Hamptons. Five million Americans lost their homes to foreclosure since 2007. Blankfein has personally earned $161 million since the financial crisis began in 2007, according to S&P Capital IQ. Most Americans, um, haven't.

But I tend to agree with Blankfein. We've got problems. And a lot of Americans will continue to have it hard for a long time. But on net, we may be entirely too pessimistic right now. 

And there may be a good explanation for that.

I've always been fascinated by this chart. It shows when the U.S. has been in a recession going back to the 1860s:

National Bureau of Economic Research.

There's a clear trend toward fewer recessions over time.

Why is that important?

Because the more familiar something is, the less risky it feels. That's why tens of thousands of car accidents never make news but two people dying from a new flu strain scares us silly.

We used to have a recession about every three years. Losing a job wasn't any less painful back then, but since it happened consistently, over and over again, I have to imagine pessimism faded quickly once the freefall ended. In his book Only Yesterday about life in 1920s America, Frederick Lewis Allan wrote:

Like an overworked businessman beginning his vacation, the country had had to go through a period of restlessness and irritability, but was finally learning how to relax and amuse itself once more. A sense of disillusionment remained; like the suddenly liberated vacationist, the country felt that it ought to be enjoying itself more than it was, and that life was futile and nothing mattered much. But in the meantime it might as well play -- following the crowd, take up the new toys that were amusing the crowd, go in for the new fads, savor the amusing scandals and trivialities of life. By 1921 the new toys and fads and scandals were forthcoming, and the country seized upon them feverishly.

The economy was a mess, but people just got on with it.

I think we've seen some of that since the depths of 2009, but probably less than is rational. We've only had three recessions since 1982. That's rare enough that when they occur it feels unusual, and out of place. Like something that shouldn't be happening. And since it's unfamiliar, we get overly pessimistic.

If true, this is a good problem to have -- I'd rather be shocked at occasional recessions than get used to frequent ones. But I agree with Blankfein that we're in an emotional cycle. It just might be hard to break.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 15, 2013, at 9:20 PM, kbeck02 wrote:

    Are you saying this "recession" is the same as all past recessions? That is what your article sounds like. This is NOT like any of the other recessions. This is, in reality a Depression for millions of people, not only in the US, but no one wants to admit it...wouldn't want to scare the masses.

    This was the largest theft of personal property since the settlers stole the whole country from the Native Americans.

    "Just buck up," says you, Blankfein, and Obama. My guess is none of you lost anything in this last crash. Your lives go on as usual. I don't really have to "guess" about Blankfein. His life goes on better than usual.

  • Report this Comment On June 15, 2013, at 10:20 PM, lowmaple wrote:

    I'd like to know what the age composition was during all those depressions years ago. If people were younger on average perhaps getting out of depressions was easier.

  • Report this Comment On June 17, 2013, at 10:38 AM, HectorLemans wrote:

    My Dad lost his job during this last recession at the company he'd been working for 30+ years. Something my 92 year old Grandma said about it has always stuck with me. She said even though it was extremely hard living through the Great Depression, at least everyone was in the same boat. Everyone chipped in to help everyone else because almost everyone needed help. Now days, I see a lot more people losing their job, house, etc. and go through that on their own because their friends and neighbors are doing just fine and don't think (or know) that they need help.

  • Report this Comment On June 17, 2013, at 11:02 AM, hbofbyu wrote:

    The division of wealth is the cause for pessimism - something that Blankfein probably has trouble relating to. The "a rising tide lifts all boats" is a fallacy when some very important things become more and more expensive. Housing, Education, and Health care — three biggies — have increased in price far more than middle class family income over the past 20+ years.

    Countries with large inequality tend to develop unhealthy political systems, and eventually fail. The authoritative book on this subject is "Why Nations Fail" by Daron Acemoglu and James Robinson.

    Economic inequality brings greater political inequality, and those who have more power politically will use this to gain a greater economic advantage by stacking the cards in their favor and increasing economic inequality yet further. Sound familiar? Look at the revolving door between Wall St., the Treasury and Washington lobbyists.

    We are in a vicious circle - and may never get out until the worst has come.

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