By SHLOMO MAITALColumn from Issue 16, November 24, 2008 of The Jerusalem Report. To subscribe to The Jerusalem Reportclick here. Shlomo Maital is academic director, TIM-Tel Aviv.
In the hit 1999 science-fiction film "The Matrix," Morpheus offers Neo two pills. The red pill offers the bare unadorned truth. The blue pill provides for life to carry on as before, full of delusions.
It is time we took the red pill, like Neo, after swallowing so many blue ones. Israel's Gross Domestic Product (GDP) will grow by 4.4 percent this year, according to the Central Bureau of Statistics . Yet my conversations with senior managers reveal that nearly all Israeli companies - and most of those in the U.S. and Europe - are firing workers or plan to fire them in the near future. Even government agencies are making similar plans.
The recession is inevitable. It has already begun in the U.S. and Britain and will reach Israel early next year. And it will hurt.
What can we say about an economy featuring falling living standards, rising unemployment and shrinking pension values? Can we actually, well - learn to love it?
Here are some thoughts on the positive side of economic downturns.
Compassion: In the bad old days, it was every man and woman for themselves. Perhaps, now, when nearly everyone is hurting, we will return to a sense of community, when it is assumed that people help one another. With the role of governments shrinking in the era of unfettered capitalism, it is now up to us to help one another. This is very positive.
Until age 4, I lived in Milestone, Saskatchewan, a Western Canadian farming community with 500 people. Later we moved to the city, Regina. In the West, a core value is that people help each other, because in the frozen winters survival depends on it. That core value remains, as those who live or travel in the West know. Will the recession help it make a comeback elsewhere? Will the selfishness of capitalism be replaced by altruism, at least partly?
Empathy: OK, the wealthy lost some money. But they are still wealthy. Will their losses make them more empathetic toward those who did not lose any money, because they never had any?
Perspective: Thomas Lawler, quoted in the International Herald Tribune, calculated that financial losses in the global downturn of capital markets totaled (to date) $7 trillion. That is half the American GDP, a huge sum. But what is rarely mentioned is that between November 9, 1989 (when the Berlin Wall fell, marking the beginning of global capitalism) and 2007, $127 trillion in new financial wealth was created, in stocks, bonds and deposits. So the recent losses amount to only 5.5 percent of that new wealth. Why do we always forget the wealth creation, and focus solely on the wealth destruction?
Psychologists like Nobel Laureate Daniel Kahneman have found a basic asymmetry in human behavior. It hurts us far more, they find, to lose $7 trillion than it pleasures us to gain $7 trillion. That's why gamblers take huge risks to offset losses. And they also note a reference-point effect. If your benchmark is where you were last year, you mourn losing $7 trillion. If your reference point is 1990 (and it almost never is, because of human nature), you chuckle at having gained over $100 trillion.
We can all be far happier just by taking the long view and by following Kipling's advice, treating gain and loss the same. As they say in Yiddish, nisht geferlech (not so awful). Let the recession give us back our true perspective.
Health: Some researchers say that public health actually tends to improve during a recession. According to Christopher Ruhm, an economist at University of North Carolina, Greensboro: "When times are bad, mortality rates fall and most measures of physical health improve." Admittedly, his research is controversial. Other experts point to the negative effects of recession-induced stress.
Less is More: The endless race to spend and acquire more stuff will slow down in the recession. And we may discover that less is more. We will find ways to enjoy life without spending money or forlornly roaming shopping centers to buy things we do not need.
Self-restraint: In the bad old days, everything in the system pushed people to borrow and spend. "Live within your means," said the ads, "even if you have to borrow to do it." We now face a mountain of debt, tough to pay off in a recession. It is time for good old-fashioned self-restraint.
In his best-selling 2008 book, "Predictably Irrational," MIT Professor Dan Ariely, an Israeli, suggests a "self-control" credit card. Users decide in advance how much money they will spend in each category and in each store and their smart credit card holds them to it.
He imagines an e-mail from his credit card to his wife:
"Your husband has exceeded his spending limit on chocolate of $50 per month by $73.25."
There is small chance the banks will cooperate and create such a card, so perhaps we ourselves can learn to constrain ourselves and our debt.
In business cycles, as in elevators, up follows down: We will come out of this recession. We will find jobs. We will rebuild our savings. We will be stronger.
And, can we each put this in writing, we will not go back to the bad old days with excessive debt, spending and worship of financial capital. Instead we will seek more important capital - family capital, spouse capital and friendship capital.
That capital suffered during our pursuit of wealth. Perhaps the recession will redirect our pursuit of happiness. •
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