What did President Roosevelt mean when he famously said, “We have nothing to fear but fear itself”? Actually, Roosevelt’s been referenced a lot lately regarding the bad economy. What would he have known about how fear interacts with itself?

The current global economy and the Great Depression have more in common than just bad stock markets. They also had a healthy dose of daily fear. I do not profess to be any sort of economist or historian. But I can see how this works judging from my personal perspective on this calamity.

Investing money takes confidence; confidence that your money will generally do well if you choose wisely. Those willing to be especially bold might opt for investments with higher risks but higher potential payoffs. Others might rather keep their money growing slowly and steadily until they need it way down the road.

When people see the property values tumbling, jobs being lost in their neighborhood, and their 401k’s shrinking, they become afraid. They don’t go out to eat as often, they put off building that new house, they don’t drive out of town as often.

Here’s an example of how the slow-down in the housing market can affect a community across the country. Fear and shaky finances hold back people interested in building new homes. Fewer construction projects are started. Fewer heavy duty trucks deliver building supplies, and therefore require fewer oil filters. Orders for filters drop at a filter manufacturing plant. Plant workers get laid off to match slowed demand. The community gets a job-cut shock, and more fear and financial problems abound.

Of course, it’s always wise to live within your means and save money for the future. But when people dramatically change their spending habits all at once because of an emotional reaction, it can act like a chain reaction that grows strong over time. A person cuts way back on spending because they fear what could happen to their job. Other dominoes fall in the economy, and more problems occur. These problems further reinforce and justify the person’s fear. As a result, they cut their spending to the bare minimum. Fear begets more fear, which then feeds the fear even more. The bigger the monster grows, the hungrier it gets.

When people get locked into this kind of fear, it can make getting out of the situation fairly difficult. People need some kind of confidence to spend their money. Trust is slow to build and easy to lose. And right now, I sense a hefty skepticism in how soon things will improve. People are still waiting for the other shoe to drop with job layoffs. They are holding their breath when they hear about the stock market. They are building a stack of unopened investment reports in their file cabinets.

Really, I am no economist and don’t know exactly what financial mechanics it will take to make things improve. But many people are waiting for better news to start releasing the tension in their shoulders. They are waiting to feel some twinge of optimism from reading the newspaper. They want to see more job openings than layoffs in their community. When those things happen, the collective emotion of the country may start to shift. The fear monster can eventually go back into the
shadows for a while.