Most economic analysis is history, a look back. What was the growth (or decline) in production last quarter? How many people were out of work last month? How much did prices go up (or down) last year?

For all their would-be scientific/mathematical precision, most economic forecasts are little more than forward projections of trends identified by searching these historical data for patterns. And this, naturally, is why economic projections are so right when things continue as they were and so wrong when things change.

Predicting peaks and valleys — precisely when things don’t continue in the direction they have been traveling — requires more than trend extension. Peaks and valleys, economic turning points, are where emotions — confidence, pessimism, anger, greed, frustration, hope — enter the analysis. People are more likely to change their behavior when their feelings change.

Unfortunately, at least from the perspective of predicting turns, measures of general public feeling tend to move together with the “harder” facts of production and employment.

Results from the Reuters/University of Michigan Consumer Sentiment Index, the Gallup Satisfaction with the State of the Nation poll and the Pew Foundation Trust in Government survey all tend to track traditional measures of the business cycle.

At least they did until recently. The Great Recession of 2007-09 ended more than two years ago, yet consumer confidence has bounced around near record lows and both “general satisfaction with the state of the nation” and “trust in government” have continued to fall to record lows, even as GNP numbers have pushed up slowly but steadily.

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Why can’t we all just feel better?

The answer, I think, is the overwhelming importance of feeling. Even if we are employed, even if we have confidence in our own situation, it’s hard to have confidence in our common situation if we don’t trust anyone.

Paul Ryan’s appearance as a force in the presidential election may have given a boost to sales of Ayn Rand’s “Atlas Shrugged,” a book he admires, but solitary pursuit of rational self-interest alone is not sufficient to spark the “animal spirits” needed to get the entire economy moving.

Pursuit of self-interest must be accompanied by an optimistic expectation that an individual’s effort will be rewarded, that our public institutions can be trusted.

Warlords in Afghanistan and pirates in Somalia pursue their interests quite rationally, but their behaviors have not spurred a general prosperity in their spheres of influence.

Prosperity requires both the freedom to pursue self-interest and trust in a rule of law that makes freedom available to all, confidence that my interests are not doomed to failure because of your connection to someone with power.

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That’s what we’re missing today — trust in a social contract we all agree to. For too many, that trust has been replaced with a cynical belief that crony capitalism has replaced freedom of opportunity.

But it is also an area where we in Maine can perhaps lead the nation out of this funk.

According to Civic Life in America, a compilation of data prepared by the Corporation for National and Community Service and the National Conference on Citizenship, Maine is well above the national average in civic engagement.

In voting participation, we rank No. 1 (40 percent above the national average); in working with our neighbors, we rank 12th (43 percent above the national average); in rate of volunteering, we rank 16th (24 percent above the national average); and in group participation, we rank 19th (16 percent above the national average).

While natural resources, energy costs, quality of life and lack of job skills may dominate discussion of our economic prospects, our greatest asset may well be our trust in one another and our willingness to work together.

Charles Lawton is senior economist for Planning Decisions, a public-policy research firm. He can be reached at:

clawton@maine.rr.com

 


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