Free Associations on Saving Money and Enemies (article)

Since psycho-economics is a neglected field of inquiry, the Ferraro and Xu article is quite welcome as a spur to getting people to think about it. This neglect is surprising for several reasons. First is the extent to which the rational model of human behavior has been discredited, even within academia, as inadequate by scholars such as Nobel Prize winner Daniel Kahneman, Professor of Psychology and Public Affairs at Princeton University. Secondly, the swings of the stock market reflect the often irrational hopes, fears, and delusions of groups, thus crying out for group psychological analysis. Thirdly, there is anecdotal evidence of economic leaders privately recognizing psycho-economics’ importance. An example of this comes from a friend, who requested anonymity. When introduced as a psychologist at a social event to one of the most important economists in the country, this financial giant declared that they were in the same business psychology.

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Regrettably, I don’t recollect the relevance of psychology being discussed at all when I studied American economic history as one of my four doctoral fields at Rutgers University. Rather, our professor, a renowned expert on taxation, was focused upon refuting the Marxist economists whom he had encountered in his youth in the Great Depression. I first came to the issue of savings from the perspective of the son of a self-made (during the Great Depression) immigrant father who believed totally in balanced budgets and urged me not to even have a checkbook since that made spending easy and saving hard. Being unable to save was an important issue, especially in my early manhood when, with the demands of a young family, there was never enough money. In doing my doctoral dissertation I was amazed to read a leading popular author of early nineteenth-century Britain, who wrote that his English countrymen overwhelmingly lived from hand to mouth in debt to the extent they could get credit. I was soon introduced to John Maynard Keynes’ theories that a government can spend, based upon borrowing, its way out of depressions and recessions. Ironically, his best American students, in opposition to their own rhetoric of balanced budgets, turned out to be Presidents Reagan and George W. Bush, who have run the country on the equivalent of a national credit card funded from abroad.

Though I am often troubled by U.S. deficit spending, it is unclear to me if savings are always a good thing for economies and societies. After all, the success of American capitalism has been its propensity to find new markets among consumers by getting them to spend rather than save. Another example is that in the 1980s Japan was widely seen as challenging the United States for economic supremacy in the world, but the propensity of the Japanese to save rather than consume has been an important factor in the slowing of that economy in the last decade of the twentieth century and first decade of the twenty-first century. In the present century, China has replaced Japan as a potential economic rival. We seem to always need some sort of a threat on the horizon. As Robert Jay Lifton and Vamık Volkan have reluctantly concluded, groups seem to need opposing groups to maintain their own identity.

My speculations extend to the issue of China being “saved” as a potential enemy. I say this with Frederick H. Hartmann’s The Law of Conservation of Enemies: A Study in Enmity (1982) in mind. This author points out the extent to which countries normally focus on only one enemy at a time, despite the fact that other countries approach them with enmity for their own reasons. Thus President Nixon, a man with a great need for enemies (see Elovitz, “Richard Milhous Nixon Revisited: The Haldeman Diaries The Psychohistory Review 24 [Fall 1995], 99-111), who made his senatorial career denouncing those he saw as internal enemies who sabotaged American foreign policy to allow China to “fall” to the Communists, chose to recognize Mao’s China at a time when millions of its citizens were dying because of the murderous policies of the government. This reversal is usually hailed as Nixon’s greatest diplomatic victory and it opened the door for the massive Western investment in China after the Cultural Revolution ended investment that has transformed China into a potential economic, military, and political rival of the United States. The greatest foreign investment in China came after the fall of European Communism. With Russia having become in our minds though never in reality for more than the briefest period a free, capitalist, and democratic society, we ceased to focus on it as a rival. Instead, our policies have contributed to the buildup of China while mostly ignoring the reality that it is a Communist-controlled dictatorship, which makes investment in it somewhat problematic because of the lack of environmental protection, freedom, and transparency, as well as uncertainty about its political future.

The authors’ suggestion that on the basis of differential growth rates the U.S. economy will be eclipsed by that of China seems very plausible on the surface. However, this sort of projection needs to be approached with caution. First, the Chinese base economy is so small by comparison to that of the United States that having a six-percent greater annual growth increase is not nearly as dramatic as it would seem when it is projected into the future. Next, I’m reminded of those Congressional hearings I watched for decades right into the 1980s, with charts and statistics explaining why the Soviets were becoming ever more militarily and even economically powerful, and why, therefore, different interest groups needed governmental monies or policies to save our society. Hindsight is twenty-twenty but the record of prognostications is pretty dismal, clouded by the fears, hopes, and self-interests of those who are predicting the future. We all know that this mighty So-

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viet economic and military specter was on the verge of collapse. In my view, European Communism fell not primarily because Ronald Reagan forced the Soviets into spending themselves into bankruptcy and said “Mr. Gorbachev, tear down this [Berlin] wall,” but primarily because their un-free society could not survive the loss of cohesion brought about by the fear of the United States and the West as threatening enemies after Gorbachev introduced glasnost and perestroika as he sought to modernize the crumbling Soviet economy. The path of the Chinese economy will be intimately tied to the political transition which must eventually follow from its partial abandonment of a Communist-style “command economy.”

I wonder if our unconscious reasons for helping to turn Communist China into an economic giant and then fearing it as a rival could be connected to a desire to have a Great Power enemy. After all, despite our present preoccupation and fears, stateless Islamic terrorists have their limits as a credible enemy. I see various hints that China is kept in the wings as a potential enemy. Of course, we do not know what the future will bring, though I for one prefer that we save money rather than potential enemies.

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