Monday, May. 13, 1957

How to Make Good News Seem Bad

THE BOOM PSYCHOLOGY

FOR the past four or five years we have had these attacks with all the regularity of an annual case of spring fever. And now, once again--to use a great mixed metaphor--'The crape-hangers are crying wolf in the marketplace.' " So said Ford Edsel Division General Sales Manager J. C. Doyle last week, commenting on the curious psychology of businessmen and the U.S. public about the boom. Instead of optimism, the greatest economic advance in history has often produced the opposite effect: a fretful, unreasoning pessimism. Like rabid Mickey Mantle fans, the U.S. has become so used to herculean feats that it expects a home run every turn at bat. A mere brace of singles--or merely excellent business--is no longer enough.

Much of the gloom has come from the financial pages of the daily papers, whose headlines tend to magnify any slowdown out of all proportion. One day last week, for example, the downbeat Wall Street Journal filled its front page with news of lower auto production, a reduction in electric power use, reports of low earnings and reduced dividends by four companies. Buried in the back pages were the first-quarter reports of 58 other companies, half of which had higher, or record, earnings. The same pessimism is shown by many other financial reporters. When University of Illinois Economist V. Lewis Bassie proclaimed during a recent Cleveland debate that "we're in the beginning of a postwar depression cycle," the emphasis, in stories was on his charge, not the rebuttal. Says Editor Tom Campbell of The Iron Age magazine: "Never has so much ink been spattered around about a 'downturn.' The general theme seems to be that if we are not headed for the roof we must drop to the cellar."

To Editor Campbell and others much of the trouble is a matter of semantics, a use of terms that often make a drop seem worse than it is. To answer talk about a steel "slump," U.S. Steel and Republic Steel distributed thousands of copies of speeches by executives pointing out that the slowdown was minor and that the industry still expected a good year. Even the facts about layoffs and shutdowns rarely tell the whole story. Says Cleveland Trust Co. Economist David C. Elliot: "You read about 200 layoffs here, 500 there, a shutdown elsewhere. They're confined to a few spots like autos or appliances, and add up to an infinitesimal fraction of total employment. But to the uninformed, they indicate that the economy has turned sour."

Businessmen can blame themselves for some of the pessimism. Many executives insist on rating their 1957 profits against alltime records set in 1955 and 1956, and consider those years as the norm to be matched--or bettered--in every quarter. While they talk about the squeeze put on profits by rising costs, they ignore the growth of total profits. Government figures for all manufacturing corporations from 1947 to 1956 show that sales climbed from $150.7 billion annually to $307.3 billion, while profits before taxes averaged between 8% and 12% of sales each year. Businessmen will make nearly twice as much money in 1957 as they did ten years ago, even though the percentage on sales may be lower. "We've simply got too used to the term 'record earnings,' " says an Atlanta Paper Co. executive. "You hear a lot of grumbling, but when you pin people down, they can't give you a valid answer for their bearishness."

The most probable reason is that the U.S. has not adjusted its economic thinking to a new kind of economy that can rise, pause or slip off a bit, then rise again. Many businessmen^ especially older executives who lived through Depression days, still think in terms of boom and bust. They have never seen employment remain so high for so long, and "they say to themselves," says Harvard Economist Sumner Slichter, '"It can't last. It can't last. It can't last.' "

To some economists the grave danger of such talk is that, by overemphasizing every slight fluctuation in the short-term outlook, businessmen may destroy the confidence the U.S. needs to keep on expanding to serve its growing markets. Yet many others do not think so. As Blyth & Co.'s Charles Blyth says: "We cannot talk ourselves into a recession."

As of this week, the U.S. plainly had not. In the face of strong employment, higher paychecks, and good earnings (TIME, May 6), even the dourest economic bears are having a hard time sustaining their forecasts of trouble. Nevertheless, the bear talk has its uses. Just as the U.S. needs hardheaded optimism from businessmen in order to keep expanding, so it also needs a periodic dose of caution to keep businessmen from overextending themselves in getting careless about costs, sales or product improvement. What the U.S. does not need is the kind of unreasoning economic doomsaying from all quarters that has clouded the economic picture and confused the U.S. public over the last few months.

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