Fear and Crises
by Andria Nadiradze
Psychologists John B. Watson, Robert Plutchik, and Paul Ekman have suggested that fear is one of a small set of basic or innate emotions produced by human brain. As defined in many dictionaries Fear is an emotional response to different threats and danger, which can be expressed through different means of human behavior. People fear to die, to get sick, to get poor and etc.
In almost every economic crises fear plays a big and negative role, that’s what is going on in recent economic crises. “More than anything, it’s a crisis in confidence.”… “Fear is what’s driving this. Yes, things are bad, but the fear is greater than the reality.” [Carter Doyle, professor of economics.
http://www.finchannel.com/index.php?option=com_content&task=view&id=21683&Itemid=9].
When the fears about possible crises gets bigger people cut spending money and therefore sales go down; the banks fear to give credits and all this causes economic activities to decrease, stocks to go down, manufacturing slows and therefore fuel prices fall. This is further followed by cutting jobs, inflation and recession or even depression. It is like a “chain reaction” caused by atomic bomb. That is exact scenario of what happened in USA and many other countries. Therefore it can be concluded that if someone can control the fear then he/she can control the whole global economy.
So how do you think, is there anything the government or leading businessmen can do to decrease the fear among consumers and investors?
Would it be better if government would not disclose the negative information about economy or this will cause bigger problem?
December 11th, 2008 at 3:01 pm
Yesterday I attended the lecture by Michael Beenstock who argues that in the “New Financial Architecture” the only regulation of banks needed is to force them to disclose information about their exposure to different sectors. His point was that if depositors know that a particular bank is too risky, they will transfer their money to the other, less risky bank, and the depositors of lees risky banks will not fear anything. Furthermore, he claimed that during the crisis, solvent banks will not experience bank runs, since general public will easily discern good banks from bad ones, hence they will not fear anything either. And as he argued, this structure reduces the need of lender of last resort (LOLR) – major source of “moral hazard”, because everyone will know which banks will fail and for what reason, and the fear of failure of the whole system will be non-existent.
However, I think this theory can not explain why on earth solvent banks do not disclose such information themselves for the purpose of signaling that they do not fear anything thus calming depositors. Because, unless they are sure that they will be bailed out, banks should do everything to keep their deposits, especially during crisis. Since this does not happen naturally, I do not think government should force it to happen. One should rather look for the reasons why this does not take place.
December 11th, 2008 at 8:47 pm
Well, in developed countries that have century-long record of successful banking practice, disclosing information on exposure to different sectors may indeed contribute to the overall stability of the banking sector. However I think this will be “a bit” different in developing countries, since their banking sectors are immature and citizens do not clearly understand what the function do banks have, what are their responsibilities, what should they care about and so on. I doubt that such a step can have real effects.
December 11th, 2008 at 8:52 pm
The only way we can aviod future complications of the crises, is the investors to have an acurate information aboult possible risks in different fields of buisnesses. Therefore I think that the government should not only restrain itself of hiding information about faileers but to give information as precise as possible, to investors about failers in order to avoid further unforesiable losses of money i.e. to avoid more difficulties.
December 11th, 2008 at 9:30 pm
To: Andria Nadiradze
What kind of information do you claim to be hidden from investors?
December 12th, 2008 at 2:08 pm
To my mind, in this straining situation caused by he crisis, businessmen from the country’s leading companies and banks should have close contacts to the governments, they should appreciate all potential risks and threats coming from the crisis, in order to decreasing its negative effects. Maybe the negative information and their suggestions were closed for the public, because inhabitants of the country and consumers can do nothing valuable for the improving the situation, so in this way the fear and panic will be decreased.
December 12th, 2008 at 3:49 pm
I do not think any information should be closed for the public for the purpose of reducing the fear. Every citizen has right to decide what to do in any given situation, when government distorts information, it distorts my actions. I do not think any government official in any country know better what should one citizen do than that citizen does. Exactly the fact that government hides information from public is the source of panic, because it indicates that they do not know what to do and do not event dare to tell me so that I can decide for myself.
In any case, I strongly believe, that it is my right to know which bank is solvent and which is not because I decide to put my savings in banks and not he government even if government officials are angels (which we are sure they are not).
December 13th, 2008 at 10:51 am
To: Tamta Otiashvili
Agree, information should be disclosed and available, but I don’t think that this can have particular importance in crisis prevention.
December 13th, 2008 at 11:56 am
Disclosed information will for sure prevent irrational bank-runs, so the prudent behaviour of banks will be rewarded, and this will be known for banks not only in crisis but also in normal times, hence they will have right incentives not to drag themselves and the whole system in the crisis. Isn’t it ?
December 14th, 2008 at 3:48 pm
Thank You for the article.
I agree with You that fear and panic make results of cries more worth than it could be.
For decreasing fear among consumers and investors government and National bank should declare their policy and make everything according to this policy. All measures of the Government and National bank should be clear and forecastable, because people want to be confident about future policy of the government and National bank. Only in such case people will believe to the government and situation will be controlled.
In another case, for example as it was made in Ukraine, National Bank half of month fixed exchange rate and then during one day made it “free floating”, as result such policy disharmonized equal weighting and made panic. It’s clear that after such events people don’t believe to the National bank and to the government and it generates more else fare.
As for disclosing information I do not think that it is good idea, because all disclosing information becomes open. So it is only undermined trust to the government. At my opinion, it will be better to make bill about criminal liability for announces and forecasts by person who is not authorized to make them. In the time of cries only president, prime-minister, the head of National Bank and minister of finance should be authorized to make any forecasts about economy and cries. It could be help to minimize panic among people and investors.
December 18th, 2008 at 2:20 am
Nowadays, I mean period of economical crisis of the world, we, developing countries are under the danger, because our process of developing mostly are depend on developed countries political and economical situation and the second main reason is, we are seeking to be developed soon and our aim this moment seem to be impracticable. So with this world’s economical crisis we get much more “blow” than they. They have recourses, great knowledge and experience in this field, so they know how to get up quickly and solve this problem, yeah, it really need time. But we need much more time. In conclusion, this economical disaster is doubly harmful for Georgia. It was in a nutshell my problem as a resident of Georgia and as a person who wants to live till be citizen of developed country.
About this theme, I can say you that mostly panic and the fear in the society are the results of government’s activities.
Government has many obligations, but I want to talk you about several of them:
1. in every democratic country, where rule of law is elected by civil society, they have rule that government have not to disclose the information to the society that can harm their life, health and property. In property, they mean realty, personalty and intellectual property too. “Freedom of information” is one of the fundamental rights and it must re restricted only in certain accidents, but it is forbidden not to inform the society that they are under the danger. In our case, when government thinks there is a great problem, or several little problems that in total can create great problem, and these ones can cause the damage of persons property, industry or manufacture, government have an obligation inform to the society about the problems, to avoid significantly more individual loss.
2. At the same time, when government informs to the society about these problems, government has to explain them how to act to avoid fear and loss. In this case, government can establish restricts for people, but these restricts must be legal and they main reason of this activity must be to avoid fear, that mostly cause crisis and is harmful for the state.
Sometimes fear is really pernicious for the state, but when you are under the fear you can not think normally and you act confused, this case you need that kind of government that says you: yeah, you are right, you have problem, but never mind! I can solve it, but you calm down. And you trust it and it is great, you feel happy, because you are not under the fear, you think your fear will be motiveless, you do not create panic, and do not do stupid things, and main in this relationship is they you are not participant of the forming crisis, contrariwise you help you government to avoid this crisis, because it is profitable for both of them.
December 26th, 2008 at 1:15 am
The only problem with the attitude - yeah, you are right, you have problem, but never mind! I can solve it, but you calm down (government saying to its people) -is that after a while, you as a citizen may become dependent on government’s decisions - civic responsibility diminishes and everything around is left up to government and not you to decide. Social laziness is a very complex and dangerous phenomenon, which leadsboosts authoritarianism.
I only want to say that even in situations of fear and crisis, it is a better strategy to entice people to solve their problems - by welcoming their initiatives, by listening to their analysis, by giving them voice. When people have chance to discuss and share their problems, the level of fear decreases.
Good government is the government which doesn’t solve problems for its people, but which helps and supports its people solve problems. Global financial crisis, to me, has a very subtle but dangerous temptation for every government -to start regulating many areas and then justify its decisions by fear and panic that ‘the globality’ of problems arises among people.
Information, even the worst one has to be open to society. However, the way this information is packaged will play a decisive role - accurate, balanced and well-researched information, will help people make informative choices. Attempts of creating an illusionary, virtual space, where everything’s fine lead to a dead end and will bring worse results after dissillusion. This is the classical example of short vs. long-term planning and results.
The question that each government has to ask itself in this situation of global crisis, to me, is what are its values. More regulation means less democracy; less democracy means more authoritarianism; more authoritarianism means less development; less development means more severe local crisis - - so what’s the point then?
January 4th, 2009 at 12:41 pm
Dear Elene, next point is crashing down of the economic stability, which will be followed by anarchy:( But we are here to discuss core-problem and avoid unfavourable results.
When discussing the ways of solutions for the ecomonic crisis, we should have different approaches to developed and developing countries. Majority of small economies are depended on the financial aid (support) from the large economies (USA, EU…..). Accordingly, the key-point for the solution should be seeked here.
As regards the developed countries, businessmen are well-experienced and can assess the situation wisely, if given them the true information. That is why I consider that the unjustified fears can be avoided be disclosing the real information.
This approach might not be effective in developing countries, where business is more depended on foreign investment. Local businessmen might not have enough experience to make correct decisions and the disclosed “unwilling information” might generate more fears and panic. Therefore, I think that in developing countries governments should be more careful when disclosing the information. Awareness and expereince of the business should be taken into account.
January 6th, 2009 at 12:33 pm
Government of democratic state is first of all accountable to its electorate i.e. people and should have no secrets from them. I believe “hiding” any information from the society – be it positive or negative – will ultimately cause hesitation and insulting feelings among citizens. Nothing can be hidden and finally truth will be revealed. I think better disclose realistic information and suggest ways of overcoming problems.
I also want to comment on George Sarajishvili’s idea that hiding information can be justified in developing countries just because or businessmen have less experience and can not properly assess risks and make decisions. Let me not to agree on this. I believe even in developing countries there are many businessmen that are not depending solely on foreign investments and can make right decisions. Moreover, having experienced businessmen does not guarantee country to be “developed” and vise versa – in developed countries there are unsuccessful businessmen and managers.
January 6th, 2009 at 1:43 pm
I would like to respond to Lasha Gzirishvili’s comment about revealing all types of information to public. Accountability to the public does not always mean disclosing the information. Majority of information is open to the public, however, there are some data that is classified and only specially authorized people have an access to it. For example, it might be surprising that correspondence with the EU on the implementation of European Neighbourhood Policy (ENP) is secret. Some types of information regarding the recommendations in the sphere of economic development is also classified.
Why does that happen? It may have couple of explainations. One can be the protection from the interference of potential enemies (however, some of the enemies are not “potential” anymore:)). The other - protection the society fromm panic that can cause bigger problems.
However, I do not argue that all types of negative information should be disclosed from public. In case if there is a justified public interest of receiving the information on certain ecomonic developments, state has an obligation to reveal it. But if the revealing might endanger economic stability or security of the country, then the priority should be given to state interests.
As regards the businessmen, unsuccessful businessmen are everywhere. But if compare the level of experience of the businessmen in “developed” and “developing” countries, it will be evident that the first prevail. Otherwise, the business sector would not be successful there.
January 6th, 2009 at 2:13 pm
I agree with Giorgi Sarajishvili there are issues that must be classified and closed for public. What I meant is Georgian society should know about risk of potential problems we will face as a consequence of global crisis; and this should be delivered in understandable and calm manner to avoid panic and give businessmen opportunity take proper decisions.
January 11th, 2009 at 11:23 pm
I can’t truly understand what it means that businessmen in developing countries may not be so experienced and create even more problems in crisis situations. I agree with Lasha Gzirishvili that businessmen should be granted an opportunity to take proper decisions regardless developed or developing. Government to me is more of a guide for businessmen than their leader in a certain direction.
On the other hand, panic itself is a very strange thing psychologically - - it stems from the lack of undecidedness, lack of information in other words. How can businessmen solve problems if they do not have the right information? Why would they panic if there is always an option that government would bail them out? And more importantly, why would they bother to grow?
State interest is a whole different issue. Here, I totally agree that some information has to be kept secret. However, why this information is a secret from the society - - that’s what the government has to justify. This is a true accountability.
January 14th, 2009 at 7:23 pm
This is one of the most problematic topics I think. Because there is nothing we can do to fear. There will always be fear in human’s brain, as one famous Georgian writer said once “every fear ends up in one, the fear of death”. And as with our scared spirit possibility we can do nothing with our fear of death we must find some other way for solving the problem of panic among society. One of the possible solutions lays in the information availability for the whole society. Of course the regulatory system, that has just collapsed was the opposite of such transparency. Because, under the regulatory system financial institutions report to their regulators but not to the public. So everything is depended on the regulators, what information they think is allowed for the public. As we saw the fact that the decisions about the level of information available for the society are depended on several people did not actually work. It has its reasons. First, the regulators enjoy power and crisis is the best way for them to be in the center of the stage. Second, they will not always be regulators and probably they will have to work in that institution whose regulator are they now, so they will not be too hard on their cuarries. So the incentives of regulators and the society very often differ a lot. Conclusion is that we must give all the information to the public in order to avoid panic. In case when banks know that information will become public they will also act with greater caution. (Sorry for broken English)
January 14th, 2009 at 7:50 pm
“Every fear ends up in one, the fear of death”. With all due respect, I disagree this statement. As I really do not fear to die. Even when bombs were falling around me and Russian jets flyed over my head, I did not fear of death. As everybody dies one day and if something is unavoidable there is no point to fear. But there are a lot of things I fear. I fear not to be weak. I fear to spend my life without being able to change the things I want. I fear the situations where I have no power to change something. I also fear very much not to be able to kick butts of those people who really deserve it. These are the things I fear but I don’t fear to die and I am sure there are many people who think like me about fear. It is all about priorities people affraid to fail or lose the things they care the most. Well this is my humble opinion.
January 15th, 2009 at 6:35 am
“in developed countries that have century-long record of successful banking practice, disclosing information on exposure to different sectors may indeed contribute to the overall stability of the banking sector” - Did it? If we expand this judgement to other financial institutions, it comes out that “century-long record of successful practive” wasn’t in many cases didn’t at all smoothed the negative effects of crisis.
January 15th, 2009 at 2:28 pm
To Andria Nadiradze : Well, if you are not afraid to die, I still think you are a rare exception. Referring to your fears that you have listed in your comment I can say nothing to console you, it depends on your personal level of desire and possibility. I just wanted to find some way for solving the problem of those people who fear to lose their money, jobs, and happiness because of the financial problems. And if you read my comment to the end I said that one possible solution is that to let them know everything that is happening in the financial and economic system and let them choose weather to fear or not in the given situation.
January 15th, 2009 at 3:44 pm
I agree with you Rati in everything but as for my comment about fear, I admit that it did not quit fit into the topic however for different reasons I very much disagree to have fear of death above all other kind of fears, As I think that there are many values stanfding above human life, such as dignity for example (at least I think so). Unfortunitaly in our country many times people care only about their self-ambitions and fear not to be able to get what they want but they do not fear the consequensies of their wrongful and bad faith conducts for which Georgia has to pay the price and not them personaly.
Sorry for the fact that my last comments are off topic. I respectful ask the moderator of the blog not to hesitate and delete them if he/she deems it neccessary.
January 15th, 2009 at 4:03 pm
I do respect people like you. In ideal dignity, of course must be the value above the human life. But unfortunately it is very rare in real life. And we both know that.
January 15th, 2009 at 4:11 pm
I’m not a psychologist, but think UNCERAINTY is the root of all fears. In current situation reason for panic is people don’t know what will happen – will they lose their strength (economic, social), will they lose jobs, not be able to feed their families or even die (sorry for exaggerating). In this instance I think Rati and Andria are talking about the same, just “priorities are different”.
I found very interesting quotations about fear:
Experience teaches us that silence terrifies people the most – Bob Dylan.
Let us not look back in anger or forward in fear, but around in awareness – James Thurber.
I believe giving society proper information about current situation will lead to reduction of panic and fear.
March 4th, 2009 at 8:39 pm
Hello there,
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