Tue, Sep 18, 2001 page19

• Business Focus: To spend or not to spend

  In a global economy driven in large measure by the American consumer, should people in the US purchase frivolities in their time of need? For many, it's a question of patriotism

  • By Michael Lewis / BLOOMBERG
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  As the dust settles on lower Manhattan you can see, looming on the skyline, a pair of clashing commercial sentiments.

  One is exemplified by Chubb Insurance Co, which initially indicated it might seize on the exemption in its policies for "acts of war" to avoid having to cover the losses. The other is exemplified by William J. Nutt, chief executive of Affiliated Managers Group Inc, who, when asked about his intentions to buy US stocks for his personal account when markets open, said, "I think it is simply the right thing to do, and so whether I make money or lose money, I don't care." It's the choice between protecting and extending one's private interests, or ignoring them for the sake of one's country.

  

  A New York City police officer stands guard near the New York Stock Exchange building which sports a huge American flag one day before its reopening, Sunday.

  PHOTO: REUTERS

  I know exactly how I feel about both attitudes, and I'll bet you do too. I want to short the stock of Chubb and wire my life savings to William J. Nutt. But I'm not so sure that these feelings of mine are terribly useful.

  In the current climate there are likely to be all sorts of useless, even destructive, acts done in the name of patriotism.

  Buying stocks that you suspect will lose money is one of them. The sad truth is that in a popular war -- and especially in a war as nebulous as this one -- there aren't enough heroic roles for the people who want to play them. There isn't enough to do.

  Candlelight vigils and moments of silence and cash donations all help, but they don't slake the deep desire for action and personal sacrifice.

  So people naturally respond by doing things that are, at best, unnecessary, and, at worst, actually damaging to the interests of the country. Pretty much every Hollywood executive with a terrorist film in the works declared last week that he intended to cancel it. What's the point of that? One of the film makers, when asked what purpose was served by his throwing away an US$80 million investment, explained that once terrorism is real, it is no longer entertaining. But of course that's the opposite of the truth: Terrorism has long been "real." That's why simulations of terrorism thrill us. The change of the Hollywood heart isn't rational; it's borne of a desire to be part of the fight against terrorism. To do something.

  Many Americans feel some impulse to make some sort of ritual sacrifice and, in and of itself, that is a beautiful thing. The only redeeming feature of last week's tragedy was the sight of so many people who were not immediately affected by it -- Americans and foreigners -- insisting on making it their tragedy.

  The danger is that the people who insist on doing something do more harm than good. It may not matter much if a few Arnold Schwarzenegger films fail to make it into theaters, though it seems a pointless waste that they won't. But the general tendency in the wake of tragedy toward self-denial could make American life worse and not better.

  The first victim of the misplaced patriotic impulse will be the economy. In explaining his new economic pessimism, Kurt Barnard, the publisher of Barnard's Retail Trend Report, told the Wall Street Journal, "Can you imagine people going out and buying a DVD when tragedies are occurring everywhere?" "Guilt over purchasing frivolous items," as the Journal put it, is first cousin to guilt over making Arnold Schwarzenegger films. It serves no useful purpose.

  The fact is, most of what people in a free society do minute-by-minute, when juxtaposed with tragedy, seems trivial and even ridiculous. Some of the turmoil in the American mind right now is the result of a fleeting awareness of the absurdity of our ordinary hopes and desires.

  But the American economy is premised on those absurd hopes and desires, and won't prosper without them. I can think of no better time than right now to go ahead and be absurd.

  The capital markets present a special case because many of the people in them have been directly affected, and because the prices they set are so important. There will be a powerful urge to follow the noble lead of William J. Nutt. But the national interest isn't to artificially prop up the stock market for a month or two with patriotic sentiment. The national interest is to get, as soon as possible, market prices on US stocks and bonds -- that is, prices that reflect the new reality, and that are, therefore, reliable signals to the rest of the economy.

  When the financial markets open today it will not be business as usual. The desires that govern them in normal times -- fear and greed -- will be joined by another feeling: that one should do something.

  Probably the best thing you can do if you trade stocks and bonds for a living is to ignore this feeling and direct it someplace else. Make as much money as you can, or avoid losing it.

  If at the end of the day you feel guilty that you haven't incorporated your love of country into your trading decisions, give the money you have saved as a result to the New York Police & Fire Widows & Children's Benefit Fund.
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