The Asian Distraction

New research supports the notion that we fixate on enemies, and inflate their power, as a defense mechanism against generalized anxiety.

This provides another interpretation for why some people believed that Japan in the late 1980's and early 1990’s might take over the world.

A research team led by social psychologist Daniel Sullivan of the University of Kansas reports on four studies that suggest people are “motivated to create and/or perpetually maintain clear enemies to avoid psychological confrontations with an even more threatening chaotic environment.”

Without the threat of the Soviet Union, the American public had to focus on something to take its place.  After Japan’s spent two decades without significant economic growth, growing government debt and an aging population they are no longer much of a bogeyman. The next bogeyman is China, as people now believe that China is going to eventually take over the world.  China’s growing economy is competing with America’s economy on numerous levels, but the areas where the US is struggling are caused more by structural problems inherent in the US economy than the emergence of China’s economy from poverty.  If there is a tendency is to inflate the enemy's power, that would explain why a large fraction of people are apparently blind to the unsustainable high levels of government driven investment fueling China's current growth. They just figure that China has a long term plan that they will have no trouble bringing about. The article elaborates on the conditions causing this tendency.

Those who were forced to contemplate their lack of control over significant life events “reported a stronger belief in opponent-led conspiracies,” the researchers report.

This can explain why protectionism with regards to China might get more popular the worse unemployment becomes.  If it is seen as a way to thwart China’s plans, it can very easily become popular with an American population worried about keeping their jobs.

In our third study, we showed that if people perceived the broader social system as ordered, they were more likely to respond to a threat to personal control by boosting their faith in the government, rather than by attributing more influence to an enemy.

So if the government solution to a perceived problem is protectionism, this will solve the problem for both types of people worried about their personal control.  Too bad this won't solve any of our real problems and will make the economic situation even worse. 

HT: Marginal Revolution

About

I studied Bioengineering at the University of California at San Diego. While there I served as a trustee on the investment committee of the UCSD Student Foundation, a group that manages an endowment to fund scholarships. While in college I applied my interest in finance and economics by working as a summer associate at Clarium Capital Management, working part time my senior year, and joining full time when I graduated in 2006, staying there through August 2010. I am currently working as a portfolio manager at another global macro hedge-fund in the Presidio (And blogging about more directly market related ideas at their restricted blog). I’ve been focusing on quantitative finance, currencies, commodities, the interplay between finance and politics, demography and other long term trends.

Disclaimer: You shouldn’t consider anything on this site to be a recommendation or solicitation to buy, sell, or hold any securities or commodities. I’m not offering you investment advice. I or the company I work for may hold positions in securities that I mention.