On the morning of Sept. 11, 2001, terrorists flew hijacked jetliners into first the north and then the south towers of the World Trade Center in New York City. After a battle between passengers and the hijackers, a third aircraft jetliner crashed in an open field Pennsylvania, short of its target in Washington, D.C. Approximately a half hour later, another hijacked airliner crashed into the Pentagon. We began reckoning with a new reality.
Later that morning, in Seattle, the operations manager of a distribution firm walked into the office of the chief finance officer, whom I knew, with an unusual request. He said that rumors had been flying around that their money wouldn’t be good anymore and that food was already scarce — and the workers were nearly hysterical. Could he, the CFO, come down and talk with them and calm them down?
The recent yo-yo motion of woe-driven losses and recovered enthusiasm in the stock market and the spike in the price of gold were reminders that the rumor mill is still at work. The U. S. Army, for example, felt it wise to issue a statement that it was not notifying people via text messages that they had been drafted.
We haven’t had compulsory military service, i.e. the draft, in 47 years, and notifications back in the day didn’t come from the Army but from the Draft Board. Still, people were calling the Army about the text messages, which threatened jail terms for anyone who didn’t respond.
The phony draft messages were an example of bad information, which is always with us but proliferates in times of worry and stress. And the insidious part of it is that it elbows the truth out of the way. There is a rule of economic behavior that is called “Gresham’s Law,” which states that “bad money drives out good.” And it isn’t much of a stretch to see similar behavior showing up as “bad information drives out good.” That’s just how we are.
Bad information has gotten a boost from modern communications technology and changing usage patterns, including social media.
Economics is playing an expanded role in the current security environment and economic warfare, especially in the form of sanctions, is spearheading U.S. defense policy objectives. What is sometimes overlooked, however, is the task of preparing our domestic economy for the shocks, stresses and, especially the rumor-mongering in a heightened level of hostilities.
One of the great strengths of a free market economy is the free market itself. It allocates resources with an efficiency that leads to greater growth and income than any other known system.
Free markets, though, are dependent on good information for their vitality; they devour morning news like breakfast cereal and news bulletins like snack food. This makes them very vulnerable to rumors, doom-saying news analyses and what we today call “fake news,” which takes many forms.
In a national defense emergency, leaders and managers, government and civilian, have to step up their efforts to counter bad information with good. The U.S. Army’s statement and fact sheet, and the CFO’s talk with the workers are just two examples — and both were reactions. Reactions are effective but heading off bad information is better.
The CFO’s talk was reasonably successful, but he admitted later that it wouldn’t stand up to the rumor mill for very long. As it turned out it was effective enough because the public recovered from the initial shock of the World Trade Center attack and their anxiety was replaced by anger at the attackers and whoever sent them. There was still bad information flowing, but it was generally not as destructive.
We don’t know what intensified hostilities would look like in today’s world, other than to say that the bad information industry would be working overtime. What we do know, then, is that any economic plan to deal with a national defense emergency must do battle with the output of bad information. Otherwise it will interfere with the free markets just when we need them most.
The commodities markets have seemed particularly sensitive to rumors, but rumor-based, anxiety-based, or panic trading, however, aren’t limited to the markets for hard goods such as gold, corn, and pork bellies. Financial markets for stocks and bonds, too, are susceptible to false or incomplete information and, even wild rumors.
Despite the sensitivity of our markets, we don’t have to simply accept that in a national defense emergency our economy will be rocked and diminished by bad information. But it will take some careful planning and early, fact-based communications to stay ahead in the information race. As Mark Twain observed, “a lie travels halfway around the world before truth has pulled on its boots.”