Welcome to the Frozen Economy

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Next to me, Shirley and Irene recalled how their parents coped the last time no one could afford heat, during the Great Depression. Back then, three generations moved into Grandma's farmhouse for the winter. "It was the only way they could survive. Now it looks like we may have to do that again." Irene looked dazed. "I feel sick about it. We don't know what to do."

Seventy-three-year-old Arlie Fretner sat in his usual spot, the last seat at the counter, with his back to the wall. "I don't know what to do, or what to think, or what direction to go in. It looks like those folks in Washington don't know, either. The whole system has just seized right up. There's nothing I can compare this to, except how my people talked about the Depression."

Running Scared

"What about the next President?" I asked. "Will he be able to help?" They all looked at me with a mix of tenderness and pity, as if I had just spit up on my clean shirt. "The government should assist us," Arlie said, "but we've given up on that. They want to pacify us, not help us."

Robert had been listening quietly. For decades, he taught shop at the local high school and trained many of the skilled carpenters around town. Now he runs a small power-products business and helps out his son's logging operation. Few men are more respected in this community. "People are asking themselves, 'Will things go back to the way they were, or is this a fundamental change?'" he said. "Everything hit us at once. Now we are running scared for the winter. My business is off 75%. People want the products, but they're afraid to make a move, because they have to save everything to heat their homes. We have to choose between heat, gas, food, and medicine. Most of us have never lived through a time like this, where we can't afford the basics of a decent life. It's hard to believe that this is America."

Robert is living in the frozen economy, where paralysis reigns at every level. Psychologists have long observed a curvilinear relationship between anxiety and performance. Without anxiety, there is apathy. A good dose of anxiety motivates peak performance. But more anxiety and the whole thing morphs into paralysis. The way I see it, we've blown right past anxiety into brand-new territory, where people can't make choices because there aren't any good choices to make. They are paralyzed—frozen in place.

Credit Seizure

Our public and private institutions are facing their own version of this new Big Chill. Treasury Secretary Henry Paulson, speaking in London earlier this month, told his audience that the financial markets had not yet adapted to new circumstances. "Working through the turmoil will take additional time, as markets and financial institutions continue to reassess risk…." They, too, are uncertain where to turn, having seen the Dow's dismal June performance, when it lost the greatest percentage of its value since June 1930.

General Motors (GM) executives, having squandered these past decades on shamelessly obstructing the development of fuel-efficient engines, now see their share price at a 50-year low. Their solution? Lay off other employees…again. No peak performance there.

The G8 leaders appear powerless and irrelevant. At the U.S. Federal Reserve, the curtain has been ripped aside, and the once omniscient wizard looks startled and uncertain. Keep rates low to support growth? Raise rates and try to stem inflation? You know the banking sector has seized up when federal funds lend at 325 basis points less than a year ago, while 30-year mortgages are two full percentage points higher. Frozen.

Squeezing Budgets

Every aspect of the economy seems to be caught between fiercely opposing forces, leaving no good choices but plenty of ice. Prices are up: Dairy products and bread have jumped 15% over last year, eggs 26.7%, and poultry 73%, according to the Bureau of Labor Statistics. Gasoline is 36.7% more than a year ago, according to the Energy Information Administration. Health insurance premiums have increased 91% since 2000, according to the Commonwealth Fund. Meanwhile, real hourly earnings are falling—down 0.8% from a year ago, according to Bloomberg Economic Indicators.