Why it’s smart to be optimistic

By Peter Coy

updated 7:04 a.m. ET Aug. 18, 2009

The U.S. economy is in such bad shape that the loss of (just) a quarter-million jobs in July was greeted as good news.

Long-term unemployment and foreclosures continue to mount in the worst economic downturn since the 1930s. Health-care costs are out of control. An aging population around the globe is driving government spending through the roof. And scientists say we need an expensive crash program to fight global warming or we'll incinerate ourselves.

It's little wonder that despite some positive news lately, the daily Gallup Poll on U.S. economic conditions as of Aug. 11 found that 53 percent of Americans think the U.S. economic outlook is getting worse (yes, even worse), vs. 42 percent who think it is getting better.

But before you assume a purely defensive posture — knees pulled to chest, hands on head — remember this: Just as people become overly exuberant in good times, they tend to get too pessimistic in bad times. While the economy remains deep in a hole, and could indeed get worse, the truth is that nobody really knows what will happen next. Prudence demands that you prepare yourself for all possible outcomes, including some highly positive ones.

Anything could happen, right? It was the inventor Thomas A. Edison who said, "We don't know a millionth of 1 percent about anything." Latter-day management expert Paul J.H. Schoemaker, founder and executive chairman of Decision Strategies International, a consultancy in Conshohocken, Pa., agrees. "Just as the downside surprised many people, the upside might also come as a surprise to people," Schoemaker says. "For businesses, the idea is to not get locked into the current reality, but realize that the system is quite volatile and can quickly turn. You want to have strategies that can make you win, no matter what happens."

In other words, you owe it to yourself at least to consider the case for optimism. No, not starry-eyed, Panglossian optimism. We're simply arguing that practical people should open their minds to the opportunities to be seized just as much as to the dangers to be dodged. As futurist Esther Dyson of EDventure Holdings put it in one of the many interviews we conducted for this Special Issue: "Part of being optimistic means you really need to understand the problem and be cynical enough that you're not foolishly optimistic. Then you're not disappointed when things don't work out. A lot of people just think truth and beauty will win out and it's easy. It isn't."

The case for rational optimism has two parts: First, recessions such as this one, painful as they may be, can set the stage for future growth. As economist Joseph A. Schumpeter wrote in 1942, "creative destruction" shakes loose people from old, dying businesses and forces them to figure out new ways to be useful. Second, ingenuity is additive. Equipping one or two billion more of the world's people with higher education and better technology over the past couple decades has increased humanity's ability to solve hard problems. The next world-changing breakthrough may come from China, or India, or Eastern Europe.

Of course, some people don't need any prodding to take chances. They're the pioneers who brave arrows while the rest of us wait back at camp. Take Mary Pruitt. The 56-year-old, a lifelong Kansan, was laid off in 2006 from a project management job at Agilent Technologies (A). Soon after, an inventor she knew asked her to co-found a company to commercialize his idea for cutting emissions of cancer-causing particulates from diesel engines. (The concept: Use a spark in the air intake to create ozone gas, which oxidizes the fuel more thoroughly.) Pruitt was so impressed by the early test results that over the past two years she put the entire $300,000 or so from her severance payment and 401(k) into the Pomona, Kan., startup, which they called Emission Control Solutions.

Emission Control still has no money coming in the door, but independent laboratory tests have demonstrated big reductions in tailpipe particulates. Pruitt is convinced that the ozone generator, dubbed the Radiant Halo 7, is a huge winner. And just think, she says, "if I had not been laid off, I would absolutely not have gone forward on this."

We're not advising people to pour their life savings into automotive gadgets. But keep in mind that risk-takers like Pruitt and the inventor she backs, a 68-year-old, self-taught tinkerer named David Clack, are responsible for a fair share of scientific and technological advances. "We would not be where we are if our ancestors had not been kind of crazy," says Edward Tenner, a historian of technology and culture and a visiting scholar at Princeton University and the Smithsonian Institution's Lemelson Center.

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