Confidence Game.

As preposterously overvalued paper wealth continues to evaporate with steep drops in the securities markets, perhaps the most worrisome casualty of all has been U.S. consumer confidence.

The average American is clearly spooked by the economic downturn and now ubiquitous media prognostications of widespread financial devastation. As a result, spending is hitting the skids.

It's reasonable that the free-spending days of the past few years would yield to caution at a time when the Nasdaq has lost over half its value in little more than a year, but how about a little perspective?

The energy crisis and tech slump notwithstanding, our economy, particularly here in Southern California, is essentially doing fine. For those who want to work, unemployment remains basically nil. Inflation is in check, manufacturing is growing and real estate prices, both commercial and residential, remain steady, if not climbing.

Without diminishing the stock losses, it's important to remember that most people will have ample opportunity to recover what they've lost -- especially considering that most of the average consumer's stock exposure is through his or her retirement account. If history offers any lessons, long-term investors will indeed recover their paper losses.

So, as much of the economy continues to chug along, sagging consumer confidence remains the wildcard threatening to drop a 100-ton boulder in its path. That's not to say we should all run to the mall and max out our credit cards, but it demonstrates the importance of not overreacting when the good times ebb.

To see the economic devastation that could be caused by overreaction, Americans need only look across the Pacific to Japan, where consumer fear has created a hyper-frugality that is greatly exacerbating that nation's severe economic slump.