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When people react out of fear, they tend to react without thinking. They do not clearly think through the consequences of their actions. Instead, they just go with their gut reaction. This can at times be very bad.
From the way you've tagged this, I assume you are talking about the Depression. When people reacted out of fear in that era, it wrecked our economy. The people, for example, rushed to their banks and tried to draw out all of their money. This caused the banks to collapse and that made things worse than they had to be.
So when we panic, we act without thinking and we do things that can hurt us worse than more reasoned actions would.
Fear usually brings out the worst in political administrations. When FDR uttered the line that there "is nothing to fear but fear itself," he wasn't kidding. Some of the worst things have been done out of fear and the desire to consolidate power. In the world stage, most violations of individual and human rights have been made out of fear. Fear of "the other" and fear of social maturation have served as the background for the Holocaust, as well as the annihilation of many other groups such as the Armenians at the hands of the Turks, the civil war in Darfur, as well as in Rwanda. At the same time, American History has featured significant examples of how acting out of fear has been morally repugnant. Slavery and the presence of slave codes, as well as the Jim Crow Legislation that limited rights in addition to covert practices in the Northern part of the nation that prevented individuals of color in achieving their fair share of opportunity were done out of fear. FDR, himself, acted out of fear with the internment of Japanese Americans during World War II. The current climate of fear regarding Latinos on the issue of immigration is another such example of how fear can guide a political agenda. Similar to the passage of the Patriot Act in the days following the attacks of September 11, the implication of fear entering into legislation and political calculations is that individual and civil liberties seem to be immediately sacrificed.
Governments act out of fear when they do not have the mandate they need from their people - and they know it. Governments formed without an election are on shaky ground, unless they can cowe and scare their population into submission. Even then undemocratic tyrannical governments are always running scared due to sheer numbers. they need to keep certain people on side, ie the police force, the army, the juciciary etc so that they can control what goes on. Even when they feel they have martial law, they are still frightened of things going wrong - the army defecting to the other side if they don't get paid for example. there has always been power in n umbers - sadly in some countries the people still don't have the confidence to rise up.
It can be dangerous for people to become paranoid and fearful, because then it is possible for the government to manipulate and take freedoms away. After 9/11, people became fearful of Al Queda and terrorism in general, and that made it very easy for the Bush administration to create the Patriot Act and go to war without congressional approval. There were many acts that happened in the years following 9/11 that stripped some of our freedoms, and most people did not even realize it because we just wanted to get the other guy so we can feel safe. It is very important that citizens think logically and do not buy into everything the media and the government is spinning. The biggest lesson I can teach in school to my students is to be critical thinkers and question everything. That is our freedom and our power!
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