That's a bit of a pretentious heading - as if I'm qualified to comment
on either psychology or economics. However, as an amateur observer of
the human condition, it does strike me that a significant component to
our current economic quagmire is largely in our head. It seems that
while we have transitioned over the years from an agricultural economy
to a manufacturing economy to a service economy to an information
economy - what we really are is an economy of confidence. When we
lose that intangible, psychological element of our collective selves,
we perceive ourselves to be in huge economic trouble. And, because we
are an information-based economy, we have an amazing ability to
measure, calculate, survey, report, broadcast and share our lack of
confidence with the world.
But the reality is probably much different from our perceptions. Just
as the roaring real estate bubble led us to believe things were better
than they actually were, the constant talk about foreclosures,
layoffs, and economic "crisis" of all kinds probably has us believing
things are now much worse than they actually are.
I liken this to following my favorite sports team: The Wolf Pack of
the
University of Nevada. I am a huge college basketball fan, and
because I don't live in Reno, I follow my team at a distance, which
means - because I am also a geek - I lurk on the
main message board
devoted to my beloved Pack.
What I see there from game to game is, I
think, a microcosm of our overall reaction to economic news.
When the Wolf Pack wins, the fans are elated and ready to take on the
champs. When the Pack loses, the fans angry, frustrated, depressed,
and evidently prone to drown their tears at the local pub. The
confidence swing from week to week can be really amazing.
A small
losing streak of a couple of games has the diehards prepared to fire
the coach, complain to the Athletic Director, cancel their season
tickets and commit hari kari. A modest winning streak and the fans
have the basketball team back in the Sweet 16.
Same team. Same coach. Same talent. Same season. Yet, wildly
different perceptions of how good or how bad the team really is.
I've learned that you just can't trust the fans to accurately judge
the team's performance. And you can't trust the talking heads at
CNN,
CNBC or the
Dow Jones Industrial Average to accurately judge the
performance of the economy. In all of these cases, the commentators
are biased - one way or another - by the psychology of the moment.
Bottom Line: It probably isn't as bad as it seems.
