Bad Economy: A self-fulfilling prophacy?

[Athenian200]

I was thinking about this the other day. Every place I've turned for advice, I've been told that their field is bad and flooded right now because of the economy, and to avoid their field, whatever it is. Doesn't seem to matter which field I ask about they say "You should avoid X. Best of luck." College graduates say a degree didn't help them if they don't have a good job, and say that it did if they do (which seems rather dubious if you ask me). Likewise, people without degrees who are doing well say it doesn't matter, people without degrees doing poorly are envious of college graduates. If I'm to believe the people around me who've tried to advise me, an attempt to get any job at this point in my life is a waste of time, and I should spend 4+ years in school if I want to have any chance at all of getting a minimum-wage job. Needless to say, I guess I'm going to just do my own thing and hope it works... because if they're right, then I absolutely can't work with the hand I've been dealt and I'm totally screwed, because I don't have the determination to work ultra hard to find a job I don't like, and then work ultra hard to keep it. But if they're wrong, then I can. I have reason to believe that they might be, and it's my only hope anyway.

It seems to me, though, that a lot of the behavior people engage in when they believe the economy is bad, is ironically a major contribution to it making it worse. Think about it... companies cut back instead of trying to grow, and the people who sell stuff to them get hurt by this. People save money instead of spending it, further hurting companies who sell stuff to them, in turn pinching THAT workforce. Do you see what I mean? The belief in a bad economy causes people and companies to tighten their grip on their money, and since the economy depends on the flow of money (much like the body depends on the flow of blood) rather than people sitting on it, this cripples it and reinforces people's perceptions.

What do you think? Plausible that since people are acting like there's a bad economy, the economy is bad? Think about it... there aren't any less resources in the world than there were before. The entire situation is being created, spread, and mutually reinforced by people, right now. I don't believe that the economy is some impersonal force like the weather, it's an abstract model of how people are currently using money and responding to the use of it by others. The current state of our economy, despite the potential of the resources we're sitting on, is a testament to the power negative beliefs can have over people.

Just an idea...

 

[FDG]

Yes, you're perfectly right. You might think of it in the following way: the resource that is lacking is credit (as all the other resources, it's lacking because it's been used too heavily in the last years), which is essentially positive expectations towards the future (i.e. the expectations that if I give money to you, you'll be able to pay me back a little bit more). It's not a material resource, but it's essential for a working economy; trust and creativity aren't material resources either, but there can be a shortage of them and that can cause big problems.

 

[INTJ123]

I agree, it definitely doesn't help. They say even those who are pretty much non affected by the economy are "acting" frugal(the wealthy are being stingy).

I don't think it's entirely just our consciousness creating this reality though. Capitalism is reaching it's theoretical limits right now and is becoming unsustainable. Capitalism is all about self interest and profits and thus disconnects people from their sense of community.

 

[Sacrator]

look at this video starting watching at 2:10
YouTube - $550 Billion Dollar Bank Run - Collapse Of The Entire World Economy In 24 hours

Then look at the unemployment rate since September 08
Google - public data

I think that's what really caused a lot of problems.

I suggest if you want to get a good paying job that will be reliable get a government job.

 

[INTJ123]

look at this video starting watching at 2:10
YouTube - $550 Billion Dollar Bank Run - Collapse Of The Entire World Economy In 24 hours

Then look at the unemployment rate since September 08
Google - public data

I think that's what really caused a lot of problems.

I suggest if you want to get a good paying job that will be reliable get a government job.

The federal reserve is private owned, it is not a government organization.

BTW from what I understand our economy is about to pick up to where it was around the 90's, but soon after there will be another collapse of the economy, during this crisis they will implement the new currency AMERO (like the EURO)

 

[Sacrator]

Well still anything that largely hurts the banks hurts the entire US. Gah amero thats that currency the coin designer made for the fun of it creating the whole chaos on the internet that a north american union was going to be formed. I dont think it will be formed.

 

[INTJ123]

Well still anything that largely hurts the banks hurts the entire US. Gah amero thats that currency the coin designer made for the fun of it creating the whole chaos on the internet that a north american union was going to be formed. I dont think it will be formed.

That's what they want us to think, this will keep us tied into the debt based system. In actuality the more we support these banks, citibank, chase, BOA, ect. the bigger the hole we dig ourselves into.

Why should we support these banks that are getting handouts from the government and not being held responsible with what they do with the money, most have just bought up smaller banks with the money and paid off ridiculous high executive wages....

Banks make their money off screwing people over you know.. interest rates and penalty fees are their income.

 

[INTJ123]

Federal Reserve urges Secrecy in Bank Bailout Programs after Losing in Court - American Banking News

Maybe this would be more convincing.

 

[NewEra]

I was thinking about this the other day. Every place I've turned for advice, I've been told that their field is bad and flooded right now because of the economy, and to avoid their field, whatever it is. Doesn't seem to matter which field I ask about they say "You should avoid X. Best of luck." College graduates say a degree didn't help them if they don't have a good job, and say that it did if they do (which seems rather dubious if you ask me). Likewise, people without degrees who are doing well say it doesn't matter, people without degrees doing poorly are envious of college graduates. If I'm to believe the people around me who've tried to advise me, an attempt to get any job at this point in my life is a waste of time, and I should spend 4+ years in school if I want to have any chance at all of getting a minimum-wage job. Needless to say, I guess I'm going to just do my own thing and hope it works... because if they're right, then I absolutely can't work with the hand I've been dealt and I'm totally screwed, because I don't have the determination to work ultra hard to find a job I don't like, and then work ultra hard to keep it. But if they're wrong, then I can. I have reason to believe that they might be, and it's my only hope anyway.

It seems to me, though, that a lot of the behavior people engage in when they believe the economy is bad, is ironically a major contribution to it making it worse. Think about it... companies cut back instead of trying to grow, and the people who sell stuff to them get hurt by this. People save money instead of spending it, further hurting companies who sell stuff to them, in turn pinching THAT workforce. Do you see what I mean? The belief in a bad economy causes people and companies to tighten their grip on their money, and since the economy depends on the flow of money (much like the body depends on the flow of blood) rather than people sitting on it, this cripples it and reinforces people's perceptions.

What do you think? Plausible that since people are acting like there's a bad economy, the economy is bad? Think about it... there aren't any less resources in the world than there were before. The entire situation is being created, spread, and mutually reinforced by people, right now. I don't believe that the economy is some impersonal force like the weather, it's an abstract model of how people are currently using money and responding to the use of it by others. The current state of our economy, despite the potential of the resources we're sitting on, is a testament to the power negative beliefs can have over people.

Just an idea...

What you're saying makes sense in theory, but what do you suggest people should do instead to improve the economic situation? Just practice the same economic policies they did before the recession?

 

[Fluffywolf]

My companies experienced a huge growth during this recession.

Having a ton of new material financed at bottom prices with awesome future exchange rates while at the same time upping the marges of the companies ability. Getting new customers through quality.

I do feel sorry for people who got worse in the recession, but I'm almost inclined to say, I love recessions. Because that fear is easily abused to ones advantage.

So on topic. A large part of the recession is a lot of hot air. Fear, superstition. Unfortunatly, the repurcussions are very real. It shouldn't have to be though.

 

[kiddykat]

With gas prices rising, food overpriced, people getting laid off as a result, schools shutting down, teachers, bus drivers, those who do watch over our young precious ones, losing their jobs from left to right, among others affected in different sectors, the trickle down effect causes a huge lifestyle change people need to adapt to- no income in their pockets, food to eat. I think it's more than just a self-fulfilling prophecy- not to say that fear/paranoia doesn't help. It's just that- that is the reality for some people.

In my family, out of 3 out of 5, who have families of 3+, all of their fathers lost jobs, and are struggling each and every day to find work. They somehow temporarily do, but they are barely scraping away.

Sociologically- there is a wide gap between the richest rich/poorest poor, and this economy just further defines it. I personally think for those who do have the power to manipulate/influence the economy, they do enjoy the fact that some people are suffering, because it gives them more power/control- when people have limited options.

 

[avolkiteshvara]

To OP:

You are right. People's fear can cause their own demise. The Great Depression's famous run on the bank is a classic example.

This is one off the reasons why wallstreet monitors consumer sentiment.


To all you conspiracy theorists, start taking your meds.

 

[SciVo]

I think that the OP would enjoy The General Theory by John Maynard Keyes, or at least the Cliff's notes version. Basically, in a recession, the nation's resources of industrious, ingenious people are being underutilized. Normally, it's just cyclical and will pick back up on its own. In the Great Depression, private consumer spending plus private business investment were in a self-reinforcing negative cycle of lack of demand for products and services, so lack of supply of private investment, so lack of household incomes, so lack of demand for products and services, etc. It took government spending to make up the difference and break the cycle.

Much later, Milton Friedman posited that it was all about the money supply. Namely, he proposed that when prices are deflating, another way of looking at it is that the value of the currency is rising, so rich folks see no point in giving up the risk-free return of doing nothing for investing in some business that will be paid back in future dollars, at lower prices. His resulting hypothesis sounds reasonable: that all gov't would have to do in a similar situation in the future is create lots of dollars, deflating the value of the currency, inflating prices, and creating incentive for private investment without involving eeeeevvvvviiiiilllll :rolli: taxes on rich people. However, it was proven false when Bernanke tried it at the outset of this Great Recession and failed utterly.

So, you ask, what caused this event so far outside the norm of the business cycle? Well, I can explain that! We have a fiat currency, which means that our currency cannot be exchanged at a fixed ratio for a physical commodity such as gold and salt; also, in what's known as fractional reserve banking, lots of dollars are created by banks loaning out more money than they keep in reserve to satisfy the day-to-day demands of their depositors. As long as the value of their loans remain stable, everything is fine.

However! Much of the debt in this country is in the form of home mortgages. We had a property value bubble, in which the sales prices of properties became detached from their fundamental value as a source of a rental income stream. Unfortunately, although asset bubbles are a well-studied phenomenon in behavioral economics, I'm unaware of any sure-fire method of preventing them; but it would've helped if we'd had better regulation of mortgage officers, who often steered minority borrowers with prime credit ratings into sub-prime loans with cripplingly bad terms.

Furthermore, those loans were bundled and then sliced perpendicularly into tranches of packages called collateralized debt obligations. The ratings of those derivatives were based on them being insured by poorly-regulated companies that didn't actually have to keep enough reserves on hand to account for an asset bubble, even though it's been well-known for centuries (starting at least with the Dutch tulip bubble) that such can happen. Basically, this multiplied the number of dollars created by these improperly-valued loans into the trillions (tens of trillions?) of dollars.

As with any pyramid scheme, this was bound to collapse eventually. And it did. However, it was a slow collapse, during which the most sophisticated owners of overvalued bubbly debt-dollars attempted to flee to purchases of futures contracts in physical commodities such as oil and wheat, which at least have some kind of tangible value. This sloshing around of panicky excess dollars created the spike in gas and food prices that caused riots around the world.

Now, we're left with trying to pick up the pieces of the aftermath, and re-explore the probability space of what business activities can find sufficient effective demand; that is, backed by people who can put their money where their desire is. Since the currency's collateral of home value is decreasing, the value of the currency itself is increasing, which means that consumer prices in general are decreasing, creating a disincentive to private investment as explained by Friedman. However, since his hypothetical theoretical prescription for how to fix it has been proven by events to not work, we must now use Keynesian gov't spending, which was proven by events in the 1930s and '40s to actually work. Otherwise, we're all up $#!@ creek without a paddle.