Politics and Whatnot

Just another liberal political blog

Why the economy still isn’t going to implode, despite what public thinks of it

I posted a while back about the economy and fears of a double-dip recession that seemed to becoming increasingly widespread in early June, and how I really wasn’t that worried.  Now it’s mid to late August and the fears are even more increasingly widespread.  So am I scared now?  No.  Let me take a minute to explain why.

I should preface this by pointing out that other than a macroeconomics course I took in high school (yes, they taught macroeconomics in my high school) I have absolutely no qualifications to speak about the economy whatsoever.  Then again, I’m not sure if having any qualifications should make a difference.

Here’s why: because we’re in a “disaster” mindset – unlike 2007 and early 2008, everyone (but me) is worried that the next economic disaster is around the corner.   In fact, Gallup’s Economic confidence has plummeted to -53%, which is the lowest it’s been since the recession began.  Now a lot of people say lack of confidence in the economy is a bad thing in the short term because it tends to make the economy worsen in the short term.  But when people have been pessimistic for so long – and confidence barely ever got above -20% during this recession – that can actually be good.  Think of it as potential energy – a ball moves up a hill, and it slows down.  As it stays at the top of the hill, it stays at that slow speed.  But because it’s up on that hill, it means that it could be going a whole lot faster, as soon as it hits a downward slope.  Right now, the economy’s at the top of the hill.  Consumer confidence doesn’t get any lower than it is now, and that it has been for the last couple years.  Gold is at a ridiculously high price (now even higher at over $1800/ounce), meaning a lot of money is tied up in gold (potential money).  Once the wealthy get more confidence and sell all that gold – and other things they have stowed their money in – they could have a lot of money to spend.

Of course, the drop in confidence will probably lead to some very minor and temporary slowdown, but it can’t be all that bad because very few companies will be changing their already hyper-cautious behavior.  But eventually, they’re going to have to start spending again.

Now I’ll say it again – I have no fucking idea what I’m talking about, and I’m literally just a guy who knows how to use WordPress and that’s about it.  But it really seems obvious to me – when people are afraid, and have been afraid, you don’t need to worry about the economy getting worse.  The only thing we have to fear is…the lack of fear itself.  Because when people are getting a little too courageous about the economy, saying things like “the days of economic depressions are over” or “x will never fall” (assuming x is a economically important resource like housing, not a rare, resource that has little intrinsic effect like, say, gold), that’s when you should be worried about economic chaos.   They call it a “correction” for a reason.  When we’re wrong about how well the economy’s doing, then it’s time for reality to set in and “correct” us.  Now we’re assuming the worst, so the next “correction” will have to be one that tells us we’ve been too pessimistic.

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