Friday, February 27, 2009

Can Talk of a Depression Lead to One? - News Analysis -

Robert Schiller is a busy person! In the NY Times, he addresses the idea that constantly dwelling on the bad, becomes a self -fulfilling prophecy.

Economic View - Can Talk of a Depression Lead to One? - News Analysis -
"The attention paid to the Depression story may seem a logical consequence of our economic situation. But the retelling, in fact, is a cause of the current situation — because the Great Depression serves as a model for our expectations...reducing consumers’ willingness to spend and businesses’ willingness to hire and expand. The Depression narrative could easily end up as a self-fulfilling prophecy.

The popular response to vivid accounts of past depressions is partly psychological, but it has a rational base. We have to look at past episodes because economic theory, lacking the physical constants of the hard sciences, has never offered a complete account of the mechanics of depressions.

The Great Depression does appear genuinely relevant. The bursting of twin bubbles in the stock and real estate markets, accompanied by huge failures of financial institutions and a drop in confidence, has no more recent example than that of the 1930s....To understand the story’s significance in driving our thinking, it is important to recognize that the Great Depression itself was partly driven by the retelling of earlier depression stories. In the 1930s, there was incessant talk about the depressions of the 1870s and 1890s; each of those downturns lasted for the better part of a decade."

1 comment:

Finance Blog said...

I think's financial analysis are not accurate heaps of times. Marry Swan.