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I know relatively little about markets, macro and micro-economics, economic theory, etc. and when I try to study it, the only question is whether my head will explode before my eyes glaze over.
But I do know psychology. It is often said, and it seems very clear lately, that economics have as much to do with group and individual psychology as with actual property, money, resources, or organizational structures.
After all, the reason given for rushing that stupid bailout through was to restore confidence in the market and financial sector. That's a psychological ploy, not essentially a financial one. Likewise, many of the interest rate cuts and loans and other steps being taken here and globally are justified as a way to stabilize bank/investor/consumer confidence, to reassure banks that it's safe to extend credit, basically to stop the mass hysteria. All that is the bailiwick of psychology.
Today I heard an analyst wondering -- really befuddled -- why these innumerable steps, even including partial nationalizing of banks, meant to reassure the financial sector have yet to show any impact -- he called it a continuing downward spiral of pure fear.
My immediate reaction as a psychologist was that first of all, the interventions piling on interventions, large and small, internationally, says the governments are afraid, too, and that only feeds the financial sector's anxiety. NO ONE is showing any confidence. No one is modeling how to be confident.
In a pure sense, these actions are also reinforcing fear behavior. Get more afraid, daddy not only brings you a glass of water, but eventually agrees to read one more bedtime story... content aside, responding to fearful behavior with either anxious or coddling responses will over time increase the likelihood of more fearful behaviors. That's just the way it works.
What reduces fear and fearful behaviors? Exposure to the thing feared in a controlled manner, repeatedly -- basically learning to tolerate the anxiety and getting absolutely no payoff for behaving fearfully.
Having powerful or significant others in the area respond neutrally (if at all) to the subject's fearful behaviors but with restrained praise for slightly more confident or controlled, unafraid behavior is very beneficial. Showing the frightened person or group how to look and act confidently and without fear is also a beneficial step -- assuming they have the basic capacity to try behaving differently. (Punishing anxiety doesn't do any good, unless it makes the subject angry -- hard to be angry and anxious at the same time.)
So what does this mean for confronting the current economic scenario? I don't know, and would love to hear some thoughts -- but I do know the hyper-reactivity of the government with a new intervention every day is only going to make the situation worse.
I assume, btw, that when people talk about 'fixing the fundamental problems,' they are talking about fixing the property-money-resources-organizational stuff?
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__________________ Hoping for Audacity
Well, in truth I'm actually not a total hawk, but I'm not a dove either -- I'm more like an angry pigeon flying over the political arena after a really big meal. -Abba Gav
I understand what you're saying and as far as markets go you're dead on.
Markets are made of fear and greed, we got the greed part, fear is making a comeback.
The only way you solve the fear is by shinning a light on everything, identifying all the boogeymen and then greed will take back over only when people understand what the risks are.
The problem with the markets is the lies and deceptions, the steady drumbeat of it's fine, it's contained, oooops no not really but now, yes now it is.
The POTUS speeches are a textbook case of this, the market sells off every time he talks and he's scheduled a talk again tomorrow.
One starts to wonder dosen't one.
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
I know relatively little about markets, macro and micro-economics, economic theory, etc. and when I try to study it, the only question is whether my head will explode before my eyes glaze over.
But I do know psychology. It is often said, and it seems very clear lately, that economics have as much to do with group and individual psychology as with actual property, money, resources, or organizational structures.
After all, the reason given for rushing that stupid bailout through was to restore confidence in the market and financial sector. That's a psychological ploy, not essentially a financial one. Likewise, many of the interest rate cuts and loans and other steps being taken here and globally are justified as a way to stabilize bank/investor/consumer confidence, to reassure banks that it's safe to extend credit, basically to stop the mass hysteria. All that is the bailiwick of psychology.
Today I heard an analyst wondering -- really befuddled -- why these innumerable steps, even including partial nationalizing of banks, meant to reassure the financial sector have yet to show any impact -- he called it a continuing downward spiral of pure fear.
My immediate reaction as a psychologist was that first of all, the interventions piling on interventions, large and small, internationally, says the governments are afraid, too, and that only feeds the financial sector's anxiety. NO ONE is showing any confidence. No one is modeling how to be confident.
In a pure sense, these actions are also reinforcing fear behavior. Get more afraid, daddy not only brings you a glass of water, but eventually agrees to read one more bedtime story... content aside, responding to fearful behavior with either anxious or coddling responses will over time increase the likelihood of more fearful behaviors. That's just the way it works.
What reduces fear and fearful behaviors? Exposure to the thing feared in a controlled manner, repeatedly -- basically learning to tolerate the anxiety and getting absolutely no payoff for behaving fearfully.
Having powerful or significant others in the area respond neutrally (if at all) to the subject's fearful behaviors but with restrained praise for slightly more confident or controlled, unafraid behavior is very beneficial. Showing the frightened person or group how to look and act confidently and without fear is also a beneficial step -- assuming they have the basic capacity to try behaving differently. (Punishing anxiety doesn't do any good, unless it makes the subject angry -- hard to be angry and anxious at the same time.)
So what does this mean for confronting the current economic scenario? I don't know, and would love to hear some thoughts -- but I do know the hyper-reactivity of the government with a new intervention every day is only going to make the situation worse.
I assume, btw, that when people talk about 'fixing the fundamental problems,' they are talking about fixing the property-money-resources-organizational stuff?
Thanks for an excellent post.
The problem with the situation is that it is just too complex to be resolved by a committee approach, and it is too inherently dangerous to entrust the keys to America's vault to just one person. And with so many differing opinions, we don't know who to entrust the keys to anyway.
Adding to the massive lack of confidence are some of the following issues:
1) We have a lame-duck President, who has zero inspirational value. He adds nothing to the confidence level of either Wall Street, Main Street or the population as a whole.
2) We have two Presidential candidates who are economically illiterate. Neither one has the confidence of either Wall Street or Main Street. The Debates have been a disaster for installing confidence because when asked the question repeatedly, "how would you fix the mess we're in?" one responds by blaming the previous administration, and the other one say he has a plan, but won't divulge it.
3) We have a Congress who will pander to the lowest common denominator and doesn't have either the background, knowledge or courage to resolve the issues.
4) We have a babel of information from thousands of different sources through the internet and the mass media, and each voice seems to have an equal weight in their opinion and thus invites spreading panic. There is no Walter Cronkite for the masses to trust.
5) We as a people have a basic distrust of our Government which makes it far more likely for us to take a dissenting view to anything that the Government might suggest.
6) The Government has floated out so many different ideas, many of which might work, but because there is no barometer of success for people to easily see, anything other than an 800 point raise in the Dow is seen as failure.
7) It's the same in inter-personal relationships as it is in financial ones, "it's tough when the trust goes out of a relationship"
So how to fix it? I would install someone who is seen as a beacon of financial trust as a "Czar". The only one I can think of is Warren Buffett, but Bill Gates might fit the bill too. The Czar will have to place his financial holdings in a blind trust for the duration. Then I would trot them out on a stage and they would show us every wart in the system and then end the telecast by saying that they are going into seclusion for 10 days to come up with the answers, but for those ten days, the stock markets/financial services will be on vacation. No one will be able to profit from what they might be expected to come up with. On the 11th day, the Czar(s) will announce the new program along with a yardstick to base their success.
We would then restart the process under the new rules that everyone from Government to Wall Street to Main Street would have to adhere to. Then the position of Czar would be abandoned and the WB & BG would ride off into the sunset buoyed by the thanks of a heartfelt nation.
Or at least that's what would happen in Hollywood.
JTS
Edit: I was just listening to CNBC and your same question was just put their all-star line-up of guests, and you know what? None of them had an answer as to you could trust either.
A lot of people know what to do and what needs to be done but trust is as you say the problem.
Start with the truth and fight your way out from there, the rest will fall into place.
These derivatives, that most people have zero idea how they work, are the problem in comming up with any solution.
They have to be forced onto the exchanges and traded with all the capital requirements that go with trading options on exchanges and what dosen't qualify has to be voided.
All cards have to be flipped face up to see who's holding what.
We have to shortly know who's solvent and who isn't or everyone will be assumed to be insolvent.
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
So how to fix it? I would install someone who is seen as a beacon of financial trust as a "Czar". The only one I can think of is Warren Buffett, but Bill Gates might fit the bill too. The Czar will have to place his financial holdings in a blind trust for the duration. Then I would trot them out on a stage and they would show us every wart in the system and then end the telecast by saying that they are going into seclusion for 10 days to come up with the answers, but for those ten days, the stock markets/financial services will be on vacation. No one will be able to profit from what they might be expected to come up with. On the 11th day, the Czar(s) will announce the new program along with a yardstick to base their success.
We would then restart the process under the new rules that everyone from Government to Wall Street to Main Street would have to adhere to. Then the position of Czar would be abandoned and the WB & BG would ride off into the sunset buoyed by the thanks of a heartfelt nation.
Or at least that's what would happen in Hollywood.
I've been trying to read up on this and follow everything that is happening. But, man, is it DULL! I took my money out the stock market about a year ago, BTW. I know it's important, but the same thought keeps going through my mind that did when I took an accounting class in college. "If I had to deal with this stuff for 40 hrs a week, I'd blow my brains out. It's just money, I just don't care!"
__________________
We live in a world which is full of misery and ignorance, and the plain duty of each and all of us is to try to make the little corner he can influence somewhat less miserable and somewhat less ignorant than it was before he entered it.
I just read the August or July Vanity Fair article on the peculiar Bear Stearns collapse last March that was sort of the canary in the coal mine for this thing. Only 7-8 pp and very, very instructive even if you don't understand half the jargon. Although their fast n loose business practices were reason enough for them to run into trouble, there are some legit questions about whether they were deliberately targeted for an induced collapse by people who would benefit financially.
What really hit me, though, is that the entire scheme to nail them, if there was one, was based almost 100% on manipulating the psychology of the market and financial sector -- and the role that a few media outlets (CNBC especially) played in precipitating the collapse. In fact, whether it was natural or malicious, there is no quesion it was 90% psychology and relied on the media to propagate rumor and innuendo (so that even accurate denials of illiquidity were re-interpretted by the media as 'they doth protest too much.')
That being the case, any immediate fix for the current mess may just need to put a temporary gag on the irresponsible-as-always media, and any fundamental fix for the longer term has GOT to find a way to substantially reduce the influence of group psychology (group-think, hysterical contagion) on actual market behavior.
__________________ Hoping for Audacity
Well, in truth I'm actually not a total hawk, but I'm not a dove either -- I'm more like an angry pigeon flying over the political arena after a really big meal. -Abba Gav
I just read the August or July Vanity Fair article on the peculiar Bear Stearns collapse last March that was sort of the canary in the coal mine for this thing. Only 7-8 pp and very, very instructive even if you don't understand half the jargon. Although their fast n loose business practices were reason enough for them to run into trouble, there are some legit questions about whether they were deliberately targeted for an induced collapse by people who would benefit financially.
What really hit me, though, is that the entire scheme to nail them, if there was one, was based almost 100% on manipulating the psychology of the market and financial sector -- and the role that a few media outlets (CNBC especially) played in precipitating the collapse. In fact, whether it was natural or malicious, there is no quesion it was 90% psychology and relied on the media to propagate rumor and innuendo (so that even accurate denials of illiquidity were re-interpretted by the media as 'they doth protest too much.')
That being the case, any immediate fix for the current mess may just need to put a temporary gag on the irresponsible-as-always media, and any fundamental fix for the longer term has GOT to find a way to substantially reduce the influence of group psychology (group-think, hysterical contagion) on actual market behavior.
You think maybe we need to not let third party candidates get so sidelined their opinions are suppressed?
The media and the established parties are the problem here. Reasonable options never get to surface.
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