The recession is all in your head

We think the stock market crashed right around your frontal lobe.

According to Yale prof Robert J. Shiller, the economic recovery that many people attribute to Wall Street or the stimulus package is based on little more than self-fulfilling prophecy.

The economy is so dependent on the subtle consumer psychology that the type of word we use to describe our situations can make a huge difference.

“Recession,” a kinder, gentler term, began to be used around the time of the 1937-38 contraction to refer to a normal downturn in the business cycle. In January 1938, The Chicago Daily Tribune offered a wry definition of a recession, calling it “a new word for depression, coined by those who don’t like to admit that we’re still in one.”

And apparently, compared to the dastardly depression,  a recession is only as bad as a sneeze here and there.

Choice of words can matter greatly for the psychologically aware, and the new word “recession” had a much softer sound than its predecessor. Recessions, as the term came to be used, implied timetables that mark their expected end. Uttering the word does not risk damaging confidence, at least not fundamentally. A diagnosis of a recession can be shrugged off as something from which you will recover, as though your doctor had just diagnosed an illness as a common cold. A depression came to be another matter entirely.

In fact, this idea of a self-fulfilling prophecy has explained many cultural phenomenons throughout American history.

In fact, in 1937, “Think and Grow Rich,” a book by Napoleon Hill, urged readers to adopt a positive mental attitude and to channel the power of the subconscious mind so that real wealth would follow. It became a runaway best seller. Faddish interest had already emerged not only in Freud’s theory of the unconscious mind, but also in the theories of the psychologist Émile Coué, who urged people to recite that “every day in every way I’m getting better and better.” He said this “autosuggestion” would bolster the unconscious self.

So for those of you who were not mumbling a pep talk to yourselves morning and night, there’s no time like the present!

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One thought on “The recession is all in your head

  1. What a horrible and uninformed view. This man truly doesn’t even have the slightest grasp of the wealth destruction occurring due to the credit/debt collapse. Does he really think that $13.87 TRILLION has been wiped off the balance sheet because Americans pulled back on spending due to fear? I understand the blatant reality that consumers comprise of 70% of our GDP. But is this guy serious?

    The reality is we have multiple unprecedented bubbles all popping at once: credit, home mortgage, commercial real estate, etc.

    Simply look at that the fact that during the housing bubble, Americans pulled $4 TRILLION of equity out of their appreciating homes between 2000-2008 and blew it on granite counter tops, hot tubs and trips to Vegas. You want to talk about some stimulus spending! And those trillions in spending has completely dried up now that the bubble is deflating and reality is setting in.

    America’s expansion was built on debt. Now that everybody is overleveraged with debt, growth stops and our Ponzi scheme collapses as the economy must now radically shrink to reflect a society actually living within its means.

    If you think the lack of spending is just psych, you really don’t know how dire and severe this current state of affairs actually is.

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