[ExI] Psychology of markets explanations/was Re: More on Health Costs

[dan_ust at yahoo.com]

--- On Wed, 5/27/09, Stathis Papaioannou <stathisp at gmail.com> wrote:
> 2009/5/28 Lee Corbin <lcorbin at rawbw.com>:
>> It's very similar to the way that people believe you
>> can spend your way out of a recession. Sometimes I
>> think that the Keynesians suppose that if we just had
>> the right kind of magic pill that everyone could
>> take,
>> ---which would simply restore complete full
>> confidence
>> in everyone that everything is fine---all the
>> problems
>> associated with a recession would disappear.
> 
> It probably would: people would work, spend, invest, even
> write off
> debt in confidence that the future would be brighter.

No it wouldn't.  They would continue to "work, spend, invest" in a manner that continues to destroy capital and wealth.  Eventually, this process would have to end -- as it likely would when a few discover that the given direction of all this activity is wrong and it's profitable to bet against it.  (This is what happened last year.  Housing prices -- surprise! surprise! -- wouldn't keep rising to infinity.)  This is, in a way, no different from a ponzi scheme and your belief that such a scheme could continue indefinitely is groundless.  Not only that, such schemes, even if they could be continued, do not create wealth: they consume it and their profitability (to the few who actually benefit) is proportional to how much and how fast they consume it.

> , even write off debt

Writing off debt would mean someone or some group takes a loss -- likely a large one.  Why not loan me your income and then write off the debt, go out and work some more, keeping always a confident attitude, and then make me a loan again, which you'll again write off?  Would that really be conducive to wealth-creation?

> And if they had the right mindset, they wouldn't allow
> another bubble to form either.
> If population, natural resources and new technology are
> kept constant,
> psychology is the one thing left that contributes to the
> economic
> cycle.

Psychological explanations of recession go back a long way -- and always rise up again, despite being refuted.  This is like the view of gambler who's down to his last stack thinking that if he only just thinks positive, he'll win.  His false optimism will likely get him deeper losses.

Regards,

Dan