A quick perusal of my postings tagged ‘Economics‘ over the last year or so is a worthy study in reality for anybody who is concerned about our economy. Concern is, unfortunately, well-founded now—a fact reinforced by today’s news that our economy lost over half a million jobs in November and unemployment has spiked very quickly up to 6.7 percent. The National Bureau of Economic Research declared on Monday that the U.S. economy has been in a recession since December of last year.
But today, individuals and businesses are reacting to all this bad news with short-sighted maneuvers that are counterproductive and will accelerate, deepen, and lengthen this recession. By taking actions based on hysterics instead of reality, we are making things worse. Anybody who has studied economics with any seriousness can tell you the number one impact on the economy is the peoples’ general perception of the economy. Some might say it’s consumer spending, employment levels, government action, and so on but in the grand scheme of things all these have their roots in perception.
Consumers who perceive the economy is doing poorly will tighten their belts and spend less (out of fear that they might lose their jobs), then reduced consumer spending leads to less profit for business, then businesses lay people off and the economy really does tank. Or businesses perceive the economy is doing poorly and preemptively lay people off (out of fear that their profits will drop), which increases unemployment, which reduces consumer spending and the economy really does tank. Or the government perceives the economy is doing poorly and preemptively intervenes with much fanfare and blather, which convinces consumers and businesses that things must be really bad, which leads to both reduced consumer spending and preemptive layoffs and the economy really does tank. Or consumers, businesses, and the government all do all of these things all at once and send us into a self-induced negative spiral . . . which is what we’re seeing today.
