As all modern economists (not dogmatic crazies) would agree, recessions are largely caused by behavioral shifts in expectations and consumer confidence. The marginal investments and consumer spending that drive economies in & out of booms & busts are largely driven by how we collectively feel about the economy, rather than actual job losses or industrial contraction. Its a chicken & egg – but feeling bad, worried, and fearful certainly will only prolong this recession.
But as Americans, I’m confident this will end soon, as we will collectively get bored with continously worrying & talking about “the economy”. Just like the housing boom was all anyone could talk about for a long time, we will soon reach an overload of yet another bad news, and just start to spend & invest because we get tired of it.
What kept the Japanese in recession for so long was their (our) penchant for pessimism, and self-flagellation. Even during the 80s boom, everyone secretly thought we would be punished for excessive consumption & land grabbing. But Americans are not so puritanical or at least there is a good segment who will just simply tire of all this doom & gloom.
This is the land of Disneyland & Hollywood.
Yumio –
I think there’s a lot of truth to this idea. And the comparison to Japan is interesting. Americans love to live for the day, spend beyond our means and worry about it later. So I think while this wake up call will change behavior and mindsets briefly, like you say, people will slide back to their old habits.
The only devil’s advocate I would point to is that if we don’t get bored quickly enough, the downturn could extend into a depression. There are old americans that are very frugal to this day because of their experience in the great depression…
Mike
That is what I’m afraid of. A whole generation of savers! Especially the impressionable young! They are going to recycle AND save. Its all nice & good, but then the economy will have to be much, much more efficient to keep everyone employed (or the employed to keep the unemployed from poverty via government transfers).
Yumio