Our Enemy is ‘Pessimism’! So Cheer Up, Citizen — Right Now

Too many fallacies to list in this article from the Washington Post, so let’s focus on this: “Pessimism produces a sluggish economy; a sluggish economy produces pessimism. That’s the main explanation of poor job creation. As I’ve written before, this psychological shift stemmed from the fact that the financial crisis and Great Recession were largely unpredicted.”

(1) Where does pessimism come from? When things are going so well, what could be the source of this pessimism?

(2) From April 1924 to October 1929, the annualized return in the Dow Jones was 30%. Over the 20th century and into the 21st, the annualized return was only five percent. Did the Dow crash in 1929 because of “pessimism”? Would “optimism” have kept the Dow’s annualized return at a rate six times higher than the average? Might there have been something fishy (and unsustainable) about the stock market in the 1920s? (See this talk on the first part, and see Rothbard’s America’s Great Depression on the second.)

(3) Could the bloated housing sector have continued on indefinitely if we had simply drugged everyone to keep them optimistic? If there are real factors that make it impossible for economic growth to occur without drastic resource reallocation across the capital structure, how could “optimism” continue to drive growth in the absence of these real changes?

(4) One other thing: although consumption may constitute 70% of GDP, this is an artifact of the way GDP is measured. The gross saving by capitalists vastly exceeds consumer spending.

(Thanks to Mike Abshier for the link.)

Originally posted on TomWoods.com.