Fear and the economy

The elite cadre of people who read this blog know that I’ve been doing a lot of thinking about the emotion of fear lately. Just today I was wondering how it relates to the economy and our current recession.

Economic decisions are, at least partly, psychological decisions. If I’m trying to decide between buying a house, or waiting to see if the price drops, I’m testing my ability to predict the behavior of the other homebuyers in my market. And the length of time that I’m willing to wait has to do with the steeliness of my nerves — a psychological aspect of my character.

When Bush and Obama infused cash into the economy, they were essentially trying to tell people that cash was still liquid, and that that would keep things going until the economy naturally rebounded. It obviously didn’t work as well as they, particularly Obama, hoped. And I think the reason why is that people were asking themselves the obvious questions, “What if I spend (instead of save) and the economy doesn’t rebound quickly enough? Will I regret spending money now that I could use to eat in the future?”

This series of questions has a lot to do with why I haven’t purchased a new guitar lately. People, myself included, are understandably cautious. And caution is a very mild form of fear.

How we handle our economic decisions during a downturn is a bit like being locked in a closet. As a kid, when you were stuffed into a closet, you immediately panicked. You had a couple minutes of pure terror, then that kind of faded to extreme concern, and that went down a few notches to worry, and finally, hours later, you were genuinely bored. Fear and painful emotions have an extreme initial impact, but then go away.

I suspect there’s a lot of people right now putting off whether they should buy a new TV or set of camping supplies or guitar. They’re holding off, because they’re worried that the money they spend now is money they’ll need later. I think that as time goes on, that “worry” will ultimately become boring and they’ll say, “Aw, fuck it, let’s just buy the damn thing.”

Will that end the recession? Economics is a lot more complex than that, but I think that is a component.

1 Response to “Fear and the economy”

  1. John Saleeby

    I just got back from buying a Top Of The Line Fender Stratocaster, a Roger McGuin custom designed Rickenbacker, a Gibson Sun Burst Les Paul, and a stack of Fender amps the size of your house! You PUSSY!!!

    The Les Paul was going to be a Christmas present for you but now that I’m so disgusted with you I’m just going to play “Kiss Alive” and smash it up at the end of “Black Diamond” while I pretend to be Paul Stanley.

    The Rickenbacker is for my Mom. She’s recently gotten into R.E.M. – That medication she’s on is really weird.