What the hell is wrong with the economy? Who can fix it? Can it even be fixed?
All great questions. Unfortunately, no one seems to have the answers to these questions. Maybe Obama should order a nation wide search for the greatest economic minds and lock them in a big room untill they come up with the solution to fix our sick economy. Nahh, these so called experts are the same bozos that got us in this situation in the first place. Instead, we should try to find an Economy Doctor. After all, when you are sick, you go to the doctor right. Our economy needs to do the same.
What type of doctor do we need for this tough assignment? A psychologist, of course. I would argue that a big part of our economy is determined by people’s mindset and attitude, so a psychologist would be the perfect choice.
So, what would a psychologist say is wrong with the economy? Sorry, I am not a psychologist and do not know any (although regular readers of this blog might disagree). Instead, I was forced to play with Google for a little while and see what I could learn about the topic. After countless hours of research (okay it was really about 10 minutes). Here is what I came up with:
1. The Economy is suffering from a type of Self Fulfilling Prophecy. Robert K. Merton first described this concept as “a prophecy declared as truth when it is actually false may sufficiently influence people, either through fear or logical confusion, so that their reactions ultimately fulfill the once-false prophecy.” Returning to our economy example, I would argue that the original prophecy (that the economy is poor) was not a false one. Certainly, there are some major problems with our economy. However, the tremendous about of media coverage (Let’s face it, recession talk dominates the news), especially early in the crisis, directly led to the economy getting much worse.
2. The main culprit of the Recession can be traced to the Genovese Syndrome. This syndrome is named after Kitty Genovese who was brutually murdered 1964 in New York City. It was reported that up to 38 people witnessed part of the crime, but did not do anything about it. This syndrome, also called the bystander effect, states that “individuals are less likely to offer help in an emergency situation when other people are present. The probability of help is inversely proportional to the number of bystanders. In other words, the greater the number of bystanders, the less likely it is that any one of them will help.”
Applying this syndrome to our economy, I would argue that this recession (or depression) was caused by the mortgage crisis. Many (Bush, Clinton, Greenspan, Bernarke, members of Congress) could have done something about this problem. Many more now claim that they saw this problem coming, but no one would listen. Still, since the health of the economy is not the responsibility of just one man or woman, the Genovese syndrome took place. To take a lesson from this situation, Obama should name an Economy Czar whose sole job would be to help bolster the economy.
3. Okay, I have now identified two reasons why we might be stuck in this mess. Big deal, any idiot could have done that. What is the treatment for our ailing economy. Well, what I think the Placebo effect could solve our problem. The Placebo effect “occurs when a patient’s ideas about a treatment play a role in its results and is most apparent in cases where a patient is given a known ineffective treatment but responds dramatically. In these cases the results of the treatment are said to have come by means other than its direct physiological action.”
Consequently, what we need here to fix the economy is to have Obama announce that his economic team has figured out the perfect way end the recession. He should cite examples about how this plan to fix the economy has worked before (even if he has to lie) and effectively express how there is virtually no chance that his solution will fail. Here is how Obama’s speech should go:
“Fellow Americans, after months of hard work and analysis, my economic team has come up with a plan to fix our ailing economy. This plan is based on the success model developed in Kazakhstan by Nobel Prize winner Dr. Borat. Before Borat’s model was put into place, Kazakhstan was a struggling third world country. Now, they are second only to Saudi Arabi in per capita wealth and standard of living. My friends, all I ask you to do is put 10% of your 401K money that you have probably moved to a more stable, low risk fund, back into a stock market fund. This sudden influx of investment money will cause the stock market to soar and will serve as the first domino falling in our road back to a healthy economy. Thank you and God Bless America”
Of course, this technique alone will not solve all our problems, but it would be a step in the right direction.
Dr. Kevin has now left the office 
This post was featured in the 195th Carnival of Personal Finance at StockTradingtoGo.com
The economy has structural problems. Unfortunately the type of “fixes” you suggested have been used the last few decades. Just pretend the problems don’t exist. Just convince people to go spend more money, run up their credit card debt, borrow against their house, as long as everyone believes it can continue. That can work for awhile but it then fails due to structural issues. The same way a ponzi scheme eventually implodes.
If you could convince those in a ponzi scheme (and new investors) that they should just be optimistic it can continue. But eventually people ask for their money to buy something and none exists and the scheme fails.
With an economy, after structural problems are addressed then you need to convince people to be less fearful and to be more optimistic. Because often by that time people have become so fearful that they are not taking even reasonable steps. They don’t buy even though they have the money in the bank and have a real need for the purchase. At this time convincing people that the economy is stable is important. However, cheerleading and convincing people to just continue to run up their debts to spend more is not wise when the economy is already far to in debt.
I agree John, the economy does have real structural problems. Your point is well taken.
Still, Placebo effect only works if the “patients” believe the treatment will work. I seriously doubt that convincing people to “go spend more money and run up their credit card debt ” will ever work again and is certainly not what I am saying. My fictional (and highly tongue in cheek) example of transferring back 10% of individuals 401K contributions to stock driven funds is a far cry from the same old “stick your hand in the sand, continue to spend, and all will be well” approach.
“what we need here to fix the economy is to have Obama announce that his economic team has figured out the perfect way end the recession”
Do you think that if I tell my husband that I’ve worked out a way to pay all the bills, that the bills will magically pay themselves?
If it takes psychologist then it is him or her I would say. Because we need something very badly otherwise there will be nothing left to straighten it out.
I’m not an expert on good or bad psychologists.The article aims to present research that will improve understanding of behavioral, especially socio-psychological, aspects of economic phenomena and processes. The article seeks to be a channel for the increased interest in using behavioral science methods for the study of economic behavior.
Let me tell ya something,
Peps who suffer crisis and bad economy suffer ’cause there must be somebody to be the victim and there are folks who get advantage of the mess created by themselves in order to succeed.
There are also individuals who are sooo smart that no crisis can approach them…
I think we should become smarter – that’s the way out.
No Obama or Bush will help or kill us
Cheers
John
You are absolutely right my friend the economy needed a good physiologist for the better future.Nice post
i am not a expert but this post is very great. From this post our economics condition is grew up. Thanks Dude
Let’s be honest here. The study of psychology is not for everyone; if it were, it would be a video game, not a profession. And so, in a society in which many high school graduates cannot even spell the word psychology, the requirements to become a psychologist can seem almost impossible. But the discipline, dedication, and academic requirements are no more difficult than those of any other profession.
I think we all need a good physiologist!!! Nice article
Well in modern economics theory, every individual involved in the economic activities tries to maximize its gains and minimize its loss. So in a panic situation everyone wants to keep cash and decrease costs. In this sense you are true about “The Economy is suffering from a type of Self Fulfilling Prophecy. “.
“The Economy is suffering from a type of Self Fulfilling Prophecy. ” This is so true, the media always shows the negative side of things, while we need to focus on positive aspects and work to get better. Great article!
Its a reality check the whole western developed world needs.
This Blog article to present research that will improve understanding of behavioral, especially socio-psychological,and processes