On the Need for Optimism

It has been a long time since I have written here, but recently I have felt compelled to rejoin the discussion “out here” in the Internets.

The primary reason why I feel like I need to start writing again is because I am frankly starting to get annoyed and tired with all the pessimism that I read in the newspapers and in the “financial” oriented blogs out there.

We need to quit harping on all the negative data out there and start realizing that there are many positive things going on in the world and our economy – and here is why:

First, one of the few truths is that the future does not yet exist.

No matter how much we think we can predict what is going to happen tomorrow (some of us even make a living out of trying to do it), we can’t. It is impossible.

Besides the physics of it, when it comes to things like the “economy” or the “markets”, the reason it is so hard to figure out what is going to happen is because the result is arrived at through a combination of a bunch of individual human beings making decisions about a lot of different stuff. Economists think they can model this behavior and figure out what is going to happen based on theories and math. They can’t. No one can.

Part of the reason this task is so hard is because we are collectively creating a new future each day when we walk out the door and into the world. Now sure there are certain social constructs which are in the background and seem like they are impossible to change – stuff like the concept of ownership, citizenship, relationships and things of that nature – but a lot of what we make out every day depends on our perspective.

For example, when you come to work well rested and in an upbeat mood, you are far more likely to get along with your co-workers than if you are tired, sick and angry. Doing so will make you more productive and allow you to do more stuff. If you do more, your company will do better, make more money and all the sudden you have impacted the economy in a positive way.
The point of this example is that we can influence how things unfold in our lives in a major way just by changing out point of view in little ways.  Because of this, it is difficult to predict how things are going to unfold because this and many other factors about how people are going to act tomorrow can’t be determined a priori. We are humans, not atoms.

Second, the markets are even harder to predict than the future and they are influenced directly by our perceptions.
Anyone who has sat in front of a Bloomberg terminal can tell you that it feels very different when there is “green” on the screen than when there is “red” on the screen. When things seem positive, you feel and act differently and vice versa. This is true not only for price movements but also for the interpretation of economic data.
Last quarter’s GDP result is a great example of this. Few people talked about how net exports were a big impact on the total GDP number (they were up a lot in the last quarter), but that actually shows that we are doing a lot more consuming now than we were earlier in the year. We can argue all we want about whether our consumption-based economy is a good thing, but the reality is 70% or so of our GDP is consumption based. Although buying stuff from abroad isn’t necessarily that great for our local economy, it is a good indicator of the fact that people are consuming again.

I don’t know what that means in the greater scheme of things, but I do know that I am not reading much in terms of positive interpretations of the data that are coming out of late. Most of the headlines and press I have seen over the last few months has been harping on the legitimate concerns that people have.
This is bad because of the above mentioned fact that we influence our world everyday with our perspective and this effect is amplified in the context of the markets. The more negative we interpret stuff, the harder it is for stuff to get better – and the worse things could potentially become.

Many of my more “bearish” friends talk about the mistakes we made in the first half of the last decade by spending and borrowing too much. I think they have a point, but the pain we suffered over the last couple years was enough of a lesson – we get it, housing prices can go down and we have to think about that and other risks more in the future. But this backwards-looking analysis and bearishness that is now in style is getting old. It is time to start looking forward again. 

I am positive that America’s and the world’s better days are ahead of us. We need to stop harping on all the mistakes we have made over the last few years and get out of our own way to let us get there. 

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