Delusion is always dangerous, says Barbara Ehrenreich. I first posted about this in Positive Thinking Is Dangerous (And Really Annoying Too). All bubbles, at their root, are fueled by unwarranted optimism. House prices will never go down! Excessive debt? No problemo. I'll get a better paying job, or I'll win the lottery. Or Jesus, who just happens to be my personal savior, will take care of it. Something good is bound to happen. Such optimism is infectious. Without it, rip-off artists would never be able to get a proper asset bubble off the ground.
They say it takes all kinds to make a world and it does. One of those kinds is the Eternal Optimist. These people deal in fairy tales which always have happy endings. Economist Dave Rosenberg took one to task yesterday over at The Big Picture—
A man who has committed a mistake and doesn’t correct it is committing another mistake
— ConfuciusBarron’s economic guru, Gene Epstein, titles his column in this week’s edition A Second Dip Still Unlikely. In his piece, he cites this as evidence:
“The Credit Suisse probability model of recession, discussed here last week, put the six-month probability of recession at zero — and still does.”
Wow. Go back to January 7, 2008, and in his column, Mr. Epstein boldly said: “So, are we headed for a recession now? Not so fast.” What was his reasoning? Get ready for this:
“Reflecting the December data for private-sector nonfarm payrolls, released Friday, the Credit Suisse six-month model put the chances of an outright recession at 43%.”
This recession model was pegging recession odds at 43% and yet the recession had already begun three months earlier.
If that wasn’t bad enough...
Rosenberg goes on to detail more of Gene's goofiness, and states that his own indicators show a 52% chance of a double dip. While it's important to point out that Epstein is a whacko, it is also important to remember that if the Titanic were listing at a 45° angle in the icy North Atlantic, Gene would be reassuring the passengers that the Captain & crew will soon have the situation under control.
Realistic assessments of our situation can easily lead to depression, which much be avoided at all costs. I was reading an editorial called Our future is green in my local newspaper the Pittsburgh Post-Gazette. It went like this—
What we need is to build a green economy, and we need to do it now. Our future security depends on it, and by that I mean not only the security of a planet battered by disasters like the BP oil spill, but the livelihoods of generations to come.
Thinking green is about more than windmills and solar panels -- although building a clean energy industry is essential. It means creating greater efficiencies; it means building offices and homes that are cheaper to heat; it means developing and manufacturing technologies to clean our water; and it means creating modern transportation systems that relieve congestion, cut greenhouse gas emissions and reduce our dependence on foreign oil.
All of this means jobs. It means prosperity. And we can do it if we revive that great American tradition of innovation...
Countries like Germany, Spain and China have sprinted to capture the opportunities offered by the green economy...
We know that providing a secure future for our kids and grandkids means building a sustainable economy, one that respects both people and our Earth. It's a matter of reaching for the future. That's what Americans do.
The author Richard Trumka goes on in this vein, offering up his not-so-unique brand of Motherhood & Apple Pie. Nowhere in this Fairy Tale does Trumka make a realistic assessment of whether this story could possibly come true. That's what Americans do? Well, maybe that's what Americans used to do, but they don't do it anymore. This is a more subtle form of the Eternal Optimist in which somebody lays out a Happy Story and then declares that this story should be our story.
Of all the optimists I've run across, Crazy James Altucher of Formula Capital takes the cake. Mish got so annoyed with him that he wrote Yes, James you are completely whacko. And of course he is. An Altucher video is very instructive, so I've included the recent episode from Tech Ticker that Mish commented on.
Altucher lives in an elaborately constructed Fantasy World, and nothing you could say or do would convince him that his Fantasy World is not the Real World. In a reasonable society, James might be diagnosed & treated for a mild form of schizophrenia or some similar mental affliction. In our society, he gets interviewed on Tech Ticker.
I will end this short essay by repeating the Barbara Enrenreich video from my older post. Watching it right after the Altucher video really drives the point home—delusion is always dangerous.
I think another example of "green optimism" came out of Obama's address from the Oval Office. He told America that if we can win WWII and put a man on the moon, we can solve our dependency on fossil fuels.
But there's a missing piece: the soldiers in WWII had the Pentagon and Neil Armstrong had NASA. What's the man on the street supposed to do to solve the fossil fuel problem? Is it time for an organized, funded effort? Or are we going to talk nice and wait for a solution to drop out of the sky?
The following link is to a satirical video, but it underscores this issue in real terms.
Link: http://bit.ly/arVM0I
Posted by: Bondwooley | 07/08/2010 at 10:38 AM