Saturday, June 28, 2008

Infectious Pessimism

Robert Shiller on Infectious Exuberance (and infectious pessimism):

"Benjamin M. Friedman, in his 2005 book, The Moral Consequences of
Economic Growth, cites abundant historical evidence that when economic
prospects look bleak—especially for long periods of time—intolerance,
racism, and other reactionary impulses flourish. As more people
experience hardship, trust between them tends to diminish, and the
social fabric itself seems to fray....

We recently lived through two epidemics of excessive financial
optimism. I believe that we are close to a third epidemic, only this
one would spread irrational pessimism and mistrust—not exuberance. If
that happens, our economic problems will become much worse than they
need to be, and our social problems will multiply. Only if we heed the
lessons of the boom can we keep the bust from causing lasting damage."

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