ProphecyNovember 14, 2018 -
Categorized in: IAG News
The more people who believe in an unpredictable future economic event, the more likely it will happen.
These “economic prophecies” have the potential to become self-fulfilling because people alter their behavior based on their newfound belief in future events.
Right now there is one economic prophecy making the rounds that is gaining a significant number of followers: This economic growth cycle will end in 2019 (or 2020 at the latest).
One of the more fascinating aspects of self-fulfilling prophecies is that they cannot be disproven in the present. There is no infallible economic evidence to illustrate how the prophecy cannot happen, making it all the more believable.
The case for a 2019 recessions sounds pretty plausible – the Federal Reserve continues to raise interest rates and will go too far, the economic stimulus of the 2018 tax cuts will wear off, trade wars will start to take their toll on exports, the housing market is showing signs of cooling, and others as they fit the prophecy.
The case against a 2019 recession is fairly simple. It is the exact opposite of the paragraph above, but it is always so much easier to believe what could go wrong instead of what could go right.
When more people make decisions based on an assumed recession in 2019, the odds of the recession coming to fruition rise. Consumers expecting a recession tend to spend a little less. Businesses expecting a recession will hire a few less people or delay capital spending.
If consumers and businesses reduce spending, the economy would start to slow a bit. This would “confirm” the prophecy is coming true, driving further recession-minded decision-making.
At IAG we do not make prophecies. We help our clients develop long-term plans that strive to survive the unpredictable forces in the economy and the financial markets. While prophecies may be interesting and even self-fulfilling, the vast majority of them are false distractions that can derail your progress toward your future goals.
Quote of the week:
Harry Truman: “Give me a one-handed Economist. All my economists say ‘on one hand . . .’, then ‘but on the other . . .’”
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