Re: [OPE-L] Crashes, Panics, and Expectations

From: Jerry Levy (Gerald_A_Levy@MSN.COM)
Date: Thu Mar 23 2006 - 09:07:07 EST

Hi Jurriaan,

>   In the end, the system is
> fiduciary, and it relies on people having the idea that they have an
> obligation to pay and repay, forcibly, or because of moral feelings of
> guilt, shame etc. But as long as it is operative, and it works, you can
> "stretch out" or alternatively truncate economic processes to a
> considerable
> extent, affecting the very perception of short-term and long-term. The
> important thing is, that people keep believing. It's when they stop
> believing, that you have problems. But that also means a crash is more
> difficult to predict - beliefs can, after all, change quickly or persist
> due
> to innumerable different circumstances. This however moves us beyond
> economics - it takes experience and insight into the condition of a people
> to be able to judge at what point previous beliefs are shattered, and what
> new beliefs fill the vacuum.

Does it move us beyond economics?  I guess that depends on how
narrowly economics is understood.

Keynesian economics, for instance,  emphasizes the importance of
expectations.  But, Keynesians don't inquire too deeply into how
expectations are formed and can vary.

The examples that you give should tell us that expectations are, in part,
culturally constituted and specific.    Thus, when we look at the
possibility  of crisis in a concrete social formation, the expectations
of classes and collectivities are a factor that should be recognized.
These expectations are not merely a 'given' -- they are a variable.

This is not a question merely of individual beliefs and feelings.  It is a
matter of _social_  psychology -- a subject that  should not be
entirely beyond our grasp if we  desire to concretely comprehend
conjunctural developments in capitalist economies.

This is a big topic and as I don't have much time now to write, I
will only make a few suggestive comments at this time.

1)  Crises and crashes are not caused by this, but historically are
often associated with PANIC, as a _moment_ in the unfolding
of crises.  A  panic,  is a sort of trigger  which forms a step in the
way crises often occur.

2) Inquiring about how panics occur and the underlying social
psychology of panics is relevant for comprehending the specific
way in which a crisis develops.  But, this doesn't mean that
our comprehension of an individual economic crises can be
_collapsed_ into an understanding of the making of a panic.

3) The  _state_ can affect and change (at least to a limited
degree) the formation of expectations and hence the way in
which investors respond to a specific situation.  (This is
something that politicians understand well:  this is one reason for
the way in which they optimistically 'spin' economic
developments. I.e. they recognize that what they say and do
can -- to some extent -- alter expectations and hence change the
course and pace of developments.)

4)  There probably are some cultural differences in different
capitalist social formations which affect the course and pace
of crisis.  This is a topic which would needs to be addressed
more specifically and concretely.  (Side note:  I recall hearing
the other day -- I can't remember where -- that there was a
study which found in the US that losses in savings and equity
were viewed significantly differently by *gender*).  In the context
of the US, it is not unusual for surveys to show that the
economic performance of the economy is  often viewed quite
differently by income groups and classes.

In solidarity, Jerry

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