There is, of course, an academic paper on just about everything, and I found a neat one recently on the mindset of people who lived through the Great Depression. Authored by two California researchers, the study, Depression Babies: Do Macroeconomic Experiences Affect Risk-Taking? (available on the U.S. National Bureau of Economic Research website), concluded — get ready — that people who experienced major stock-market blowouts are less likely to invest in the stock market again. I’m glad that’s settled.
To some of you, this might seem the rough equivalent of testing the hypothesis that people who have had an eye gouged out with a hot poker are more likely to avoid hot pokers. But that’s not the point. The point is that just because people have reason to be scared, it doesn’t mean their choices have predictive value — Depression-era babies who avoided the stock market missed out on decades of solid returns. Their biases might be understandable, but that doesn’t make them right.
Now consider the once-all-powerful American consumer, who according to a recent McKinsey & Co. paper was responsible for more than a third of global growth in private consumption since 1990. How times have changed. A recent poll by CNN found that nearly half of Americans believe the United States is likely to experience a full-blown depression. Given that U.S. consumers lost an estimated $13 trillion in personal wealth between mid-2007 and the end of 2008, such fears are understandable. But are they right? Time will tell, of course, but few reasonable experts expect a 1930s-scale depression.
What’s interesting is the contrast with attitudes in Canada. A recent poll by Ipsos Reid suggested most Canadians — nearly 70% — believe the country will emerge from this recession stronger than it was before, and that nine in 10 believe that despite everything, they are “still optimistic for a better tomorrow.” It’s a remarkable optimism, given that 80% of our trade is still with the United States; that the U.S. consumer has basically stopped spending, and will have less to spend even when the recovery gets under way; that with a few exceptions our recessions have been worse than U.S. ones, in part because our smaller and resource-heavy economy is less flexible than America’s.
So I get it that opinions formed in light of experience are not necessarily valid. But what do you make of opinions formed against past experience?
Maybe there’s a PhD thesis in that.