Perception or Reality

"I cannot admit it," said Sergey Ivanovitch, with his habitual clearness, precision of expression, and elegance of phrase. "I cannot in any case agree with Keiss that my whole conception of the external world has been derived from perceptions.” Leo Tolstoy, Anna Karenina. What Sergey failed to understand is that everyone’s existence is molded by what they experience through their senses. One child sees and hears his mother get beaten every night by his father, and when he grows up he decides to open a shelter for abused women. Another child lives in a similar situation, and when he grows up he decides to be an abusive husband. Similar experiences, different results, both molded by their experiences. They are each reality, but the two children perceived reality differently. The former perceived that abusive behavior is wrong and abused people need a safe place to get help. The latter perceived that abusive behavior was normal and thus continued it.

Believe it, or not, we are not here to talk about abusive spouses and domestic disputes. We are here to talk about how economics is affected by perceptions. Before we continue, let us define some terms.

• To perceive: “To become aware of directly through any of the senses, especially sight or hearing.” American Heritage Dictionary.
• Reality: “The state of things as they are or appear to be, rather than as one might wish them to be” Collins Essential English Dictionary.

Note that the definition given for reality leaves a lot of room for perception but no room for fantasy. This is a very important distinction that I hope you understand, because we do not have space for it here. If you want to discuss it further, post a comment.

Here is a generalized timeline of the current economic crisis based upon my perceptions. American consumers over-extend their credit to the point where most of their paychecks go toward paying debt and the associated bills. This leaves very little for discretionary spending. Money lenders encourage this and find “new and improved” ways for consumers to extend their credit. The house of cards topples over, and the amount of bad debt held by various levels of lenders piles up. As the crisis escalates, the news coverage grows at a feverish pace. Economists of all shapes and sizes talk about how bad everything is going to get and the Stock Market crumbles costing consumers most, if not all, of their retirement accounts. The housing market bites the dust, and consumers stop spending, causing business to fail from lack of sales. This in turn puts hundreds of thousands of people out of work across the country.

We are in the reality of the greatest economic crisis since The Great Depression, and we are having a hard time climbing out of it. Every day a new report comes out about one economic factor or another, and the news services eat it up. Sometimes it seems to be good news, and the Stock Market reacts accordingly. Sometimes it appears to be bad news, and the Stock Market reacts accordingly. Can all of this be stopped? Could the harshness of the recession have been avoided?

If I were Emperor, during an economic crisis the first group of people to be laid off would be the economists. Why can’t we have one day of the month where all of the economic reports come out instead of multiple reports coming out at all different times of the month? The answer to that is simple…it would not be good for the news services. I personally know of people who had good stable jobs that stopped spending their money because they kept being told every day how bad the economy was. Maybe if they had continued to spend their money in their usual patterns, a few people could have held onto their jobs. Maybe if everyone in this situation had continued to spend like normal, then thousands of workers would still be working.

The only way to successfully break out of a recession is through positive economic growth. The only was to accomplish this growth is for consumers to spend money. Once consumers start spending money, then more jobs will be created which will in turn create more consumers to spend more money. However, this will not happen while potential consumers perceive that the economy is shaky. The government can throw money, created by over-extended credit, at the problem, but that will not fix the underlying issue.

We started with a existential discussion, from a work of fiction, dealing with the differences of perception and reality. Then we dove into an example of how different children my deal with abuse to illustrate the differences. Finally, we realized that perceptions about the economy must improve if we want the economy to truly improve. Let us end with an article by CNN on July 2, “Thursday, a new national poll indicated that nearly half of all Americans think the economy has stabilized, but only one in eight think a recovery has started.”

Am I right or wrong? Am I a blubbering idiot, or a Wise One? Let me know in the comments.