Our Moody, Manic Depressive Economy
The day I met Maura Pennington in the fall of 2004, she was sporting an enormous Kerry/Edwards button on her coat and an "I Miss Bill" sticker on her Nalgene bottle. In the nearly seven years since, I've seen her transform from a proud liberal, who quite literally wore her politics on her sleeve, to an ardent libertarian. And during that time, I've also seen her struggle, and ultimately attain the upper hand in her battle against severe clinical depression. All of this by way of introduction to a great article she has today in Real Clear Markets, in which she compares human depression with economic depression. Here's an excerpt:
The essence of free markets and laissez faire capitalism is that the economy is best left alone without intervention or unnecessary regulation. Such is the attitude of most people when confronting psychological disturbances - there is a natural skepticism toward doctors and medication.
Medication is to the condition of bipolarity what undue government meddling is to the economy. Some people put faith it its ability to manipulate irregularities in a positive, controlled way; some people find it puts a straitjacket on inherent fluctuations, hampering periods of creativity.
Like moods, the economy naturally cycles. Bubbles form, they burst, a recession sets in, bad business practices are purged, capital is put in the hands of more savvy entrepreneurs, and a boom follows. Moods are normal, they shift, depression sets in, horrible thoughts of the life-taking variety are considered, but avoided, mania takes over and it's all elation and fervor and productivity, things even out, and they shift again.
What happens, though, to the economy when natural cycles are interrupted? It stalls. In mitigating the effects of the downswing with government spending, for instance, the upswing is delayed. By eliminating negative feelings with an unrelenting cocktail of chemicals, mania or even normal activity is deadened.
For people who believe that what society needs is stability, this is all well and good. Let the government intervene in innate oscillations if it means that no one suffers. Never mind that no one will prosper either.
In the same way, it is easy to come to the conclusion that moods must be highly regulated as well. What follows in reality is a period of ennui and stupor, of mental and emotional stagnation.
Until recently, I was under the impression that regulation and intervention was a boon, that it tamed what was out of control. Now, however, I have discovered that what it does to me is wash me out and make me gray, just as it dulls the recovery that should be happening in our economy.
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Nov '10
Re: Our Moody, Manic Depressive Economy
Diane Ellis, Ed.:
This is a dangerously flawed analogy. An economy is the sum of many rational decisions. Mental illness is by definition irrational.
More importantly, a depressed economy can't spontaneously choose to kill itself. She may be in an extremely productive manic episode now, but what about six months or a year from now? I'd be really careful about encouraging this sort of behavior.
Edited on Jun 25, 2011 at 9:25amAug '10
Re: Our Moody, Manic Depressive Economy
A moving article.
Still, I was under the impression that, while booms and busts are a feature of market economies, the swings of the market are often exacerbated by government policy into being considerably wider than they would have been in a freer market.
For example, unwise Fed policy can cause a boom now that almost certainly sets us up for a bust later, as in Fear the Boom and Bust.
Aug '10
Re: Our Moody, Manic Depressive Economy
Jan-Michael Rives
I'd be really careful about encouraging this sort of behavior.
Actually, having known very productive people with similar problems, I'm less worried.
A person with a robust support network and a strong enough sense of responsibility can get through extreme depressive periods with fairly low risk of death or injury. Of course, such a person has to remain aware enough during such crises to know he's having a crisis, have the humility to recognize that in this state he cannot take responsibility for himself by himself, and have people on hand who can help take responsibility for him, as it were.
People with mental illness vary in self-awareness and ability to act responsibly during a mental crisis. Not everyone can handle mental illness responsibly without medication, but some can.
And given the side-effects of many current bipolar meds (especially the cognitive side-effects), I can see why people who could get by without them choose to do so.
Dec '10
Re: Our Moody, Manic Depressive Economy
Jan-Michael Rives
This is a dangerously flawed analogy. An economy is the sum of many rational decisions. Mental illness is by definition irrational.
Unfortunately, the economist's assumption that individuals are rational actors who make the optimal economic decisions in each instance is fundamentally flawed. Individuals can be flighty, impulsive, stubborn, contrarian, and histrionic in their economic decisions as in all other aspects of their lives. So, indeed, can enterprises: lots of companies have made rash decisions that seemed like the right thing to do at the time, and perhaps even more have refused to take risks because "we've always done it this way" seemed like the proper star to steer by.
Dec '10
Re: Our Moody, Manic Depressive Economy
Diane Ellis, Ed.:
Economies aren't people: the flights of creativity in a manic phase can only go so far in an individual. In an economy, those boom cycles can cause the entire society to advance to a new baseline of productivity and output. And that's especially vital when the society is continually adding new members who need jobs and incomes. When no one suffers or prospers, eventually everyone suffers.
Sep '10
Re: Our Moody, Manic Depressive Economy
I'm always put off by people who find medications for mania and depressive moods to be more of a problem than a solution (it's a mixed bag depending on the person, the meds, and the circumstances). Would you deny a diabetic her insulin? Anyway, in my view Pennington's analogy breaks down in an important way: businesses that aren't hiring aren't drugged out on depressive mood cocktails; they're making a rational choice amid the chaos of economic unknowns. The problem for them and the overall economy is that the regulatory and political classes think they're off their meds and would very much like the state to force them back on them.
Aug '10
Re: Our Moody, Manic Depressive Economy
I think this is brilliant, and I've made the analogy myself for years. Natural cycles, whether they be seasonal, biological, or psychological must be respected and allowed to happen.
Here's another analogy: Since we have gained the power to stop forest fires, we've frequently extinguished them without thinking. This causes undergrowth to flourish and choke forest floors. Thus, when a fire starts again later, the undergrowth is so dense that the fire burns much hotter and out of control; taking the whole forest.
When John Muir roamed the Sierra Nevada mountains, one could ride a horse full speed through the forests. That isn't possible now. Fortunately, a new philosophy is taking root in forest management. (Note: the seeds of the Giant Sequoia won't germinate without fire on the forest floor.)
Economic depressions also clear out the 'undergrowth' of non-viable companies, and reassign assets to more productive venues. During boom times, people imitate each other and start redundant companies that eventually choke each other out. Many must go under so a few will flourish.
Edited on Jun 25, 2011 at 1:58pmMar '11
Re: Our Moody, Manic Depressive Economy
Stuart Creque
Jan-Michael Rives
Unfortunately, the economist's assumption that individuals are rational actors who make the optimal economic decisions in each instance is fundamentally flawed. Individuals can be flighty, impulsive, stubborn, contrarian, and histrionic in their economic decisions as in all other aspects of their lives. So, indeed, can enterprises: lots of companies have made rash decisions that seemed like the right thing to do at the time, and perhaps even more have refused to take risks because "we've always done it this way" seemed like the proper star to steer by. · Jun 25 at 12:29pm
The assumption, it would seem to me, would be that the majority of people making economic decisions are rational actors. Flighty, impulsive, stubborn, and histrionic people aren't usually investors or business decision-makers for very long. Contrarians can do pretty well as long as their capital outlasts whatever conditions are making everyone else behave as they do. People make the wrong decision all the time -- if it is in the market, it corrects itself, albeit with consequences for the actor. If it is in government, somebody has to fix it, and meanwhile, we all live with the consequences.