The Economy: Is It All In Your Head?
Sen. Phil Gramm, an advisor to Sen. John McCain, just stirred a big controversy by maintaining that the economic downturn causing so much angst is largely the result of pessimistic thinking, rather than serious economic problems. Pointing out that we aren’t actually in a recession at all, with real economic growth anemic but still respectable at a 1% positive rate, he called this a “mental recession,” and said the problem is we are becoming a “nation of whiners.” McCain repudiated these comments as the Obama camp gleefully leaped on them as further proof that McCain was out of touch.
Ironically, however, the “mental state” of the economy is a lot more real than most people think. Students of recent economic thinking – much of which is based on studying the network effects of individual economic agents (i.e., people) choosing their own actions by paying close attention to the actions of other agents – will recognize that the way in which significant numbers of people are “thinking” about the economy does indeed have real-world effects.
In plain English: If you see others who think the economy is bad, then you are more likely to think so yourself. The more decisions you make that are based on this thinking, the more influence you will have on other people’s thinking as well, and so the economy really does become “bad.”
What this means is that while Phil Gramm is right, technically, that if we all just start thinking more positively about the economy it will get better, the fact that we are NOT thinking positively also means the economy really IS in bad shape.
The network effects of individuals choosing their actions based on the actions of others, in other words, means that the mental state of the economy IS its real state.
But these are the same network effects that, as business managers, we have to consider among our customers. Stock market investors have always looked over their shoulders at other investors’ opinions before making their decisions, and customers have, too – to a limited extent. Marketing fads like “Teletubbies” or body piercing or even “low carb” foods have their origins in network effects.
New social media technologies, however, are aiding and abetting the creation of such network effects, as customers go online to blog to other customers, post customer reviews and ratings, and circulate word-of-mouth via the Internet. You can’t afford to miss the implications of these new technologies, which is why we’ve collected a lot of our current thinking at our new microsite all about social media, Get Past the Hype.com.
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