Optimism versus Pessimism

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America is imbued with economic optimism. We believe that the economy can grow. We believe that the free market system brings prosperity. Of course, economic optimism has its drawbacks. The optimist tends to underrate certain problems. He sees that the market brings people together; that international conflicts can be solved by commerce; that ethnic strife can be mitigated, and poverty overcome.

As we are increasingly hedonistic, we are optimists because optimism makes us feel good. We cling to economic optimism even after the crash of 2008. And behold! Our optimism has wrought a supposed recovery! But has the economy actually recovered? Or is it smoke and mirrors? We continue to tell ourselves that things are getting better. We have no choice. Without economic optimism, the investor would not invest. It is the pessimist who stuffs money into mattresses, or buys gold.

Optimism and pessimism are basic to the market. There are bears and bulls, waves of optimism followed by waves of pessimism. My copy of Robert Prechter’s 1995 book, At the Crest of the Tidal Wave, describes economic cycles in terms of positive and negative mass mood swings. Prechter thought the market exuberance following the Soviet collapse of 1991 signaled the advent of an inevitable pessimistic wave, fulfilling a larger prediction; namely, the culmination of a “Grand Supercycle.” Prechter believed in a “tendency toward alternation in corrective form.” He believed the ultimate correction was about to occur. “Never before,” wrote Prechter, “has an Elliott Wave practitioner been alive to anticipate the termination of a structure of this magnitude. It may not happen again for centuries.”

What exactly did Prechter think would happen? He wrote that “the Dow Jones Industrial Average will fall at least back to 1,000 … and when the stock market falls that far, we will have a depression.” And this would be no ordinary depression. The decade of the 1930s would be a cakewalk by comparison. Of course, it is almost 17 years after the publication of Prechter’s book and the prediction has not been fulfilled. This only illustrates how difficult it is to anticipate cycles of optimism and pessimism. While moods can be described as cyclical, they are also historical and particular – each moment of history being unique and unrepeatable.

It is true, of course, that markets track with moods and are cyclical in nature. In this, however, I am inclined to believe that our moods have some basis in reality. Loss follows upon bad investment. Pessimism is more likely in the wake of failure. The real question is why certain mistakes are repeated through history. The obvious answer is that one generation is replaced by another, and lessons from previous generations are not always passed along. Thus, we find the financial attitudes of the 1920s recurring in the 1990s. We see financial mistakes recurring, with bubbles and bankruptcies and panics.

Human beings are subject to corruption. Market corrections occur in order to bring economic life back into balance, in order to eliminate unprofitable companies and bad banks. When the government intervenes, the corrupt elements are preserved. The system is not cleansed, and corruption continues. Inevitably more wealth is lost, more money is wasted. More money is poured into bad investments. Here we find that government itself has been corrupted in its role, and oversteps its bounds, harnessing economic optimism to a false end. In this respect, optimism is vulnerable to manipulation.

Pessimism, on the other hand, sees the general malaise. Not only is the economy crumbling, but family, church and nation are crumbling as well. In The Abolition of Britain Peter Hitchens spells it out. He writes that people are indifferent to the past, to tradition. They are stunted by television, pop culture and the sexual revolution. Egalitarianism signals the end of civilization itself. Hitchens writes: “All these things are themselves damaging to the stability of society. But taken together, as they have happened, they are devastating.”

The same can be said of the United States. Without denying the value of economic optimism we must admit there is truth in pessimism as well. The decay of family, the decline of the schools, cannot be denied. We see what is happening on every side. We are living through the “transvaluation of all values” as foretold by Friedrich Nietzsche. That is what it all boils down to. Strange as it may seem, optimism and pessimism are terms grounded in good and evil. (Our very language cannot escape moral categories.)  

It is instructive to read the definition of optimism given in Webster’s New International Dictionary (1943); it reads as follows: “optimism – originally the name applied to Leibnitz’s doctrine that the world is the best possible world....” because God is all-wise, all-good and all-knowing. God therefore created the best world possible. Going beyond Leibnitz, Webster’s New International Dictionary offers another definition of optimism:  “the doctrine or opinion that reality is essentially good….” The same dictionary defines pessimism: “the doctrine or opinion that reality is essentially evil … that the evils of life overbalance the happiness it affords, that life is preponderantly evil.”

Perhaps optimism and pessimism are beside the point. To believe the world is good, or to believe it is evil, says nothing about what we are in ourselves. 

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About JR Nyquist