Good point about the psychological element in this economic cycle.
Since WWII, we’ve had over a dozen recessions. Growth goes negative for 2 or 3 quarters, rarely more. Unemployment goes from “full employment” or 4% or so to 6-7%, seldom hitting 8%. Our downturn is offset by other countries’ upturn and the world economy does OK. So our fiscal and monetary policies apply stimulus, the inventory cycle kicks in as stores and factories discover they’ve cut production too much and re-hire, consumers get back to buying long-postponed durable goods. In other words, the recession exhausts itself and we bounce back.
Now it’s different. The world economy is falling into recession, fiscal and monetary weapons have been fired and are out of ammunition, the inventory cycle isn’t working because we’ve become a service-dominant economy, and consumers are scared and only BEGUN to cut back expenses relative to what they are capable of.
Casting a pall over everything is a growing deflationary psychology that threatens to rewrite all the rules since the deflation of the 1930s. I’m not predicting it, am just saying the odds have ratcheted up of a downturn worse than anything seen since the 1930s. Mass psychology is mistakenly ignored by my fellow economists, some of whom like to masturbate looking at economic models. The genius behind the multi-billion LTCB that failed in the late 1990s? Nobel prize winner. Failed again early this year & lost his backers more. Relied on faulty assumptions again in his models. But his math was correct.
In short, the rules we used to depend on are no longer valid. Those in power in business and government–and their economists–have lost their credibility. I suggest we study history now instead of economics, and would especially recommend Charles P. Kindleberger: Manias, Panics, and Crashes.