2016: The Year Wishful Thinking Fails

This post 2016: The Year Wishful Thinking Fails appeared first on Daily Reckoning.

If we collectively choose wishful thinking, catastrophic consequences are guaranteed.

Wishful thinking has been an integral driver of the “recovery” 2009-2015: asset bubbles aren’t bubbles, central bank policies are brilliantly successful, unemployment has dropped to levels of full employment, and so on.

The problems with wishful thinking that I describe in my book A Radically Beneficial World are becoming more apparent by the day:

1. Elite/Technocrat self-confirmation: Those in the top technocrat/financial layer of the economy look at their own success and think since the status quo is working great for me and my peers, it’s working for everyone.

2. This wishful thinking reinforces the positive bias of status quo institutions run by the technocrat caste and state apparatchiks: the mainstream financial media, government agencies, etc.

3. Wishful thinking appears less risky that gambling on new ideas that might not pay off; wishful thinking is thus viewed by those benefiting from the status quo as the safe bet.

4. When we face difficult problems, wishful thinking is counter-productive because it doesn’t generate solutions. Wishful thinking satisfies our preference for low-risk comfort, but it doesn’t solve problems.

If you’re running a real enterprise, i.e. one that will bankrupt you if you fail to solve problems, wishful thinking is catastrophic. There are few guarantees in life, but wishful thinking guarantees failure.

Consider a short list of conventional economic/financial beliefs that are shot through with wishful thinking:

— China will manage to slowly depreciate its currency without upsetting the apple carts of global growth and capital flows (never mind that China’s leadership has no history of managing such a transition.)

— Unemployment in the U.S. is less than 5%, a rate that signals full employment and a robust, durable job market (never mind the number of full-time jobs that can support a household remains anemic.)

— Global stock markets will work off the few spots of overvaluation and soon return to across-the-board expansion.

— Stagnating revenues and profits are a temporary spot of bother that will vanish once consumers reap the benefits of lower energy prices.

— If global growth tanks, central banks will rescue the global economy with negative interest rates that punish savers so severely households and enterprises will spend every dime of cash they have.

— This surge of spending will grow borrowing, revenues, profits, etc. and best of all, fire up inflation–the ultimate goal of Keynesian economists (and don’t forget “we’re all Keynesians now”.)

— The race to devalue currencies to boost exports, i.e. the race to the bottom, is an excellent, surefire strategy for reinvigorating global growth (never mind everyone can’t devalue their currency at the same time.)

The world faces a simple choice: do we continue to depend on wishful thinking, or do we actually start trying to solve problems? It’s one or the other; there are no half-measure solutions. As Yoda might say, “either do or do not–there is no try.”

If we collectively choose wishful thinking, catastrophic consequences are guaranteed.


Charles Hugh Smith
for Of Two Minds

P.S. Ever since my first summer job decades ago, I’ve been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.

And like most of you, the way I’ve moved toward my goal has always hinged not just on having a job but a career.

You don’t have to be a financial blogger to know that “having a job” and “having a career” do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.

Even the basic concept “getting a job” has changed so radically that jobs–getting and keeping them, and the perceived lack of them–is the number one financial topic among friends, family and for that matter, complete strangers.

So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.

It details everything I’ve verified about employment and the economy, and lays out an action plan to get you employed.

I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.

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