I do not mean to downplay the significance of this "FC" (abbreviated to save my repetition). The ramifications and long term effects of the FC could be very deep and very far reaching. There is reason to be cautious. There is reason to be concerned. But we humans, sadly, are unable to measure our reactions. It is never enough to take in the news and think rationally about it. We see a splendid opportunity to panic. And we avail ourselves of it fully.
The media helps us along in this. Every day the headlines are gloomier and gloomier. Many broadcast news now show a live stock ticker so we can watch the DOW and CAC40 and the Hang Seng plummet over our dinner of stone soup and rationed chocolate. And we look, and we cluck our tongues, and we worry, and someone in the room decides to go Next Level on us. He talks panic!
The media is not to blame - they have a BIG STORY and they will talk about it. The problem is that we accept what they say and their speculations, and the effect is cumulative. The more stories we read about the End-of-the-World-As-We-Know-It, the more we start to believe. We become economy experts, and we profess our conclusions to our friends. And by the time we have finished, we are trading potatoes and carrots.
Here's how it works:
You own a bakery. You get up an ungodly hour to make your bread and pastries. Each day, as the dough is kneaded into submission, a little gets wasted and falls on the floor. On most days, you do not care.
When your customers roll in looking for bread, some of them do not have the right change. And you let them slip by with a dinar or two. One of them asks for an extra plastic bag - and on most days you give it to them. You hand our a few cookies or sweets to the children. When the Panic attacks, however, you change all this.
You start calculating the value of the lost dough, the dinar change, the price of sweets, the cost of the plastic bags. As a result, maybe you buy a little less dough. You may get up a little earlier to have time to carefully use each scrap. You may end up making smaller loaves of bread.
You might start to refuse customers if they are missing a dinar. You may shake you head at the cloying faces of children.
The whole concept of your bakery is posited on the idea that more customers will come tomorrow. You forgive excesses because you know that they can be rounded out at the end of the month or year. You have confidence that business will grow. In a Panic, however, you start thinking only about TODAY. You have no confidence that you will be able to stay in business tomorrow.
In practical terms, your quality of service and product will drop. And then fewer customers will come in. And then you see your sales fall. And then you get up EVEN EARLIER and pinch the dough harder.
Eventually, your loyal customers will be seen across the street at the non-panicked competitor's shop. He will be hiring people and repainting the façade while you will be installing 30 watt bulbs and turning off the heat.
And the whole process, if you follow, began with a panicky response to the Great FC of 2008. In your mind (remember you are still the baker), you start worrying about the price of generosity and waste. This does not even touch on the notion that when you panic, people sense it. They shy away from you. This is psychology. Not economics.
As a baker, your have permitted yourself to give in to the hype and started worrying about small savings. You have given in to the panic. And you have allowed yourself to forget one thing that still overrides.
People still need bread.