Would a dose of optimism help Greece?

15th May 2012

Given the comparisons with the Great Depression and drama surrounding the Greek Tragedy, this is unsurprising. Then, US unemployment hovered around the 25% mark, with 30% of the youth unemployed, while in Greece today the comparable numbers are 22% and a scarcely believable 54%.

"It's little wonder the [Greek] voters have exhibited a longing for catharsis…" comments Psyfi blog.

Lessons learnt from past crises is that financial policy needs be directed at spending, because leaving the market to sort itself out doesn't necessarily promote good results – "The downward spiral of the economy all too easily feeds back into peoples' psychology and exacerbates the situation."

And any slump is stock markets can be put down to a mood of pessimism resulting from this. So alongside pumping money into the economy to drag it out of the mire and see stocks soar you need to inject a large dose of positivity into the populace.

Yet given ‘austerity' has become a buzz word of the crisis the conditions for optimism aren't enhanced.

And official figures make dismal reading. Reuters reports that optimism in January that the Eurozone would recover quickly in 2012 has been crushed by unexpected contractions in manufacturing, consumer confidence and business morale, while one in 10 euro zone workers is out of a job.

Psyfi blog says: "Well, rationality be damned.  What about the human cost? This is economics with the people taken out, and replaced by the ethics of backstreet moneylenders."

But is there really a case for optimism?

Ken Eisold, mindful money's psychologist blogger, says on a post: "Clearly many…would like us to be optimistic about a recovery because optimism (or "confidence" as it used to be called) encourages consumers and investors to re-enter the market and that, in itself, contributes to a recovery."

He adds: "I think there are a few considerations of great interest pertaining to what we've learned from risk communication technologies as a form of applied psychology. One consideration is whether there is some wisdom to generating positive expectations – does the affect generated actually push the outcome in a more positive direction, and by whose definitions?

"Another is if what has been understood about social psychology and information processing under conditions of stress is being used to more effectively "wag the dog" and inadvertantly perpetuate ongoing destructive cycles."

Grant Brenner comment on the post: "I think one interesting aspect of the optimism you are noting is from the point of view of risk communication. With troubling news and events, the way information is disseminated and the impact the manner and degree of sharing of information is implemented has been studied for decades.

"…The gist is to present a message which reduces fear, reduces rumour-mongering, and (ideally) good quality, accurate information.

"However, the social psychological understanding of how human beings individually and collectively process fearful messages and assess risk and respond based on assessment of risk is also used to craft language in ways which may not be accurate, but which are designed to produce a more positive impact."

Psyfi blog adds: "Much ink has been spilt pointing out that the mess Greece is in is largely of its own making, a combination of fiscal ineptitude and plain fraud."  To drag an economy out of its depths you have to find a way of injecting optimism and confidence into peoples' outlooks.

But while there may be limited scope for optimism, with a Greek exit from the euro and the likely contagion, the media does little to allay the panic – choosing the words used to describe crisis carefully would produce a more hopeful outlook for the stock market and investors alike.

 

More on Mindful Money:

The case for a 'Grexit'

The case against a 'Grexit'

EU finance ministers say talk of a Greek exit is 'propaganda'

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