Grande Peur

“La Grande Peur” or the Great Fear was a time of great uncertainty that happened in France just before the onset of the Revolution. Rumors of violent hords of bandits roaming the country-side spread and people thought the old order had stopped functioning.

Are we experiencing a Great Fear right now?

In many ways it’s not clear why we should. The world in 2016 is actually in quite a good shape. But somehow people seem to hold particularly gloomy views this year.

• Tyler Cowen has to say on this issue:

  The broader and more disturbing implication is that the entire global economy may be more vulnerable to mood swings.

  […]

  Most likely, we’ll have to get used to a more mood-ruled world, and those will start off as being the moods of others, not our own. How do you feel about that?

• And here are George Akerlof and Robert Shiller (added emphasis):

  The term overheated economy, as we shall use it, refers to a situation in which confidence has gone beyond normal bounds, in which an increasing fraction of people have lost their normal skepticism about the economic outlook and are ready to believe stories about a new economic boom. It is a time when careless spending by consumers is the norm and when bad real investments are made, […].

  […]

  Most economists are uncomfortable with such notions.

  […]

  Most academic economists, if asked to define the term overheated, would say that it describes a period in which inflation, […], has been increasing.

  […]

  Inflation itself, particularly when it is increasing, can ultimately create a negative effect on the atmosphere of an economy, akin to the effect of broken windows and graffiti on a city. These lead to a breakdown in the sense of civil society, in the sense that all is right with the world. (p65, “Animal Spirits”)

• And Ben Bernanke:

  […] measures of the national “mood,” like Gallup’s “way things are going” question or questions about the “direction of the country,” show a high level of dissatisfaction.