(You will see by the end that there is a play on the title to this essay.)
People get euphoric after a war ends. On 11 November 1918 after 4 ½ years, World War 1, the deadliest war in history with some 20 million casualties, came to an end. It’s not called the Great War for nothing. Also following such a conflict, after years of austerity and poverty, economies recover and enter a period of prosperity. This contributes to the euphoria, which in Western society after WW1, persisted for a decade now known as the Roaring 20’s. We seem to have wars coming out of our ears these days and there is little to celebrate, but in the 1920s it was different. There were unprecedented changes in society and culture: arts, technology, medicine, entertainment, transport. France called it the Crazy Years.
There is little altruism associated with aiding an ally at war. While people die or suffer through a war, others make money during it and particularly after it. The Marshall Plan is well known for the investment in Europe following the Second World War, and a similar strategy called the Dawes Plan saw huge American investment in Germany after WW1. Everyone got on board, especially for the first time ordinary working class people, by taking shares in companies riding that prosperity wave.
Vice President Charles G. Dawes and General George Marshall
Gambling can be harmless, like buying a raffle ticket at a fair, or a lottery ticket for a friend’s birthday, or taking part in an office sweepstakes. In the event of a win, there is a short term high, “Wow, we won $20!” But the psychology of gambling often involves risk-taking behaviour where individuals may feel compelled to continue betting. This can lead to a cycle of increased stakes and potential addiction, as the thrill can create a euphoric high that persists and reinforces the behaviour. Concepts like double or nothing, the compulsion to recover losses by betting again, chasing the losses, are well known.
There is also the euphoria from winning, the significant emotional high, reinforcing the gambling behaviour. This euphoria can lead to repeated gambling as individuals chase the feeling. It’s all about the pleasure and reward neurotransmitter dopamine.
As with gambling, when ultimately the reality of futile betting sets in, the inevitability of rampant speculation happens. On 24 October, 1929, a “black” Thursday, Wall Street crashed, leading to another decade of cultural change of a dramatically different nature, this one called The Great Depression. Like every financial crash before and since, and like every gamblaholic who never learns, the causes and symptoms of such crashes are well understood, evident ahead of time and symptomatic. Investing in shares is speculation. It is betting. You can reduce risk and increase odds in your favour through careful investment, like Warren Buffett does with his long-term blue-chip investment strategy for Berkshire Hathaway, but it is still speculation, a synonym for gambling. Even Buffett makes a bad bet sometimes, like his mistake to buy ConocoPhillips in 2008.
In the case of financial collapses, called bubbles when they are severe, the cause is universally the same. It is speculating in stocks or other equities in companies and businesses and opportunities where the market value of the entity is way more than the real value of its assets. That is bad enough, buying shares in a company that has negative asset value and losses, but it is worse when the financial resources to fund those purchases are in turn loaded with bank debt, in other words borrowing money to gamble. Then the situation is a perfect storm for collapse. And banks contribute another negative role, when their interest rates are so unattractive that people are tempted to try for something with a better return, try to win the lottery. In the 1920s it was all of this.
Two quarters of declining gross domestic product (GDP) is a rule of thumb definition of a recession. A depression is a severe recession characterised by unemployment spiking to double-digit levels, stocks falling 40% or more, real estate prices crashing, major companies declare bankruptcy, and governments going deeply into debt helping struggling companies and households. Governments try to prevent such a situation.
The first effort at regulating financial markets in America at the federal level rather than state level, was the Sherman Antitrust Act of 1890, designed to prevent monopolies. Followed by the Clayton Antitrust Act of 1914 to prevent anticompetitive practices. These and other regulations introduced following the Great Depression like the creation of the Securities Exchange Commission (SEC) in June 1934 and the Federal Deposit Insurance Corporation (FDIC) in June 1933 contributed to minimising future such economic disasters. Certainly bubbles like the dot-com one of 1999, but no more great depressions. It is very Keynesian to have a “mixed market” where government intervention such as regulation and control has a role in some, not all (which would be communism), economic aspects. Preventing rampant runaway to avoid a free-for-all which typically favours the rich and powerful, and who resent regulation. More was done after WW2 with the Bretton Woods conference initiating the International Monetary Fund (IMF) and the World Bank aiming to regulate international exchange rates, to prevent sovereign monetary speculation. But there should not have been even bubbles like the dot-com.
Following WW2, with its predictable reconstruction boom and renewed prosperity, there was a shift in mood, away from the need for regulation. So what happened? Ronnie came to town! That’s what happened. Throughout the 1980’s President Reagan systematically eased regulation and restrictions, specifically to allow a return to free-market principles. Removing government oversight. Reaganomics removed much of the safeguards in his “trickle down” economics policy. The misguided belief that adding to the wealth of the rich will flow down to the poor, (as if those super wealthy were likely to share it down with anyone). So it is no wonder that the dot-com bubble from 1995-2000 and then the housing crisis quickly followed. Particularly the housing bubble of 2007 2010, when banks and financial institutions lending to bad credit borrowers led to mass mortgage defaults and what has been called the Global Financial Crisis, the Great Recession of 2008. 6% of the USA workforce or 9 million people lost their jobs. By comparison during the Great Depression 15 million people were unemployed, some 25% of the then American workforce. A deep recession like this in America, the world’s foremost economy, has consequences worldwide. Australia’s unemployment rate increased from 4.3% to 5.8%, significant but nothing like the USA. We did not have Reagan of course. Unfortunately though we had John Howard; deregulating racism in my view.
There is a lot of “us versus them” in this history. Poor versus wealthy, privileged versus disadvantaged, working class versus middle class. Class identity is interesting. It is how and where you identify yourself. Psychologists have traditionally viewed class identity as a stable trait, and these self-conceptions usually persist throughout their lives. You might social-climb but internally you are still working class. There are very few Eliza Doolittles in real life. If you are aristocratic, penury does not change that class perception you have of yourself, nor the perception others have of you. Historical data going back to the 1940s supports the idea that these identities do not fluctuate.
Theoretical models however suggest that class identity should be malleable when people experience drastic changes in their circumstances. Research is difficult, consequently, there has been little empirical work examining whether class identity can change over the long term. The 2008 Great Recession provided a unique historical context to test these theories on a large scale.
So what happens to people experiencing a depression, a recession, a bubble? It turns out, quite a lot. A new study suggests that the 2008 Great Recession did more than damage the economy; it also altered how Americans perceive their own social standing. The findings, published in Psychological Science, indicate that this period of economic turmoil caused a lasting drop in class identity across the United States. It knocked the wind out of people.
The new research seeking to challenge the assumption of stability reveals a psychological shift triggered by the 2008 Great Recession. “While class identity is known to predict critical outcomes like health and voting behavior, it has historically been treated as a static trait that remains stable throughout adulthood,” said study author Stephen Antonoplis, pictured below, an assistant professor at the University of California, Riverside and director of the Self and Society Laboratory.
“We wanted to test this assumption by investigating whether a massive, nationwide economic shock, specifically the 2008 Great Recession, shifted how people see themselves in the social hierarchy.”
To investigate this phenomenon, the researchers analyzed data from four large datasets. These included the American National Election Studies, the General Social Survey, and the World Values Survey. These three datasets used repeated cross-sectional designs, meaning they surveyed different groups of people each year.
The team also utilized the Health and Retirement Study. This dataset is longitudinal, meaning it tracks the same individuals over many years. This design allowed the researchers to observe changes within the lives of specific people. In total, the study included data from 164,296 participants.
During the financial crisis, many Americans faced tangible losses in the form of unemployment and foreclosures. At the same time, the cultural narrative shifted. The rise of movements like Occupy Wall Street popularized language about the “1%” versus the “99%.” This rhetoric emphasized that most Americans occupied a lower position relative to the economic elite. A reality check, a perception down from middle class to working class.
Another study led by Olivia Guerra published in Behavioral Sciences in 2021 has shown over decades of research from the 1940s to the present, that following both natural and human-made disasters, specific psychological problems have been seen to occur, such as depression, anxiety, and trauma-related disorders. “While economic recession may not fit the common description of a disaster that is natural, such as earthquakes, forest fires, or floods, or human-made, such as war, terrorism, or train derailment, it certainly shares many of the consequences of such disasters, including financial loss, resource loss, housing issues or displacement, and stress.”
In other words, the Great Recession led directly to Great Depression. On two occasions, I have completed company turnarounds where the owners of the businesses told me afterwards that I saved their lives. That their mental state during their company financial collapse was so dire that it made them suicidal. One was during the Housing Bubble the other the Global Financial Crisis, so I have lived-experience with this phenomenon.
Speaking of suicidal thoughts; of late, in many western countries, suicide is now facilitated by the medical profession almost routinely, legal by government decree. This may well become a popular exit in the coming crisis, in the West, at least. Not so much in the rest of the world, where the majority of people are inured to hardship. To save the West, one could envisage a psychologist taking charge as CEO of the western nation-states so as to turn them around and save many millions of lives. If this were to also forestall a worldwide depression, the rest of the world would benefit as well.
Personally, I am not persuaded that these financial-economic crises are accidental nowadays. One can understand that a few hundred years ago, the skills in governance could not match adverse sociopolitical forces, but the people at the highest levers of control have a much better understanding of how it works now and insofar as mind control of the masses is concerned, that is easily on a par with the scientific and technological advances made in the West since, say, the late 19th century. Of course, who controls whom and to what extent at the higher, international levels of governance is not a subject of genuine debate in the mainstream media. There is, however, a long tradition of an esoteric-mystical tradition which reveals much about the ways and means by which finance, the economies and peoples are controlled from on high, that is difficult or impossible to prove, though, even as it may by many people reckoned to be obvious. In the past, it was common sense for people who understood and/or were in-the-know to apply that nous for their own advantage. However, where a broad-based understanding of how it works combined with a spirit of cooperation a growing economy was encouraged by those in power so as to cream off the surpluses and invest in, amongst other things, the essential business of those in control: making sure they maintained control. European civilisation was the result and the rest is history. If we as peoples of the world don’t pull our fingers out, this civilisation will also be history.
Since the 19th Century the people at the top have had to become increasingly inventive in their ways and means to stay on top. We can be fairly certain that democracy; female emancipation, the general franchise and the trade union movement were not on the agenda of the rich and the super rich. Printing , the book trade, freedom of speech (though not freedom from the consequences of speech) and the political awakening of the masses brought us democracy, of sorts, in the West, and by dint of innumerable influences combining we have arrived at the computer-internet era , AI and all the rest of it. The esoteric-mystical tradition has morphed into an eclectic mix of ancient wisdom, esoterica, religious spirituality, etc. and modern conspiracy theorising cum revelatory expositions on everything, all of it mixed up with a burgeoning mish-mash of politically driven input to exert, or try to exert, a modicum of influence upon the masses and, equally, upon the cohorts which do the work, under the direction of their betters, to control teh masses. The number of expertly written books that are worth reading on the subject of economics are many. My guess is that the majority of people who take an interest in economic affairs would not recognise the many subjects which have a direct bearing upon our personal, national and international economies. In fact, my experience tells me that the majority of those who take an interest in their nation-states’ affairs would scarce know what to study, if anything, to gain a real understanding of how it works. To conclude, I would say that there is a natural order, much like a natural law like survival of the fittest, which operates at all levels and the result of which we are able, if we are able, to witness every day of our lives.
Some books, a few of the scores I would recommend if I had remembered them all, below:
“Money, whence it came, where it went”, by John Kenneth Galbraith.
“A History of Money in Ancient Countries”, by Alexander Del Mar.
“Feudal Society”, by Marc Bloch (Translated by L.A. Manyon).
Talking about freedom of speech. it is one of the great improvements in the rights of people in my view, but it is unrestricted at times, meaning that the speech coming out is rot. One of the things I remember most from our English classes at high school, good old Mr Geoff Dowsley, which in Tasmania was ages 13 to 16, was learning the skill to evaluate. There is so much misinformation and propaganda now, that one can easily get lost in the quagmire. Back then the main abuse was in advertising, where at times anything goes, using the laxity applied to marketing to bypass expectations of truth and evidence. So we were taught how to evaluate advertisements and also news content. To this day I can look at a piece of text or video and know instantly when it is crap. There is a great song by Meghan Trainor called Lips Are Moving, which I think was written about Trump. No cannot be because it was before Trump! How you must be lying because your lips are moving.
Thanks Jacob. Good stuff! You tend towards a more Marxist interpretation, i.e. of social classes manipulating other social classes. I tend to see it as a complex form of statistical mechanics. They are not mutually exclusive.
Hi Allan,
That was a great read. Excellent (and sobering) points re class identity over time…
I think the one additional stressor with general financial downturns, is that the people who fall victims to it (often for no fault of their own as they have very little say in the system) do not get the psychological consideration that victims generally get after natural disasters or war etc. From society or often from themselves.
The “winners and losers” classification has been popularized in the general discourse and has taken such deep root in the public psyche that somehow people tend to blame themselves for things beyond their control and therefore suffer even more…often with lasting damage to self-esteem and self worth. And that becomes a weird societal toxin. The root of this lies of course in the desire of every human to “succeed” and gain independence but when that idea is fundamentally corrupted on multiple levels by the superwealthy-dictated-popular-view, basic human aspiration can be refashioned into a tool of psychological destruction. Vast numbers of people are left dealing with the inner demon that they are just not good enough, no matter how hard they work or no matter what they do.
Sometimes it is worth reminding oneself of the essential truth in J Krishnamoorthy’s statement “It is no measure of health to be well adjusted to a profoundly sick society”.
“Vast numbers of people are left with the inner demon that they are just not good enough…” captures it exactly. In the studies, the “not feeling good enough” extends to not feeling good enough for the “class” you think you are in, have always thought you belonged in. A sense of worthlessness. Which becomes the trigger for depression and worse.
While most if not all of us desire and strive to be wealthy, for almost every single one of us there is a limit, when enough is enough, and stop to smell the roses as they say. Then there is that fringe of sick people where there is never enough.
And I like your Krishnamurti(?) quote. It describes to a large extent the problem with the extreme right in the USA today, who aligning with a psychopath kid themselves that that type of behaviour is okay.
Heartfelt comments, thank you Vaidya.
Thanks for the correction, Allan. It is J. Krishnamurti.
I came to Australia with my parents when I was about ten years old. My family was lower middle class in both England and Australia and saw itself as such. The big difference was that in England we did not own our house nor did we see it as a possibility. In Australia it became possible.
More than “possible” John, but expected. Owning a house was perhaps not a class distinction in Australia. Our family were working class, and everyone in the family owned their house. By my generation we thought of ourselves as middle class. At lease if I have to put a tag on it now. So wealth creation, as opposed to wealth loss, perhaps has a class-shift in the opposite direction? The other thing about Australia was that “class” never came into it. There is probably no less class-conscious society than Australia’s. Maybe that is changing, that capitalist greed and other things have changed the ability to buy a house in the last decade.
A property, building, house can be compared to a company in some ways. It has two values. The hard value of building a house and its market value. The cost of a house, buying the land, the construction materials, the labour, are its real value. That’s what a house costs. If its market value is higher, then the difference is what with a company is called good will. Goodwill might be legitimate, like when a house is in a preferred area, by a beach, a safe neighbourhood; or not. It is when the goodwill becomes irrational that risk presents itself. The goodwill associated with houses is enormous at present and growing. You can build a house for a fraction of the cost of buying one.
An article in the Guardian today said that “Property investor borrowing rose at its fastest rate in a decade in March, according to the Reserve Bank, despite higher interest rates and speculation about property tax changes. Owner-occupier loan growth slowed under the weight of growing mortgage costs but investor lending is continuing its record surge. Bank loans to Australian investors grew by $42bn in the year to March, a 9.6% increase and the fastest rate since September 2015, according to the central bank’s statistics.”
My post talked about the causes of bubbles being well defined and avoidable. How runaway speculation leads to bubbles. My prediction is that there is soon to be another housing bubble in Australia. What psychological fall out will come with that I wonder?
Australia’s property investor borrowing rises at fastest rate in a decade – despite interest rate rises | Housing | The Guardian