I have always been an optimist. I’ve also always believed in the power of positive thinking, less because of some metaphysical effect it might have, but rather because optimism and attitude breed an environment that others find motivating and there is no doubt in my mind that motivation is what makes the world go around. Other’s often consider my attitude naive or Pollyannaish. But that has never stopped me and I will honestly say that I think my life has been made much better because of my optimism.
Yesterday I happened on a article in the Economist that fundamentally implied that the biggest impediment to economic well being in a macro sense is currently a trend toward gloomy expectations. It said point-blank that these negative feelings become self-fulfilling and it puts a serious damper on economic growth and prosperity. American consumer sentiment is near its lowest on record. I could not understand how people were so negative about the Biden economy, when it was so strong, and I tended to attribute it to politics. But now it seems clear that after a year of Trump and despite his tendency to declare things are great without any evidence…and people’s willingness to take him at his word…these feels in the American population run deeper than politics and seem imbedded in the current American psyche. And its not just America any more. All across Europe, economic confidence has remained below its long-term average for most of the last three years, even as inflation has eased. This gloominess has become pervasive and this keeps showing up in surveys all throughout 2025. A new poll by FGS Global, a consultancy, of 20,000 voters and business leaders across America, Britain, Canada, the European Union and Japan has found a bleak consensus. In all 27 countries surveyed, the majority of participants believe life will be harder for the next generation and that the system is rigged in favor of the rich and powerful. As a student of modern revolutions, this is what is called a leading indicator of change.
I came of age after college in the 1970’s as we were alls till bracing from the oil shock in the first part of the decade and we watched inflation turn into high interest rates and that turn into life-changing economic dynamics for most of the population. It all turned into something we called stagflation. I remember President Jimmy Carter, having watched Gerald Ford hopelessly struggle with trying to Whip Inflation Now (WIN) and fail at that, declaring that the country’s gravest danger was a “crisis of confidence”. He told us that this crisis was capable of corroding both public institutions and private enterprise simultaneously. Economists and politicians alike around the world have declared that this stagflation is imbedded in the fabric of the economy by a “deflationary mindset” that must be exorcized if prosperity is to return. This was certainly the feeling in Japan, which perhaps suffered more from this disease than any other developed country. Today, even Xi Jinping, China’s autocratic ruler, has made it a national priority that there be a return to “positive energy”. Knowing how Chinese policy tends to work, this is an edict and not a simple desire, so it will be interesting to see if optimism can be mandated.
Pessimism has become both globally widespread and persistent. In In all but Denmark (always vying for the happiest country status that it so enjoys), majorities have judged public institutions ineffective and wasteful and they want a better way forward. In a Gallup International survey of nearly 60,000 adults, economic pessimists outnumber optimists by about two to one in places like Britain and Japan. In Germany, the land of the realists, the ratio is nearer twelve to one. Economists now feel that persistent pessimism has become one of the global economy’s most significant constraints. It is well documented empirically that when popular expectations sour, economies behave differently. This works to blunt the effects of otherwise sensible policy and distorts politics as we have seen happen with Biden and now with Trump (though I hesitate calling most of Trump’s policies “sensible”).
The great economist, John Maynard Keynes called these “animal spirits”, suggesting that confidence and expectations are the basis for most economic outcomes. Economists are now noting that pessimistic narratives can spread economic plight by shaping behavior in ways that would not otherwise be predicted by economic models. Some suggest that the discipline of behavioral economics is now the most effective means of forecasting outcomes. The biggest behavioral concern is that gloominess can become a self-reinforcing drag on economic growth leading to less willingness to invest, a shift from growth thinking to zero-sum protection thinking, and eventually the need for drastic intervention which risks the breakdown of fiscal restraint. Pessimism fundamentally leads to greater uncertainty and as every economist will tell you, uncertainty is the main ingredient of risk, which is the great mitigator of growth. Uncertainty causes people to sideline themselves, waiting for a better day. It also causes the sort of short-term thinking that we are seeing right now where business people are not thinking about strategies that spur demand (things like paying workers enough to be the sort of consumers that drive growth), but are rather hoarding their wealth for tactical reasons. The most obvious example of this is the massive $380 billion stockpile of cash being held by Berkshire Hathaway at the moment as their new post-Buffet leader (Greg Abel) is forced to consider how and when to deploy this cash horde. When even the most vaunted of investors consider the environment too risky to make decisions, that is a sure sign that optimism is in short supply.
There are also important secondary effects of pessimism. Low confidence can and does contribute to many social changes ranging from low fertility rates to falling college enrollments… both of which are increasingly evident on a global scale. This is further exacerbated by the uncertainty being caused by the very biggest of investment pushes underway right now…the massive investment in AI and AI infrastructure. A strange debasement of human value is underway that has driven uncertainty to even newer heights. I’m finding that many young Americans are far more likely to say that artificial intelligence would destroy opportunities rather than create them. This sort of thinking favors strict regulation and heavy taxation of AI firms rather than the growth strategies to let technology lead the way to greater prosperity…the pattern that has characterized all industrial revolutions heretofore. The likely result is a turn towards a defensive, fortress economy that promises protection, but dulls growth. People are finding it increasingly difficult to predict what path to take to find prosperity. One might think that the massive paydays for people in the AI arena might lead people to seek more education, but it has strangely caused the opposite reaction. The inability to comprehend the new trend by the average person has simply driven disgruntlement and a sense of hopelessness in being able to compete. It seems to have sapped many people of their desire to compete in a world they feel is beyond their grasp and ability to comprehend.
Another way that pessimism gets expressed is in the belief that the economy is rigged and unattainable to the common man. This brings out primordial instincts for survival and leads to heightened zero-sum thinking. People have come to the conclusion that their gains come only at another’s expense and vice versa. That starts to sound a lot like the law of the jungle rather than a collective and cooperative approach to a rising tide lifting all boats. That sort of thinking supports policies that shift the focus from growth to redistribution and protection, which has never been a long-term prosperous route for mankind. And strangely enough, the very policies being subsumed by the wealthy and powerful are the policies that drive the common man to favor collectivism and potentially revolution. It has always amazed me that the short-term thinking of pessimism keeps leading people AWAY from their ultimate objectives rather than towards them.
This pattern of pessimism inevitably leads to a common outcome…the return to populism by the masses. Their pessimism demands promises of protectionism and fiscal spending to relieve their pain and improve their circumstances. This tends to lead to fiscal weakness and mostly unmet needs for the people. Look at Iran, offering $7 checks to try to quell the population from their nationwide protests. The act alone highlights both the desperation and the disconnect between policy-makers and the populace. Research has consistently shown that countries governed by populists, regardless of what they call themselves and whether they are leftist or rightist, secular or religious, all lead to long term economic damage. As they reach for populist solutions to the crisis, what they get is lower incomes and greater instability while the populists are in power. What this should remind us and worry us both in places as remote as Iran and even places like America, is that the greatest threat to the world economy is and has always been the pernicious pessimism that we see welling up around us.