Chin Up, It’s Good for the Economy

Another week, another round of doom and gloom.

On Wednesday and Thursday the ASX wiped out $74 billion worth of value. A blowout that will certainly have some investors panicking once again.

This all came straight after the RBA locked in its latest cut too. Clearly the sugar hit wasn’t enough to stave off broader fears.

October will certainly be a fascinating month for markets. After all, it was the same month last year that saw a major global selloff.

I expect we’ll see the market bears begin to find a voice in the media once again. They never pass up an opportunity to declare the end is near.

Who knows, they may even be right this time.

Even if they are though, I’m not that worried. In fact, I don’t think anyone should be ‘worried’.

Don’t get me wrong, that doesn’t mean I suggest putting all your savings into stocks. You still need to be mindful of your wealth and the best way to manage it. A decision that will depend heavily on your personal circumstances.

What I don’t think you should be worried about though is economics as we know it imploding. We may see a dip — big or small — but the world will go on.

Not only will it go on, but it will become better, smarter and more advanced. Everyone will enjoy the benefits of a brighter tomorrow.

How do I know this?

Well, I consider myself an optimist. And before you roll your eyes and scoff, know that history and the data in on my side.

Seize growth with both hands

One of the more fascinating economic minds around today is Paul Romer. Just last year he received a Nobel Prize for his work.

Romer was one of the early pioneers of the Endogenous growth theory. An idea that suggests economic growth comes from people not resources.

By ‘people’, I don’t necessarily mean labour either; Romer is more interested in our ability to develop and innovate new ideas or tools.

In a word, progress is the key to growth for Romer’s theory. More on this in a moment.

Before we discuss the output, I want to hone in on the input: the ‘people’ in the equation. Because the ‘people’ or human capital is us — all of us.

Each and every person on this planet is the key to ongoing growth.

The secret to unlocking that growth though, is optimism!

However, Romer highlights that it requires a special type of optimism. In his own words:

The practical insight is that there are two very different types of optimism. Complacent optimism is the feeling of a child waiting for presents. Conditional optimism is the feeling of a child who is thinking about building a treehouse. “If I get some wood and nails and persuade some other kids to help do the work, we can end up with something really cool.”

What the theory of endogenous technological progress supports is conditional optimism, not complacent optimism. Instead of suggesting that we can relax because policy choices don’t matter, it suggests to the contrary that policy choices are even more important than traditional theory suggests.

The point is we need to be proactive with our optimism. Sitting around waiting for good things to come our way is naïve. But, dreaming of and pursuing a better outcome can benefit everyone.

Sounds simple right, maybe even too good to be true?

That is the beauty of optimism. It is our collective superpower. With it we have defied and bested ourselves time and again.

Progress is simply not possible without optimism. As long as it’s the right kind…

No limits

When I look at the world today I see a myriad of work on progress. New ideas, products and services are continually being churned out.

Remember, not all progress is going to be earth-shattering. Along the way we’ll see plenty of useless innovation. That’s fine though.

The truly revolutionary progress will more than make up for it. Seemingly with little to no cost to us at all. Again, as Romer notes:

We make progress because of things that people do. This is what it means for technological progress to be endogenous. The models and evidence suggest that the benefits we get when people do the things that produce progress are so large, and the resources that it takes to produce the progress we’ve enjoyed are so small, that the progress seems to be free. This means that we should encourage people to do a lot more of whatever it is that they are doing to generate progress. Instead of encouraging us to be complacent, the theory encourages us to be even more active.

This huge disparity between the input resources and outcome is where growth comes from. It is our ability to do more with less that truly makes us special.

Our minds though often don’t appreciate this. We take the benefits of modernity for granted, preoccupying ourselves with negativity out of a fear for survival.

It’s normal to worry about your health and finances. But, no good will actually come from it.

Crises have always come and gone. And you should be mindful of them. However, that doesn’t mean you need to stop being optimistic.

Investing in progress, in any facet, is the best way forward. My colleague, Ryan Dinse, knows this all too well. He has been following the fintech sector’s progress in dethroning traditional banks. A transformation that is changing the financial sector as we know it. Check out his top three ASX picks in this free report.

My larger point and the takeaway for today’s piece, is to stay optimistic.

Progress requires effort — from all of us. We can’t give up on our greatest resource and strength.

So remember, keep that chin up and the economics will do the rest.


Ryan Clarkson-Ledward,
Editor, Money Weekend

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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