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Source link: http://archive.mises.org/10530/is-the-joy-artificial-or-real/

Is the joy artificial or real?

August 26, 2009 by

[Here is my column for the local paper]

There is nothing like a summer stock market rally to lift everyone’s spirits. No more of that doom and gloom from last spring. The end of the financial world has been postponed. The consumer confidence index even jumped to 54.1 in August from 47.4 in July.

Yet the real economy hasn’t improved. Gross Domestic Product (GDP) contracted 1.1% in the second quarter, July retail sales fell 8.31% for a year ago, domestic investment is still falling, and unemployment remains stubbornly high at 9.4%.

“What makes investing particularly difficult now,” notes financial writer Chris Mayer, “is the distortion in prices, as if reflected in a fun house mirror. Normally, market prices should reflect underlying demand and supply. As in a vegetable stand, the prices come from the buying and selling of people in the market.

“But with all the artificial stimulus money floating around, you can never be sure of what you see. Is this a real recovery or is it an artificially ripened tomato, and hence an imposter? When the stimulus money stops flowing, will the recession get worse? It’s hard to say.”

But how is it that people’s moods are lifted or dropped with the movement of the stock market? Why should the average person have to care about such things? Shouldn’t making a living, caring for one’s family, supporting one’s charities and putting away a few extra dollars for retirement in a savings account be enough? Unfortunately, fiat inflation via the government’s printing press doesn’t allow that luxury. Now the average person is presumed to be financially savvy, managing his or her own retirement plan that will finance the golden years.

But as Guido Hülsmann explains, obsessing about finances has moral and spiritual costs. “Inflation forces them to spend much more time thinking about their money than they otherwise would,” writes Hülsmann. Investing in stocks, bonds and other financial instruments “entails many hours spent on comparing and selecting appropriate issues. They need to follow the financial news and monitor the price quotations on the financial markets.”

Of course there is plenty of investing help to be had on TV. “The talking heads are getting more creative in their rationale for owning stocks right now,” writes Certified Financial Analyst Dan Amoss. “Most money managers seem to be thinking: ‘I don’t believe in this rally, but I’ll ride it until it looks like it’s over, and then I’ll sell.’ This is the type of dangerous crowd psychology that consumes most people during bubbles. When enough investors share this Ponzi sentiment, and nobody’s investing on the basis of sober, rational fundamental analysis, the result is sometimes a crash.”

And as dangerous as all of this is for one’s finances, it’s doubly harmful to one’s moral compass. “Inflation makes society materialistic,” professor Hülsmann explains. “More and more people strive for money income at the expense of other things important for personal happiness.”

Basing your happiness on the how well your stock portfolio is performing is always precarious, especially right now when the financial markets are out of touch with reality.

{ 4 comments }

Bruce Koerber August 26, 2009 at 8:59 pm

Now we are going to find out what materialism is. Like vapor in the desert these ‘things’ will evaporate and those who know only objective value will suffer the most.

Those who know about subjective value will be able to weather the storm because they will tend to understand human action and because they will value themselves in a way that is true to human reality.

Christopher August 26, 2009 at 9:47 pm

What a great paper you have. Sure beats the Star Ledger.

Avram August 27, 2009 at 1:05 am

“This is the type of dangerous crowd psychology that consumes most people during bubbles. When enough investors share this Ponzi sentiment, and nobody’s investing on the basis of sober, rational fundamental analysis, the result is sometimes a crash.”

And as dangerous as all of this is for one’s finances, it’s doubly harmful to one’s moral compass. “Inflation makes society materialistic,” professor Hülsmann explains. “More and more people strive for money income at the expense of other things important for personal happiness.”

I know these aren’t the words of Doug French and Hulsmann’s point is valid but this sort of thinking alludes, at least to me, to the false idea of “Animal Spirits” in investment.

I take Hulsmann’s point to mean that people will make errors where they will not achieve their sought after ends with the means they currently select in a period of inflation (thus constituting “error”) but this too sounds dangerously like a separation of subjective value to some objectively defined outcome people should be taking.

I think hulsmann actually developed that notion further in a paper of his explaining how errors are deviations from some kind of objective end achieved due to mistakes in subjective value judgments.

However isn’t this sort of reasoning dangerous? If action and value are separated doesn’t that leave room for Government to come in and correct people’s actions to not make mistakes?

I understand Austrians take the positions that such errors occur only in large amounts with the presence of government intervention but at the same time they occur on the market so couldn’t case be made that an extra market force could be more optimal?

George August 27, 2009 at 10:13 am

The joy is artificial as is the trend of investing in the stock market.

The practice of savings has been made extremely difficult, if not impossible by takings of the state. Most savings are doomed due to the
lack of fiscal sanity in DC.

The US Debt bubble and dollar crisis along with taxes will destroy all of any remaining value people are trying to save.

This is the path we are on — Congress has chosen this path, by default or design, pick one.

In saving today you have a choice of avoiding two of the following:

– taxes
– inflation
– risk

Actual saving requires avoiding all three.

Without inflation and taxes retirement savings has no reason to be in the stock market (or any fancy financial products).

He should be just in cash, or possible some really secure bonds. Saving over a lifetime can easily support a reasonable retirement.

The major push into the stock market is due to the pressure from inflation and taxes (both created by Congress). Inflation makes bonds a certain
loss if not a wipeout. Fix the currency and government spending and savings will be simple.

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