Not A Depression, But A Recession

 

Economic Reality vs. Government Optimism: Public Skepticism Amid Financial Hardships

The government has urged the public to ignore their current financial circumstances and maintains that the economy is good—possibly even prospering. Nobody is in a better place now than they were four years ago, with the exception of those who rely on government aid. People cannot be tricked into thinking the economy is doing well while every socioeconomic category is having difficulties.

According to a recent Affirm survey, 3 out of 5 Americans think the US is in a recession, with the majority believing it started in March 2023. According to a different Harris/Guardian study, 56% of Americans believe that the recession has already begun. According to reports, seven out of ten Americans say they are unable to save money for the future. Few people are aware of the origins of inflation, but roughly 68% of respondents to the Affirm survey think it is what caused the recession.

As of May 2024, 8.9% of credit card debt balances were delinquent, marking an all-time high. A growing number of people and businesses are filing for bankruptcy. According to a CNN survey, 39% of Americans are concerned that they might not have enough money to pay their expenses. Similar feelings were observed in the poll during the Great Recession, when 37% of Americans expressed dread about the upcoming bill wave. According to Moody's Analytics, inflation has caused household spending to increase by $925 a month during the previous three years. The cost of living crisis, according to 65% of respondents, is the biggest problem facing our country. Given that the populace is under danger, politicians would be well to concentrate on internal matters.

As the state of the economy has started to affect the typical person's quality of life, Americans are spending more on less. Additionally, according to CNN, 35% of adults are working two jobs to help pay for their living expenses. Sixty-nine percent are cutting back on entertainment expenditure, which is consistent with the trend of company bankruptcies, which are mostly occurring in non-essential industries. Fourteen percent more people claim they drive less in order to save energy. Despite US Treasury Secretary Janet Yellen's complete denial of food inflation, 68% of American families have had to reduce their grocery consumption.

Although not in a depression, we are in a recession. When individuals fear for the future, they hoard, and this is happening due to a combination of factors including geopolitical unrest, war, and reduced consumer spending. The government then hikes taxes, which is always a recessionary move, to pay for these wars and other expenditure plans. The computer had been predicting for a while that the US economy will tank in May 2024 and then rebound in 2028.

 

Charlie Munger

Charlie Munger, born January 1, 1924, is best known as the longtime business partner of Warren Buffett at Berkshire Hathaway. A lawyer by training and a brilliant investor by practice, Munger has played a pivotal role in shaping Berkshire Hathaway's investment strategies and corporate culture. His insights and principles, often encapsulated in memorable aphorisms, have made him a respected figure in the world of finance and beyond. Munger is renowned for his deep understanding of psychology and human behavior, which he believes are crucial in making sound investment decisions.

Beyond his partnership with Buffett, Munger is also recognized for his contributions to the fields of philanthropy and education. He has generously donated to various institutions, including the University of Michigan and Stanford University. Munger's lectures and writings, particularly those compiled in "Poor Charlie's Almanack," have inspired countless individuals to think more critically and rationally. His emphasis on multidisciplinary learning, or what he calls a "latticework of mental models," encourages a holistic approach to problem-solving, integrating insights from various fields such as economics, psychology, and history.

Munger's philosophy extends to life beyond investing, advocating for ethical behavior, humility, and continuous learning. He believes that understanding and mastering the psychological biases that influence decision-making is crucial for personal and professional success. Munger's teachings encourage individuals to strive for objectivity and to challenge their own preconceptions, a theme that resonates deeply with the topic of commitment and belief persistence in the face of contradictory evidence.

Munger’s Comments on “Commitment and Belief Persistence”

People often stick to their commitments and beliefs, even when faced with contradictory evidence. This tendency is known as "commitment consistency," a psychological bias where individuals feel a strong need to align their actions and beliefs with previous commitments.

This bias can create a cognitive dissonance when new information contradicts their existing beliefs, leading to rationalizations or outright denial to maintain a consistent self-image.

This behavior is rooted in the desire for stability and the fear of admitting mistakes, which can be perceived as a threat to one's competence and self-esteem.

This bias can hinder personal growth and learning. When individuals are unwilling to consider new information or perspectives, they limit their ability to adapt and evolve. This rigidity can prevent them from learning from their mistakes or recognizing new opportunities. In a rapidly changing world, the ability to adapt and update one's beliefs is crucial for both personal and professional development. Munger often emphasized the importance of intellectual humility and the willingness to change one's mind in light of new evidence. He believed that acknowledging one's own fallibility and being open to new information are essential traits for success.

 

To counteract the negative effects of commitment consistency, it is important to cultivate a mindset that values curiosity and openness. This involves actively seeking out and considering new information, even if it challenges long-held beliefs. It also requires a willingness to accept that being wrong is a natural part of the learning process.

By remaining grounded and open to new perspectives, individuals can navigate the complexities of life more effectively and make better decisions. This approach aligns with Munger's philosophy of continuous learning and critical thinking, emphasizing the need for a flexible and adaptive mindset.

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