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To: long-gone who wrote (74583)	8/7/2001 9:25:46 AM
From: Richnorth	Respond to of 116834

It is interesting that the folks that have been sneering at GATA's findings are now quite mute. Seems to me they can "talk" but cannot/would not/dare not "walk". Too bad you misunderstood me. Those words were not meant for you.

To: long-gone who wrote (74583)	8/7/2001 10:21:00 AM
From: Richnorth	Respond to of 116834

'Irrational' US shoppers may save the day By David Ignatius THE WASHINGTON POST PARIS - One of the hottest ideas in economic theory these days is something called behavioural economics. Essentially, it's an effort to explain - with rigorous mathematics - the irrationality of everyday life. Why do people procrastinate? Why are they inexplicably optimistic and overconfident about their own judgments? Why do they tend to treat other people fairly, even when self-interest would seem to dictate more selfish behaviour? Why are they so eager to spend today rather than save? These are the sort of mundane problems that engage behavioural economists. The behaviourists' theories interest me because they may help explain the great puzzle in the global economy right now - the lovable irrationality of American consumers. Despite all the signs of economic trouble ahead, which had led many businesses to slam on the brakes, ordinary folks just keep on spending. That stubborn confidence has helped the world avoid a recession - at least so far. Statistics released recently confirmed that US consumers are still tugging the economy forward. According to preliminary numbers, the US economy continued to expand during the second quarter - by a measly 0.7 per cent, but that's still growth. Powering this modest growth was a 2.1 per cent gain in consumer spending. Business investment, by contrast, tumbled 13.6 per cent during the second quarter. You can sense a whiff of panic in that investment number, and no wonder: The Nasdaq is worth less than half what it was 16 months ago; the Dow is flatter than a pancake; corporate earnings are down, and advertising budgets have been cut to the bone. Yet America's 'What, me worry?' consumers keep on spending. There is an intriguing mismatch in these numbers. The people who run businesses see heavy storm clouds rolling in, but their worries haven't yet infected consumers. Do sophisticated investors know something that naive consumers don't? And how does the behaviour of one group affect the other? Will the continued confidence of the naive make the sophisticates more hopeful too? Those are the kind of conundrums that intrigue the behavioural economists. The leading guru among behavioural economists is 37-year-old Berkeley professor Matthew Rabin. He just won the prestigious John Bates Clark Medal, awarded every two years to the brightest economist under 40 in the US. What is valuable about Mr Rabin and his colleagues, especially right now, is that they focus on the way real people actually make decisions. At the centre of traditional economics was a picture of human beings as rational decision-makers who would act to maximise their welfare in predictable ways. The problem with these elegant economic models was that they didn't help in explaining the really interesting problems; the moments of discontinuity when economies departed from smooth and predictable curves. So, why are consumers still spending at a time when investors are being so cautious? Firstly, Mr Rabin and other behaviourists say, people have a bias for the status quo; they are willing to pay more to maintain it than they would to acquire it. Secondly, people tend to be overconfident; they extrapolate from recent experience and overestimate the likelihood they will be right. Thirdly, people place a much lower value on future consumption than economic models would suggest; they want it now. Finally, people procrastinate. They may know they should be saving for a rainy day, but they never get around to it. Common sense tells us that ordinary consumers haven't yet felt the same kind of pain as investors. Unemployment in the US has risen from its low of 3.9 per cent to 4.5 per cent, but most people are not afraid of losing their jobs yet. If that kind of fear takes hold, consumers will put on the brakes too. The fiscal stimulus of President George W. Bush's tax rebates actually depends on the spendthrift habits of consumers. If they were frightened about the recession that the tax cuts are intended to head off, they might save the money rather than spend it - defeating the purpose of the rebates. So, let's hope those consumers keep on spending. In their naivety, they may just save the sophisticates from disaster.