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It is common knowledge that every one of us will always set their mind to the positive side of any economic situation. This means that everyone will try as much as possible to ensure that his or her mind is positive about the different situations that would be risky in normal terms. However, there comes a time when being pessimistic is beneficial. Some economic conditions will always influence the market in a way requiring negative thinking against some expectations. The article analyzed by this paper revolves around the positive sides of pessimism and, at the same time, highlighting the negative effects that optimism can bring about. In other words, should pessimism be applied in some economic situations?
The recent economic recession has claimed a huge chunk of the United States economy, in many ways ranging from job losses and unaffordable healthcare insurance to housing, among many others. However, many people have remained positive that this will change for the better. Although this is mainly founded in probabilities, such people forget that their expectations will be governed by some forces beyond their control (Wolf, 1997). According to Wood, such minds are usually overconfident. In this regard, they assume many important things that could change the direction of thinking, irrespective of their willingness to remain in such directions. According to him, this yields capitalism, whereby many important odd issues are assumed to be fit for every other person. This is a mistake in reasoning termed as the fallacy of composition (Gwartney et al., 2010). Enough room should be left for negative possibilities to avoid such situations.
Victims of this mistaken reasoning end up going on with their investments no matter the factors that could impact them negatively. They end up with unprofitable businesses, which eventually go bankrupt. This is perhaps the reason that most Americans (81%) will express positive views about their small-scale businesses after five years. However, the fact remains that most of these business establishments die earlier than expected. This is the reason why Gwartney et al. (2010 p. 16, 2008) assert that good intentions do not necessarily imply that the desired results will be obtained.
There was an expected increase in consumer spending in 2010, even when the economy was still ailing. This optimist view becomes more ridiculous given the fact the gross domestic income (GDP) was progressively shrinking (Ringuette, 2012). This raises the question on the criteria used by the optimist to arrive at their assertions that the economy would get back on track with time. In addition, this view predicted that the activities of the banks would increase, since many people would be stepping in for mortgages and other financial services. However, there are huge disparities in this because it is unfair to assume that will happen when other market predictors are suggesting otherwise. For instance, insolvencies are increasing, real estate is declining, and more people are unemployed among other odds that should be considered for such predictions. Therefore, it is worth being aware of the problems we are facing and that they may take long to end.
Optimists are attracted so easily by economic booms and at the same time get convinced very fast that the situation will hold for a long time. This is evident from the 1949 case where Treasury bonds earned 2.1 percent, thus fetching good money for investors at that time. This attracted many optimists who went ahead to earn a 1.6 percent negative for some time thus incurring losses (Wood, 2012). Therefore, their assumptions that things would remain positive persuade them to make wrong decisions. If they had become a little bit more pessimistic about the normal market odds, this would not have happened. The government went ahead to protect its interests since it was the main purchaser of treasury bills.
Looking at the way optimists position their assumptions, it is evidently clear that they lack a sense of hoping for the best but preparing for the worst. This is the reason why many business organizations end up falling belly up because of poor preparations about what to anticipated. Therefore, pessimism should be applied in economic situations because exaggerated assumptions will always have a negative in the end. However, no business can do well without a sense of potential success. This means that optimism and pessimism should be considered to improve chances of success.