Lagging Indicators

While I do not pretend to be a particular expert when it comes to matters of personal or public finance, I am often fascinated by the sort of factors that lead people to have confidence or a lack of confidence in a financial system. Today’s reflection was prompted by a very odd bit of information, as I drove to work among a precipitous drop in the stock markets [1], a drop that occurred despite a favorable jobs report, largely because inflation appears on its way up and corporate earnings appear on their way down. No amount of new jobs will make those two prospects palatable to many stock market participants. Sadly, despite the fact that jobs and wages have been rather tepid for many months, even with massive profits, the rise of inflation and the shrinking of profits would appear to mean that expectations for massive job or wage increases would be misplaced.

For the most part, it appears that people interested in finance are looking more for leading indicators than lagging indicators. Even if having a well-paying job is more important to most people than the value of the Dow Jones Industrial Index, the fact is that common and ordinary people are generally the last people who benefit from economic conditions, since people tend to act in ways that show generosity out of their superfluity, which means that until those who have a lot feel safe and comfortable, those who depend on opportunities will not receive them. It is leading indicators that would tend to make people feel more comfortable and therefore lead to the sorts of behaviors that increase the lagging indicators that matter more to ordinary folks.

What happens if people never feel safe, though? What happens if people with means end up making money hand over fist at times but never feel safe enough or comfortable enough to let go the iron grip of death on their fortunes? Safety is not necessarily based on actual realities but rather our fears and perceptions. Even if things are going well, if we are afraid of things getting worse or insecure, nothing is good enough. This is true in other aspects of life other than financial affairs (it can include the safety and well-being of our families, for example), but all the same it is a particularly notable matter of life when it comes to business affairs. No matter how unjust such fears are, people are often ruled by those fears.

Given that reality is not what people base their decisions on, it behooves us to develop an understanding of the psychological factors, the fears and greed, the longing and terror, that drive people to behave as they do. Even if we cannot assuage the irrational fears of other people, as much as we might want to, it is helpful to understand those fears so at least we can understand the world we live in and the people we are dealing with. For the world is not sane and therefore we cannot expect others to behave in a manner that is rational. As a result, we all have to expect that our lives will be dramatically affected by the fact that some of indicators we are looking in life are lagging indicators that require a great deal of other matters to be dealt with first.

[1] http://money.cnn.com/2013/08/15/investing/stocks-markets/index.html?iid=mkt_SF_news

About nathanalbright

I'm a person with diverse interests who loves to read. If you want to know something about me, just ask.
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1 Response to Lagging Indicators

  1. Pingback: Book Review: The Match King | Edge Induced Cohesion

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