“Psychology and economics? That’s an odd combination.” This is what my college chancellor said upon learning of my two majors. His belief—that of a grand chasm between psychology and economics—is quite common. It’s also completely misguided.
The perceived divide stems from the common conception of psychology as a study of people, while economics studies some vague and distant entity known as “the economy.” Accordingly, news coverage over the past few months has been a deluge of reports on the ailing state of this mysterious something. A multitude of questions have arisen as a result of this coverage, reflecting the sense of alienation that most feel when confronted with this ephemeral monster. The overall theme of these inquiries, much like my chancellor’s statement, can be summed up as: “What has the economy got to do with me?”
In a word, everything. The economy is you. More accurately, it is the sum of you, me and every other person who participates in it. “The economy” is merely an omnibus convenience term for patterns of commodity production and exchange among people inhabiting all corners of this globe. If we were all to disappear tomorrow, the economy would not be here waiting for us. Whether or not we are aware of it, the economy is made up of our collective behaviours, beliefs, and above all, our expectations. A problem in the economy, such as the present recession, reflects a problem among the people that compose it. Consequently, its solution is up to us.
The health of an economy depends on how quickly money moves through it. Faster movement between buyer and sellers, lenders and debtors means more spending, innovation, and production. As money changes hands, each link in the chain depends on those willing to freely pass their money along to another. In the environment of open competition and free market rule, espoused by Alan Greenspan until recently, consumers are driven by self-serving motives. Each person is eager to give money to another because they stand to gain personally. In this system, the person becomes separated from the economy. I stand to profit, and the economy helps me do so.
While this competitive mentality has been effective in the past, it also precipitated the Great Depression, the recession of the early 1990s, and our current global meltdown. All it takes is a hint of doubt to turn that competitive momentum in the opposite direction. As individuals begin to doubt the economy’s profitability, selfish motives dictate that losses should be cut, meaning that money should be pulled out of investments and kept to oneself.
The solution is a return to the fundamental driving force of the economy—people. We must re-examine our beliefs and expectations. In prosperous times, we are led to believe that we exist outside of the economy. In recession, however, we must abandon this way of thinking—it can only send us plummeting further and faster into the depths. Instead, we must rediscover our collective roles and responsibilities to one another as defining features of our economy. This approach drove Franklin Roosevelt’s thinking when he established the New Deal to bring the United States and the rest of the world out of a seemingly intractable Great Depression. The economy is a collective entity that depends on cooperation. The current situation once more requires us to make this a fundamental part of our thinking—to help our economy, we must remember how to help one another.
