Thank you to John Mauldin for tipping his hat to an interesting mind named Grant Williams. Mauldin’s “Outside the Box” featured The Confidence Game by Grant Williams earlier this week and a couple of thoughts stuck with me. Check out a few quick hitters below on the Economics of Confidence. Read the full article here.
“If people are confident about their own prospects as well as those of the economy as a whole, they will be happier to spend their money. If they spend that money then other people will make more ‘stuff’ for them to spend it on which, in turn will put more money in the pockets of those making that ‘stuff’ who will then go out and buy ‘stuff of their own. Everybody ends up with a lot of ‘stuff’ which makes everybody happy. Stuff equals happiness. There. Economics for Dummies.”
“In any confidence trick, there are two parties. One is the ‘confidence man’ or ‘grifter’, the other is the ‘mark’. According to wikipedia: Confidence men or women exploit characteristics of the human psyche such as greed, both dishonesty and honesty, vanity, compassion, credulity, irresponsibility, naïveté, and the thought of trying to get something of value for nothing or for something far less valuable.”
“Through the years, the term ‘Confidence Trick’ has been shortened to ‘con’ (also known as a bunko, flim-flam, gaffle, grift, hustle, scam, scheme, swindle or bamboozle) and has become a catch-all for any ruse designed to dupe someone into believing something that isn’t true in order to relieve them of something of value.”
“Look around you today and you will see an endless stream of politicians, Central Bankers and Heads of State telling us that things are on the mend and that we should be confident about the future. These people are most definitely trying everything they can to appeal to the human psyche.
And as we know, there are two parties to every confidence trick…
I am always intrigued when I hear discussions about consumer confidence on CNBC and other financial media. It is economically irrational for one human to make financial decisions based upon how another feels. The confidence, or lack there of, of a crowd may be no more than reaction to news of the day or the next great ‘con’. It certainly does not make for good financial decisions. My parents taught me that with the classic cliche “If your friend jumped off a bridge…would you do it too?” The field of Behavioral Economics has grown out of the desire to create a profit center preying upon the unsuspecting, economically irrational human and we know that crowd behavior can be very powerful. So why not create a measurement of how confident the crowd is and try to exploit it by telling everyone about it to see if they will follow.
If we know Americans are confident in the economic outlook this should make it more likely they will spend more on certain things. If we invest in the companies that make those certain things before the wave of confidence takes affect we should be able to profit as investors.
Unfortunately, humans are fickle, indecisive and tend to waffle or change their minds often based on the most recent and most persuasive arguments. Beware the survey of confidence today, I lose confidence every time I hear news about a measurement of confidence. I can’t help but wonder if I am a ‘mark’, just part of a great ‘con’ trying to catch me up in the crowd.
Justin A. Reckers, CFP, CDFA, AIF is Director of Financial Planning at Pacific Wealth Management www.pacwealth.com and Managing Director of Pacific Divorce Management, LLC www.pacdivorce.com, in San Diego.