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Comment by 2devnull | Hacker News Reader

To me it seems like recessions are usually related to macroeconomic conditions, or the debt/business cycle. Often bad public policy, either fiscal or monetary, has a large role.

But maybe you can give an example of one that resulted simply from fear or self fulfilling prophecy?

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Policy, decisions, are all made by people, who read the news. I'd say this can easily lead to a self fulfilling prophecy: if you expect the economy to go bad, you don't hire or even fire people. If enough businesses do this, lots of people have less money to spend, etc etc.

I jut wonder why the economy goes through such cycles and how to break that cycle.

“wonder why the economy goes through such cycles”

Ray Dalio has written some very easy to digest books on the debt cycle. That’s not the full picture but a good start. There’s an entire field of study around all this stuff and economists never agree completely —if they did they would have no job- but as I understand it sentiment is a predictor of recession but it tends to lag other things like interest rates and gas prices.

> I jut wonder why the economy goes through such cycles and how to break that cycle.

You answered your own question there. If funding and policy is made by humans, they'll be influenced by others and if everyone starts hiring or firing, pretty soon you'll have a bubble or a recession, respectively. The only way to stop that is to not have humans make decisions.

Computer for eg high-frequency trading are still 'reading'/interpreting the news, so even computers have this issue.

Where does the policy originate? If from e.g. polls, then the policy is directly influenced by opinion which often comes from hearing other opinions.

The most important macroeconomic policy wrt recessions is monetary and they look at prices, the CPI and things that signal a hot (too strong) economy. If they paid attention to consumer sentiment, whether or not people expected a recession, they would not hike rates or would actually cut them. It’s more complicated than I can lay out in a short post, so I would just ask you or the parent poster to provide an example of a recession that was driven by sentiment alone. I can’t think of any.

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