For my final blog post I’m going to be talking about my speech topic which was over chapter 45 of Fantasyland. Chapter 45 is titled the economic dreamtime. The content of the chapter is mainly centered around the 2008 financial crisis, but the overall focus is on the idea of magical thinking. The 2008 financial crisis is a prime example of what happens when magical thinking gets the best of us.
Magical thinking is something we’ve all experienced at one point or another. Britannica defines it as, “the belief that one's ideas, thoughts, actions, words, or use of symbols can influence the course of events in the material world.” Some common examples of magical thinking could be knocking on wood, thinking that walking under a ladder brings bad luck, making a wish before blowing out candles, or crossing your fingers. Magical thinking is not always a negative thing, but it definitely was In the case of the 2008 financial crisis.
Simplicable.com broke magical thinking down even further to 11 types: Suspension of Disbelief, Illusion of Control, Technology as Magic, Regression Fallacy, Placebo Effect, Self-Deception, Texas-Sharpshooter Fallacy, Correlation Equals Causation, Creativity, and Synchronicity. The 2008 financial crisis could be defined as a suspension of disbelief because of the way people “…put critical thought on hold in order to experience joy and wonder.” To briefly explain some of the others that might not be self explanatory, the Texas Sharpshooter Fallacy can be explained as reading too much into patterns that are only random chance, and Self-Deception can be explained as ignoring evidence that conflicts with your self-image.
The 2008 financial crisis began long before 2008. America has a history of risking a lot in the name of magical thinking. It is engrained in some of the most famous American stories. Virginia gold hunters, overbuilt railroads, the stories go on and on. We'll start in the early 20th century. The great depression and the world wars meant that Americans in the early 20th century spent a lot of time essentially in survival mode. It was a hard time for many people financially. Things gradually began to improve over the years. American industry was on the rise and was making innovations on a global scale boosting the American economy. This meant that by the early 90’s and 2000’s many Americans were In a much better situation financially than their parents and grandparents before.
The prime interest rate fell 20% from 1981 to 2004 and made credit much more accessible for many Americans. Technology and other industries were rapidly evolving and constantly pushing new products on the market for consumers to buy. With their credit and extra cash the culture of consumerism in America was being pushed to new frontiers. The housing market was no exception. A complex web between home owners, mortgage lenders, banks, investors, credit ratings agencies, and insurers became quickly unstable due to risky and unbalance moves all around. Soon the housing bubble burst and prices fell, leaving many people paying a mortgage in a range much higher than their house was currently worth. This lead to people defaulting on loans and began the collapse of the web.
The Wall Street Journal has a video where one of the richest people in the world, Billionaire investor and CEO Warren Buffett, explains the 2008 financial crisis. In it he describes it as “a mass illusion to think it could go on forever.” I think that is a perfect way to describe it because as I mentioned earlier it was a large web of different parts contributing to the collapse in their own risky and naive way. The full story is much more complicated than I could portray but it is saturated with magical thinking throughout. The Federal Reserve stepped in and enacted TARP which was a program to help lend money to financially sound banks in need. Along with that, congress passed a stimulus package in 2009 to pump money into the economy. The government did what they could to help the economy but the impact of the 2008 financial crisis is still there. When we look back at the 2008 financial crisis we should be reminded of how it all happened much in part to magical thinking.
As I mentioned previously, magical thinking is not always a bad thing. Upon first thought we might think of magical thinking as an immature or childish behavior. Even Jean Piaget, a developmental psychologist, suggested that children start to grow out of magical thinking around age 10. However some people suggest that is merely evolves as we grow older. Often times it evolves into much more destructive and negative ways of magical thinking. For most of our lives we are learning from someone who is older than us, but I believe that we also have a lot to gain from those younger than us as well. I think that adults have a lot to gain from childlike magical thinking.
Many people consider magical thinking to be an evolutionary trait that we’ve developed to our advantage. We can use it to cope with anxiety and stress by giving us a sense of control and agency. For instance if you might have a lucky pair of socks that you wear on important days to help you stay calm and reduce anxiety. You could even give the example of praying. Whether you are religious or not, believe that prayer “works” or not, prayer can help by not only making us feel as if we’ve done what we can in the situation but it also cast some of the responsibility to whoever or whatever you’re praying to. We can also use it to be creative and engage our imagination.
Magical thinking is a double edged sword. Equally as powerful, whether positive or negative. The 2008 financial crisis is a perfect example of just how powerful, and out of control, magical thinking can get. I hope we can all learn a lesson from it and seek to become more aware of out of control magical thinking and more capable of positive magical thinking.
Britannica's definition, “the belief that one's ideas, thoughts, actions, words, or use of symbols can influence the course of events in the material world,” should add something like "in the absence of specific physical causation." It's not magical to think that ideas and actions can influence events. The "magic" is in the notion that thoughts can somehow mysteriously "manifest" events without first altering physical relations materially and sequentially. That's the New Age sort of magic, the sort supposedly involved in a "law of attraction" and the "secret"... More broadly it's the idea that we can get what we want without really investing the effort of exertion, which is of course what drives so many financial bubbles.
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