Page 174 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

This fall in value immediately afflicted only a few Americans. But so
closely had the others watched the market and regarded it as an index of
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their fates that they suddenly stopped much of their economic activity. As

the economist Joseph Schumpeter later wrote, “people felt that the ground
under their feet was giving way.”⁵⁸

There are two topics that will affect your life whether you are interested in
them or not: money and health. While health issues tend to be individual,
money issues are more systemic. In a connected system where one person’s

decisions can affect everyone else, it’s understandable why financial risks
gain a spotlight and capture attention in a way few other topics can.

Another is that pessimists often extrapolate present trends without
accounting for how markets adapt.

In 2008 environmentalist Lester Brown wrote: “By 2030 China would need

98 million barrels of oil a day. The world is currently producing 85 million
barrels a day and may never produce much more than that. There go the

world’s oil reserves.”⁵⁹

He’s right. The world would run out of oil in that scenario.

But that’s not how markets work.

There is an iron law in economics: extremely good and extremely bad
circumstances rarely stay that way for long because supply and demand
adapt in hard-to-predict ways.

Consider what happened to oil immediately after Brown’s prediction.

Oil prices surged in 2008 as growing global demand—much of it from
China—crept up to potential output. A barrel of oil sold for $20 in 2001 and