Page 182 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

The economy is in about the same shape, maybe even better, in 2009 as it
was in 2007, he concludes.
COBACOBA

Then he looks at the numbers.

He’s shocked that U.S. households are $16 trillion poorer in 2009 than they
were in 2007.

He’s dumbfounded that 10 million more Americans are unemployed.

He’s in disbelief when he learns the stock market is worth half of what it
was two years before.

He can’t believe that people’s forecast of their economic potential has
plunged.

“I don’t get it,” he says. “I’ve seen the cities. I’ve looked at the factories.
You guys have the same knowledge, the same tools, the same ideas.
Nothing has changed! Why are you poorer? Why are you more
pessimistic?”

There was one change the alien couldn’t see between 2007 and 2009: The
stories we told ourselves about the economy.

In 2007, we told a story about the stability of housing prices, the prudence

of bankers, and the ability of financial markets to accurately price risk.

In 2009 we stopped believing that story.

That’s the only thing that changed. But it made all the difference in the
world.

Once the narrative that home prices will keep rising broke, mortgage
defaults rose, then banks lost money, then they reduced lending to other
businesses, which led to layoffs, which led to less spending, which led to
more layoffs, and on and on.

Other than clinging to a new narrative, we had an identical—if not greater

—capacity for wealth and growth in 2009 as we did in 2007. Yet the