One thing is clear in life: there will times of success and there will be times of loss. When I think of the economy, I think of market bubbles and their collapse. When I think of my personal life, I think of times of being “in the zone” and times when I feel I have lost something or someone dear to me. So how to get one’s head around all of this?
Well, I quite like the economist Hyman Minksy’s cycle of financial market bubbles. He argued that they followed a pattern of:
- Some new event like an invention gets everyone excited about investing. Banks happily lend to everyone and people start to speculate on markets going up.
- Prices start to rise, and the return on investments start to fall, so people try all sorts of financial techniques to boost profits.
- People in the know start to take profits. This starts to deflate the euphoria and losses start to emerge.
- Everyone turns against the investments. Fraud and illegal activity come to the surface
- The central bank or government steps in stabilise markets.
The other model I like is Kugler-Ross’ model of the emotional stages of the death of someone close to you:
- Denial – we try deny what has happened
- Anger – we start blaming ourselves and others for the death
- Bargaining – we start to make promises hoping that in return we will avert the loss
- Depression – we give up and think what’s the point of living
- Acceptance – we accept the reality of mortality and move on
We could almost plug in these five emotional stages into points 4 and 5 in Minsky’s cycle. We could the combined model to our personal life.
Take our working life as an example. Starting a new job could be the event that triggers our excitement (at the beginning of the Minsky cycle). We feel we can get things done in company and start hitting lots of home runs. Things start to get tough (point 2) and many people in the know start leaving (point 3). Things get messy, and you lose your job (point 4).
The emotional stages now kick in, you get can’t believe it, and then get angry. Perhaps, negotiating your way back in will correct things. But the job is gone, so you give up and become despondent. Finally, you come to terms with it and are ready to move on. At this point, the external saviour (central bank etc) comes to give you a new job. Repeat cycle!