11 ms·

Ask HN: Isn't recession just mass hysteria ? Layoffs leading to more layoffs leading to the entire economy slowing down ?

pjc50 4y ago
This is definitely something considered by economists; Keynes called it "animal spirits" or more boringly "expectations". If people think the economy is likely to be bad they're likely to want to take defensive action early .. causing the economy to be worse.
chomp 4y ago
Macroeconomics is economics plus psychology. Broader trends in the economy have elements of human behavior affecting them. If you see cloudy skies, and the weather reports suggest "maybe hurricane, maybe not", and your neighbors are boarding up their windows, you might be driven to action as well.
- ajsnigrutin 4y ago
  On the other hand, if you have a pizzeria, and people are talking about diets, cholesterol, unhealthy food, everyone is buying fitness gear... but you still have a line infront of the restaurant, and your take-out phone operator doesn't have time to go pee, you don't fire workers. So, internal numbers are probably showing a downwards trend too, if so many companies are laying off workers.
  - selectodude 4y ago
    On the other hand, companies use recessions to cut headcount without causing the people they want to keep to head for the exits too.
dougmwne 4y ago
Yes! Both the bubble and the crash are almost purely psychological. It's greed and fear coming in waves. There can be technical fundamentals, but to take the example of Bitcoin, you don't need any technical fundamentals. Humans can create and destroy value on top of a very complex random number generator.
- ryandrake 4y ago
  It just feels like the psychology behind a bank run. 1. Convince people their bank is in trouble. 2. They withdraw all their money. 3. Now the bank really is in trouble. Or 1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down. I think this is just a self-fulfilling prophecy where business leaders convinced themselves a slowdown is coming, causing them to take actions that will result in a slowdown. A lot of what happens at the CxO level is looking around at your peer companies and imitating what they are doing.
  - CamperBob2 4y ago
    1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down. Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. If the housing and stock markets didn't undergo catharsis every so often, new/beginning investors wouldn't be able to buy in. The signs are usually telegraphed well in advance, but not by collusion or intent. A self-organizing conspiracy of sorts. It could be interpreted as "herd mentality" but I think that oversimplifies what's really going on, and why.
    - eric-hu 4y ago
      > Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. I wouldn’t call this a conspiracy theory at all. The founder of Bridgewater Associates, the largest hedge fund in the world, spent time and money to publish this idea in various forms. I learned about it from here: https://youtu.be/PHe0bXAIuk0 https://youtu.be/PHe0bXAIuk0 There’s more to this idea—-the long term debt cycle—-but the premise is exactly what you stated. There are benefits to both the boom and bust phases of the economy.
  - suzzer99 4y ago
    Or - stocks have been ridiculously overvalued for a while now and are just coming back to earth somewhat. https://www.longtermtrends.net/market-cap-to-gdp-the-buffett-indicator/ https://www.longtermtrends.net/market-cap-to-gdp-the-buffett... I'm not saying I know that's what's happening. But I wouldn't be surprised.
pphysch 4y ago
Is it mass hysteria, or returning to the mean after a decade+ of mania?
himinlomax 4y ago
Mass hysteria is a positive feedback loop, but not all positive feedback loops are mass hysteria.
s1artibartfast 4y ago
Yes and no. Economics involves the trade of real Goods or real value. It also involves a psychological level based on expectation and predictions. There's a constant dance trying to align the latter with the former.
AnotherGoodName 4y ago
You need to be profitable today in the current market. The money funnel is turned off so little venture funding and high rate loans. So I don't see it as mass hysteria but instead. "We need to cut costs by 10% to avoid hitting the downward spiral of taking out loans".
spaceman_2020 4y ago
I don’t see any mass layoffs among manufacturers, commodities producers, and energy companies More like a long overdue correction in tech. Some of these businesses have been around for nearly 15 years and haven’t had a single year of consistent profits. It was about time that markets humbled them.
- WillPostForFood 4y ago
  There were huge layoffs in energy throughout 2020 and 2021, and while employment levels have been increasing, they are still far below 2019 levels. The correction has already happened in energy, triggered by COVID shutdowns, so they don't need to happen again now (hopefully).
- gitfan86 4y ago
  Yes, tech businesses built up a lot of unnecessary employees during the boom and didn't want to have layoffs for morale and PR reasons.
  - Workaccount2 4y ago
    Tech work went from deathly 60-80hr work weeks, to comfy WFH jobs where you can skate by on 2 hours of work a day.
melling 4y ago
We could have raised rates a few years ago but the markets panicked , the President complained, and the Fed caved. https://www.cnbc.com/2018/10/24/interest-rates-trump-attacks-fed-chairman-powell-wsj-reports.html https://www.cnbc.com/2018/10/24/interest-rates-trump-attacks... We deserve the world we have.
hammock 4y ago
What recession? We are not in a recession. Unemployment data and the broader economy are still strong. Saying otherwise is dangerous, to be honest
- stingrae 4y ago
  Tech or SAAS has definitely had a major correction/downturn. This is not evident in the unemployment data because it is such a small contingent vs the US population
  - VBprogrammer 4y ago
    It might be overdue. Tech came out of the 2008 recession pretty well in the mean (of course some people suffered badly). A lot of companies came out of it saying to cut costs they had to invest big in their technology.
- superfrank 4y ago
  Agree we're not in a recession, but I'm not sure I'd say we're in a strong place. The impression I've got from the articles I've read is that no one knows what the fuck is going on. Some indicators look great (like unemployment), but others look bad (like inflation).
  - bombcar 4y ago
    We are certainly in something but what it is hasn't had a word assigned to it yet. Maybe it's stagflation, maybe it's swagflation, I dunno. Every downturn is like all the others and every downturn is a unique snowflake.
  - ssteel 4y ago
    Low employment combined with high inflation is forcing the fed to raise interest rates to induce lower demand with the side affect being higher unemployment. This is how they killed inflation in the 80's. They are trying to thread the needle of inflation and recession. The likely outcome is eventually a recession. Conversely, the government could raise taxes across the board to control demand and trickle that money back to individuals over time, but it is political suicide.
spamizbad 4y ago
Layoffs are the working stiff's cancel culture.
anm89 4y ago
Is people leaving an area that's about to get hit by a hurricane mass hysteria? Was it not mass hysteria when FB, a company that everyone openly hates and who's main product is clearly dying was hiring by the thousands so they could "expand"?
psadri 4y ago
Inflation do to supply side constraints is not just mass hysteria. High inflation → need to reduce demand → slower economy → layoffs.
jdlyga 4y ago
That's how the economy works basically. We cycle between overenthusiasm and sheer panic.
PragmaticPulp 4y ago
In this case, rising interest rates have a very direct negative impact on new investments. As new investments contract, demand shrinks for services across the industry. As demand shrinks, fewer employees are needed and companies need to reduce headcount to avoid overspending relative to revenues. There is a cascading effect, but it would be a mistake to attribute it all to a big psychological mistake. When demand goes down (in this case due to rising rates) there really is less money flowing into companies.
- echelon 4y ago
  It also impacts the loans that companies frequently take out and the interest-inflated payments they need to service their debt.
  - UncleOxidant 4y ago
    And this is more likely what's impacting companies like Lyft. Their business model worked in an easy-money environment, but doesn't work in an environment with more normal interest rates where it's harder to borrow money and costs more.
- nunez 4y ago
  Adding context: the US Fed raised the interest rate benchmark this week to 4%, with the expectation that it will be raised higher. Credit's getting a lot more expensive.
  - Spivak 4y ago
    Yep, don't even look at mortgages until housing prices drop in response to the rate increases. Because the amount of total money paid in interest over a 30 loan increased more than 2x over the last year.
    - nunez 4y ago
      honestly i think this is the "real estate bubble" folks were looking for (it's not a bubble but housing might finally drop in price now that mortgages are so expensive)
colechristensen 4y ago
Yes, but so was the bubble that preceded it, in the opposite direction. If you have a whole economy ignoring signs and pretending growth goes forever you get bigger, harder crashes. We can hope that this downturn is going to be a short wave just in response to the post covid overhype. But really there are still big problems with real estate valuation with lots of things going to be literally under water in decades and everything overpriced as a result of bad policy with low interest and too many people having enormous loans for most of their working lives. Housing as investment needs to be drug out into the street and shot, but there isn’t really any way to do that which doesn’t cause a huge economic shock.
ouid 4y ago
no? If paying employees has a return on investment that is lower than the interest rate on federally insured bonds, I will prefer the federally insured bonds. The biggest driver of inflation, and thus interest rate, is the supply/demand for labor. What we're seeing are the natural consequences of the fed's mandate to prevent inflation. This is always at the cost of demand for labor, bu design. The regulation supplied by the fed preserves the interests of capital at expense of the interests of labor. The dual mandate is essentially meaningless.
paganel 4y ago
I don’t know about “mass hysteria” but this inflation has certainly made me purchase less physical stuff and especially less services, I guess I’m not the only one. Generally speaking a sudden decrease in buying is cause for a recession, unless you go the Keynesian way and make the Government make up for the lost demand, but I have a feeling that most of the governments are out of “good” money to throw at that. I do live in Europe and not in the States, though, maybe things are different there.
- yonaguska 4y ago
  I believe it's probably worse for you in Europe simply because of the energy costs eating up more of your income. Energy costs are going up here as well, but it seems to be more dependent on where you live and less dramatic for now.
lamontcg 4y ago
Definitely not. Not in the absolute way that you phrased the question. Psychology is a clear factor which acts as a positive feedback loop, but raising the cost of money/credit is very, very real to a lot of businesses. The immediate effect it has on the cost of loan service for cars and houses will start to affect those markets pretty quickly, which spills over into homebuilders. And companies at the margins that have been surviving by cheap debt service will get pushed over into insolvency. Then those closures and layoffs affect demand, that affects every other company in the economy. Those people couldn't afford houses and cars at any interest rate, and they're not buying computers or anything else as well, they're probably trying to sell their used cars for some cash. Since everyone's spending is someone else's demand then as spending contracts demand destruction ripples through the economy. The psychological effect is another positive feedback loop, though, and it will cause the correction to overshoot to the downside. At the same time, though, this means that assets are on a fire sale, and the rich people who have cash on the sidelines can step in and buy up even more of the country, which does put a floor under the crash.
rollulus 4y ago
I’ve been wondering the same. At some point it could become a self-fulfilling prophecy. Sadly enough we cannot A/B test both scenarios: one with the (possible) mass hysteria and one where everyone stays calm and stays the course.
DocTomoe 4y ago
Worse: Money is an illusion. We mistake a unit of measurement (like grams, or gallons) for wealth. In a recession, workers come to a construction site - material is still there, so is electricity and power tools ... but work can't continue and they will be fired because the boss has run out of inches. (Thought stolen from Alan Watts)
- nine_zeros 4y ago
  > Worse: Money is an illusion. We mistake a unit of measurement (like grams, or gallons) for wealth. In a recession, workers come to a construction site - material is still there, so is electricity and power tools ... but work can't continue and they will be fired because the boss has run out of inches. This is because the boss imagined getting more inches in future and made a leveraged bet. A downturn is a great opportunity for someone enterprising to become a boss and take everything in the construction site, hire people and build it themselves.
- ISL 4y ago
  Money isn't an illusion. It is a useful abstraction of human effort/potential. The workers will be fired because the boss has run out of societal-effort credits. The only "illusion" is the collective understanding that these "made-up" credits can be redeemed with other counterparties for human effort in the future. So long as we all approximately believe that idea, it works.
weatherlite 4y ago
Recession is mass hysteria just like an economic boom is mass euphoria...
deleted 4y ago
[deleted]
lysecret 4y ago
Nothing is "just" one thing. But the there is a reinforcing effect which definitely makes it worse. You can check out "animal spirits" and Keynes if you want to go down a rabbit hole ;)

pjc50 4y ago

This is definitely something considered by economists; Keynes called it "animal spirits" or more boringly "expectations". If people think the economy is likely to be bad they're likely to want to take defensive action early .. causing the economy to be worse.

chomp 4y ago

Macroeconomics is economics plus psychology. Broader trends in the economy have elements of human behavior affecting them. If you see cloudy skies, and the weather reports suggest "maybe hurricane, maybe not", and your neighbors are boarding up their windows, you might be driven to action as well.

ajsnigrutin 4y ago
On the other hand, if you have a pizzeria, and people are talking about diets, cholesterol, unhealthy food, everyone is buying fitness gear... but you still have a line infront of the restaurant, and your take-out phone operator doesn't have time to go pee, you don't fire workers. So, internal numbers are probably showing a downwards trend too, if so many companies are laying off workers.
- selectodude 4y ago
  On the other hand, companies use recessions to cut headcount without causing the people they want to keep to head for the exits too.

dougmwne 4y ago

Yes! Both the bubble and the crash are almost purely psychological. It's greed and fear coming in waves. There can be technical fundamentals, but to take the example of Bitcoin, you don't need any technical fundamentals. Humans can create and destroy value on top of a very complex random number generator.

ryandrake 4y ago
It just feels like the psychology behind a bank run. 1. Convince people their bank is in trouble. 2. They withdraw all their money. 3. Now the bank really is in trouble. Or 1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down. I think this is just a self-fulfilling prophecy where business leaders convinced themselves a slowdown is coming, causing them to take actions that will result in a slowdown. A lot of what happens at the CxO level is looking around at your peer companies and imitating what they are doing.
- CamperBob2 4y ago
  1. Convince people stocks are going to go down. 2. Mass sell-off. 3. Now stocks really are going down. Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. If the housing and stock markets didn't undergo catharsis every so often, new/beginning investors wouldn't be able to buy in. The signs are usually telegraphed well in advance, but not by collusion or intent. A self-organizing conspiracy of sorts. It could be interpreted as "herd mentality" but I think that oversimplifies what's really going on, and why.
  - eric-hu 4y ago
    > Pet conspiracy theory: boom/bust cycles are not only inevitable, but desirable to some extent. I wouldn’t call this a conspiracy theory at all. The founder of Bridgewater Associates, the largest hedge fund in the world, spent time and money to publish this idea in various forms. I learned about it from here: https://youtu.be/PHe0bXAIuk0 https://youtu.be/PHe0bXAIuk0 There’s more to this idea—-the long term debt cycle—-but the premise is exactly what you stated. There are benefits to both the boom and bust phases of the economy.
- suzzer99 4y ago
  Or - stocks have been ridiculously overvalued for a while now and are just coming back to earth somewhat. https://www.longtermtrends.net/market-cap-to-gdp-the-buffett-indicator/ https://www.longtermtrends.net/market-cap-to-gdp-the-buffett... I'm not saying I know that's what's happening. But I wouldn't be surprised.

pphysch 4y ago

Is it mass hysteria, or returning to the mean after a decade+ of mania?

himinlomax 4y ago

Mass hysteria is a positive feedback loop, but not all positive feedback loops are mass hysteria.

s1artibartfast 4y ago

Yes and no. Economics involves the trade of real Goods or real value. It also involves a psychological level based on expectation and predictions. There's a constant dance trying to align the latter with the former.

AnotherGoodName 4y ago

You need to be profitable today in the current market. The money funnel is turned off so little venture funding and high rate loans. So I don't see it as mass hysteria but instead. "We need to cut costs by 10% to avoid hitting the downward spiral of taking out loans".

spaceman_2020 4y ago

I don’t see any mass layoffs among manufacturers, commodities producers, and energy companies More like a long overdue correction in tech. Some of these businesses have been around for nearly 15 years and haven’t had a single year of consistent profits. It was about time that markets humbled them.

WillPostForFood 4y ago
There were huge layoffs in energy throughout 2020 and 2021, and while employment levels have been increasing, they are still far below 2019 levels. The correction has already happened in energy, triggered by COVID shutdowns, so they don't need to happen again now (hopefully).
gitfan86 4y ago
Yes, tech businesses built up a lot of unnecessary employees during the boom and didn't want to have layoffs for morale and PR reasons.
- Workaccount2 4y ago
  Tech work went from deathly 60-80hr work weeks, to comfy WFH jobs where you can skate by on 2 hours of work a day.

melling 4y ago

We could have raised rates a few years ago but the markets panicked , the President complained, and the Fed caved. https://www.cnbc.com/2018/10/24/interest-rates-trump-attacks-fed-chairman-powell-wsj-reports.html https://www.cnbc.com/2018/10/24/interest-rates-trump-attacks... We deserve the world we have.

hammock 4y ago

What recession? We are not in a recession. Unemployment data and the broader economy are still strong. Saying otherwise is dangerous, to be honest

stingrae 4y ago
Tech or SAAS has definitely had a major correction/downturn. This is not evident in the unemployment data because it is such a small contingent vs the US population
- VBprogrammer 4y ago
  It might be overdue. Tech came out of the 2008 recession pretty well in the mean (of course some people suffered badly). A lot of companies came out of it saying to cut costs they had to invest big in their technology.
superfrank 4y ago
Agree we're not in a recession, but I'm not sure I'd say we're in a strong place. The impression I've got from the articles I've read is that no one knows what the fuck is going on. Some indicators look great (like unemployment), but others look bad (like inflation).
- bombcar 4y ago
  We are certainly in something but what it is hasn't had a word assigned to it yet. Maybe it's stagflation, maybe it's swagflation, I dunno. Every downturn is like all the others and every downturn is a unique snowflake.
- ssteel 4y ago
  Low employment combined with high inflation is forcing the fed to raise interest rates to induce lower demand with the side affect being higher unemployment. This is how they killed inflation in the 80's. They are trying to thread the needle of inflation and recession. The likely outcome is eventually a recession. Conversely, the government could raise taxes across the board to control demand and trickle that money back to individuals over time, but it is political suicide.

spamizbad 4y ago

Layoffs are the working stiff's cancel culture.

anm89 4y ago

Is people leaving an area that's about to get hit by a hurricane mass hysteria? Was it not mass hysteria when FB, a company that everyone openly hates and who's main product is clearly dying was hiring by the thousands so they could "expand"?

psadri 4y ago

Inflation do to supply side constraints is not just mass hysteria. High inflation → need to reduce demand → slower economy → layoffs.

jdlyga 4y ago

That's how the economy works basically. We cycle between overenthusiasm and sheer panic.

PragmaticPulp 4y ago

In this case, rising interest rates have a very direct negative impact on new investments. As new investments contract, demand shrinks for services across the industry. As demand shrinks, fewer employees are needed and companies need to reduce headcount to avoid overspending relative to revenues. There is a cascading effect, but it would be a mistake to attribute it all to a big psychological mistake. When demand goes down (in this case due to rising rates) there really is less money flowing into companies.

echelon 4y ago
It also impacts the loans that companies frequently take out and the interest-inflated payments they need to service their debt.
- UncleOxidant 4y ago
  And this is more likely what's impacting companies like Lyft. Their business model worked in an easy-money environment, but doesn't work in an environment with more normal interest rates where it's harder to borrow money and costs more.
nunez 4y ago
Adding context: the US Fed raised the interest rate benchmark this week to 4%, with the expectation that it will be raised higher. Credit's getting a lot more expensive.
- Spivak 4y ago
  Yep, don't even look at mortgages until housing prices drop in response to the rate increases. Because the amount of total money paid in interest over a 30 loan increased more than 2x over the last year.
  - nunez 4y ago
    honestly i think this is the "real estate bubble" folks were looking for (it's not a bubble but housing might finally drop in price now that mortgages are so expensive)

colechristensen 4y ago

Yes, but so was the bubble that preceded it, in the opposite direction. If you have a whole economy ignoring signs and pretending growth goes forever you get bigger, harder crashes. We can hope that this downturn is going to be a short wave just in response to the post covid overhype. But really there are still big problems with real estate valuation with lots of things going to be literally under water in decades and everything overpriced as a result of bad policy with low interest and too many people having enormous loans for most of their working lives. Housing as investment needs to be drug out into the street and shot, but there isn’t really any way to do that which doesn’t cause a huge economic shock.

ouid 4y ago

no? If paying employees has a return on investment that is lower than the interest rate on federally insured bonds, I will prefer the federally insured bonds. The biggest driver of inflation, and thus interest rate, is the supply/demand for labor. What we're seeing are the natural consequences of the fed's mandate to prevent inflation. This is always at the cost of demand for labor, bu design. The regulation supplied by the fed preserves the interests of capital at expense of the interests of labor. The dual mandate is essentially meaningless.

paganel 4y ago

I don’t know about “mass hysteria” but this inflation has certainly made me purchase less physical stuff and especially less services, I guess I’m not the only one. Generally speaking a sudden decrease in buying is cause for a recession, unless you go the Keynesian way and make the Government make up for the lost demand, but I have a feeling that most of the governments are out of “good” money to throw at that. I do live in Europe and not in the States, though, maybe things are different there.

yonaguska 4y ago
I believe it's probably worse for you in Europe simply because of the energy costs eating up more of your income. Energy costs are going up here as well, but it seems to be more dependent on where you live and less dramatic for now.

lamontcg 4y ago

Definitely not. Not in the absolute way that you phrased the question. Psychology is a clear factor which acts as a positive feedback loop, but raising the cost of money/credit is very, very real to a lot of businesses. The immediate effect it has on the cost of loan service for cars and houses will start to affect those markets pretty quickly, which spills over into homebuilders. And companies at the margins that have been surviving by cheap debt service will get pushed over into insolvency. Then those closures and layoffs affect demand, that affects every other company in the economy. Those people couldn't afford houses and cars at any interest rate, and they're not buying computers or anything else as well, they're probably trying to sell their used cars for some cash. Since everyone's spending is someone else's demand then as spending contracts demand destruction ripples through the economy. The psychological effect is another positive feedback loop, though, and it will cause the correction to overshoot to the downside. At the same time, though, this means that assets are on a fire sale, and the rich people who have cash on the sidelines can step in and buy up even more of the country, which does put a floor under the crash.

rollulus 4y ago

I’ve been wondering the same. At some point it could become a self-fulfilling prophecy. Sadly enough we cannot A/B test both scenarios: one with the (possible) mass hysteria and one where everyone stays calm and stays the course.

DocTomoe 4y ago

Worse: Money is an illusion. We mistake a unit of measurement (like grams, or gallons) for wealth. In a recession, workers come to a construction site - material is still there, so is electricity and power tools ... but work can't continue and they will be fired because the boss has run out of inches. (Thought stolen from Alan Watts)

nine_zeros 4y ago
> Worse: Money is an illusion. We mistake a unit of measurement (like grams, or gallons) for wealth. In a recession, workers come to a construction site - material is still there, so is electricity and power tools ... but work can't continue and they will be fired because the boss has run out of inches. This is because the boss imagined getting more inches in future and made a leveraged bet. A downturn is a great opportunity for someone enterprising to become a boss and take everything in the construction site, hire people and build it themselves.
ISL 4y ago
Money isn't an illusion. It is a useful abstraction of human effort/potential. The workers will be fired because the boss has run out of societal-effort credits. The only "illusion" is the collective understanding that these "made-up" credits can be redeemed with other counterparties for human effort in the future. So long as we all approximately believe that idea, it works.

weatherlite 4y ago

Recession is mass hysteria just like an economic boom is mass euphoria...

deleted 4y ago

[deleted]

lysecret 4y ago

Nothing is "just" one thing. But the there is a reinforcing effect which definitely makes it worse. You can check out "animal spirits" and Keynes if you want to go down a rabbit hole ;)