If a prediction of a recession causes the market to crash, can it be said that the prediction itself is part of the cause of the recession? Like a self-fulfilling prophecy?
In: Economics
Not really. If the prediction is based on data that matches historical trends, many people will have access to the same predictions.
The reason it doesn’t happen is because the first one to flinch before a bubble pops will miss out on the bubble gains. All traders are essentially bullish because if the market didn’t consistently increase in value over the long term, there’d be no point to trading.
Think of this example. Say profits are good, but there’s fear of a recession in the air. You decide to stop hiring and cut marketing spends. Your competitor keeps expanding and making sales. If a recession hits, they might have to fire some of the new hires, but they are still better prepared since they landed some more sales while you were cutting back. The first one to start acting like there’s a recession will lose because the business can still respond to a recession if one happens. If there’s no major recession, then you cut back for no reason.
The drive to make more money is always a push back against bearish behaviors. Don’t get me wrong, we will inevitably have another recession at some point, but there’s an old joke that the news has predicted 10 of the last 3 recessions. The predictions themselves don’t cause them.
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