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Why pessimists are better positioned to weather an economic crisis

PRADIP RODRIGUES
PRADIP@CanIndia.com

In the midst of the COVID-19 pandemic that is diminishing the fortunes of countries and individuals, it may be a good time to reconsider the blind optimism we held not-so-long-ago that good economic times could only get better and if the economy did go south, we’d all be still okay, turns out that is not true.
The stock market crash of 1929 came at a time of high economic optimism, like was the case in the US and Canada until recently. Other crashes also happened at a time of economic optimism, notably the 2008 financial crisis.
Sunny economic forecasts, ultra-low interest rates, low unemployment and high immigration levels led many of us to believe that the best was yet to come. This unbridled optimism compelled middle-class people to go out and buy that investment property, take those expensive vacations, buy gleaming late-model SUVs and live life large. Those risk-averse pessimists who believed in saving hard cash for a rainy day rather than sink it all in investments were ridiculed and made to feel like fools.
Last week I met one such risk-averse individual who until recently found himself admonished by his friends who faulted him for being a pessimist. But well, turns out he was preparing for something like the COVID-19 pandemic all his life. He carries negligible debt, has never taken a consumer loan and as a rule never buys anything unless he has the cash to pay for it. His family is in a position to live without social assistance or jobs for months because he has squirreled away money in safe investments.
To understand the mindset of optimists and pessimists, it may be important to understand that an optimist would state that a glass was half-full and would soon be full again. The pessimist on the other hand would look at the same glass and be alarmed that the half-full glass would become empty.
In society, there is an important place for both optimists and pessimists. Unchecked optimism can be unrealistic and result in lots of trouble. An overly optimistic person may make unrealistic plans, risky bets and investments that could risk going bad and bring him or her to ruin.
The pessimist helps bring reality to the situation by reminding everyone of the limited possibilities of certain plans that may not be practical and could even be dangerous.
I know of many optimists who have now turned extremely pessimistic as they are fearful about the future. It is hard to be an optimist when you are carrying large debt-loads and find that your livelihood is threatened.
My pessimistic acquaintance on the other hand sounded surprisingly happy. He was looking to buy some shares in blue chip companies that have plummeted. “This is the best time to buy such stocks,” he told me. I won’t be surprised if he even buys a property or land if and when real estate prices collapse. My takeaway from all this is that this crisis has turned optimists into pessimists and pessimists into optimists.

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