Society, Politics & Law
  • Video
  • 5 mins
  • Level 1: Introductory

Evan Davis on.... negative feedback loops

Updated Saturday 7th March 2009

The Bottom Line presenter Evan Davis wonders if fear of a stuck economy can become a self-fulfilling prophecy.

Video

Copyright The Open University

Audio

Copyright The Open University

Read

There’s something to be very scared of in an economy. It’s called a negative feedback loop. It’s where one thing leads to another that then causes the first thing and, if the one thing is bad and leads to something else bad, you can get into a horrible vicious circle that tears the economy down.

Now, an interesting question is whether gloomy sentiment has that vicious circle feature to it? - whether it becomes self-fulfilling, that we feel bad which makes us act in a way that brings the economy down that makes us feel even worse?

Business clearly worries that that phenomenon exists, that maybe, if we talk too much about how badly the economy’s doing, we’ll make it do more badly. And we got a rather interesting example in the discussion about how that might happen; it’s the hibernation factor.

If businesses think the recession will be short-lived, then they’ll carry on spending on education and training and research and development and investment; the economy maybe won’t do that badly. If, however, we talk them into a very gloomy mood, they’ll hibernate for two years. They’ll batten down the hatches, cut everything unnecessary, survival will be the only name of the game and they’ll simply, sort of, disappear for two years until the economy turns up.

If businesses hibernate, well the economy will be vastly worse than it would otherwise be. And it’s that ability of the way we talk about the economy to drive the strategies that people respond to it with, and then to deliver the outcomes that are the very ones we fear... I think it’s that chain that makes business, well, very annoyed sometimes at the very gloomy way in which we talk about economics and the economy.

 

 

For further information, take a look at our frequently asked questions which may give you the support you need.

Have a question?

Other content you may like

Money’s Second Life? Creative commons image Icon Anil Mohabir under CC-BY-SA licence under Creative-Commons license article icon

Society, Politics & Law 

Money’s Second Life?

Our increasingly virtualised world has seen music switch from physical formats to digital downloads. Should money also go digital - and if it does, would it necessarily be for the best?

Article
60 second adventures in economics: Rational Choice Theory Creative commons image Icon The Open University under Creative Commons BY-NC-SA 4.0 license video icon

Society, Politics & Law 

60 second adventures in economics: Rational Choice Theory

People are pretty rational. But not quite rational enough for the good of the economy.

Video
5 mins
Evan Davis on... Tobin's Q Copyrighted image Icon Copyright: photos.com audio icon

Society, Politics & Law 

Evan Davis on... Tobin's Q

After The Bottom Line looked at share prices, Evan Davis explained the economic theory behind share prices: but can we believe Tobin's Q?

Audio
5 mins
Poverty? What poverty? Copyrighted image Icon Copyright: Suzanne Tucker | Dreamstime.com article icon

Society, Politics & Law 

Poverty? What poverty?

According to former Tory MP Edwina Currie, poverty isn't prevalent in the UK. We explore perceptions of poverty with this collection of articles and free course tasters.

Article

Society, Politics & Law 

60-Second Adventures in Economics

Ever shaken an invisible hand? Been flattened by a falling market? Or wondered what took the bend out of Phillips' curve? David Mitchell helps reveal some of the great dilemmas faced by governments trying to run an economy - whether to save or spend, control inflation, regulate trade, fix exchange rates, or just leave everyone to get on with it and not intervene. You'll learn why Adam Smith put such a high price on free markets, how Keynes found a bold new way to reduce unemployment, and what economists went on to discover about the impact of policy on people's and businesses' behaviour - which may not always be entirely rational...

Video
15 mins
Evan Davis on... market prices Copyrighted image Icon Copyright: Jupiter Images video icon

Society, Politics & Law 

Evan Davis on... market prices

The Bottom Line presenter Evan Davis asks why, if it's supposed to be the mechanism for determining value, are market prices so often clearly in the wrong place?

Video
5 mins
Fair shares? Why sharing needs a democratic revolution Creative commons image Icon David Hawgood under CC-BY-SA licence under Creative-Commons license article icon

Society, Politics & Law 

Fair shares? Why sharing needs a democratic revolution

The sharing economy is in danger of becoming dominated by Silicon Valley. That needs to change, says Chris Martin.

Article
Leslie Budd on... being seen to do nothing Copyrighted image Icon Copyright: photos.com audio icon

Society, Politics & Law 

Leslie Budd on... being seen to do nothing

For some, it's not enough to have time off, you have to be seen doing nothing.

Audio
5 mins
Leslie Budd on... theft or investment? Copyrighted image Icon Copyright: BBC audio icon

Society, Politics & Law 

Leslie Budd on... theft or investment?

For some, it is an outrage to even consider it; others, it's the one true holder of value. Is property theft or investment?

Audio
5 mins