worries me the most about the turmoil in world markets is how tightly coupled thought
contagions are with economic contagions. The things people believe really do
have consequences. When large groups of people lock into the idea that home
prices will always go up, housing bubbles rise -- then burst. When financial
markets panic and interest rates on sovereign Greek debt reach almost 18
percent, while rates on Italy's 10-year bonds creep above 7.4 percent, entire nations
face dire financial realities.
understanding of thought contagions is often naïve. The common wisdom is that
they are much like biological contagions -- flu, HIV, and SARS. In fact, just about
the only thing they have in common with biological contagions is that infected
actors must infect a sufficient number of others to keep the contagion going.
the carriers of many economic contagions, the carriers of biological contagions
don't benefit from spreading them. In fact, disease carriers often become
extremely sick. If you are infected with SARS or HIV, you are never a winner.
At best, you're a survivor. Thought contagions often produce big winners in the
people who start them. Traders frequently make a great deal of money when they
spread panic, and politicians often win elections when their ideas take off.
increases when other people come into contact with individuals doing the same
thing. When one person in a riot breaks a store window, or loots, others feel
justified in doing the same. Or when a person attends a political meeting and
the discussion turns to cutting entitlements or raising taxes, those who might
be willing to compromise adopt rigid positions to join the crowd.
Internet fuels the growth of thought contagions. We have long known that people
gravitate to parts of the media that reinforce their beliefs. Liberals listen
to NPR; conservatives tune into Rush Limbaugh and Fox News. We also know that
being in like-minded company fosters and hardens pre-existing biases. Do a
quick Google search and you're guaranteed to find a liked-minded group.
contagions that turn into financial contagions are hardly new. There was tulip
mania in 17th-century Holland, the South Sea
bubble a century later, and the high-tech bubble at the end of the 1990s.
the Internet is a cruel accelerator of both thought and economic contagions.
Just as global air travel made biological contagions more of a worldwide threat,
in an Internet-driven, overconnected world there will be many more thought contagions,
with far more widespread consequences.
the political sphere, my greatest concern is that Internet-powered thought
contagions will support radical, uncompromising positions by both liberals and conservatives
and violent civil unrest instead of peaceful protest. In the financial sector,
I worry that these contagions of the mind will spread fear, uncertainty, and
doubt. Not only will this make it more difficult to resolve budget and
financial crises, the Internet will have failed to deliver on one of its
greatest promises. Rather than bringing us together, it will be driving us
apart. The situations men defined as real will have real consequences.