Niall Ferguson: Financial Defect
on Sunday, October 23, 2022Meaning of Niall Ferguson Money Quote: saying the financial system shows what humans are truly like. Niall Ferguson said:
“If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility” — Niall Ferguson
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This quote from Niall Ferguson suggests that the financial system acts as an amplifier for human tendencies towards overconfidence and overreaction. When the economy is doing well, people become overly optimistic and “exuberant”, fueling booms in markets. But then, when things take a turn for the worse, people overcorrect in the other direction and fall into deep “depression”, exacerbating busts.
In other words, the ups and downs we see in the economy – booms and busts – are at least partly due to the inherent emotional volatility of human nature. And because the financial system aggregates and magnifies the behavior of many individuals and institutions, it has the effect of making these swings between optimism and pessimism even more extreme.
So according to Ferguson, while the financial system itself may have flaws, at its core the boom-bust pattern reflects our own psychological tendencies as human beings.