Pessimism is a feeling or state deeply rooted in the DNA of Romanian society. In everyday language, there are often expressions and sayings that express and record pessimism. The early education of each of us at some point included Mioritsa and Master Manole, the poems of Bacovia, and countless other examples that inspire melancholy, drama, and tragedy. Is pessimism a factor in Romania’s economy?

In context, if we refer to a society defined by pessimism, consumption is probably always below potential because people always prefer to consume less than they would if they had positive expectations.

Another influence of pessimism on investments. Pessimism negatively affects investments in at least two ways. The first is the impact of consumption fluctuations on profits, the second is the direct impact of pessimism (or optimism) on investors’ future expectations. These two influences can be opposite.

Consumers and investors have access to information of different quality, nature and volume, and, implicitly, to a different view of the future. An event that causes pessimism in consumers in the short term may cause optimism in investors in the long term.

Pessimism, or rather mistrust, which is the edge of pessimism, is a factor that significantly affects investments in a negative sense. The psychological effect is extremely simple, pessimism turns into disbelief in future profits, which leads to a reduction in investment. This phenomenon may or may not coincide with consumer sentiment because, as we have shown, consumers and investors have different perspectives.

Situations in which pessimism is prevalent are situations that should be avoided at all costs. In such situations, the economy may collapse and a deep crisis may arise.

The problem of general pessimism can be described as an autocorrelation process between falling profits, falling investment and falling consumption. Such a phenomenon will manifest itself in reduced consumption, which leads to reduced profits, which leads to reduced investment, which leads to reduced wages, which leads to reduced consumption, and the cycle resumes again at a lower level. and again until the resistance level of consumption is reached or until all transactions completely collapse and return to the level of consumers of all consumers.

Are Romanians pessimists? How can we measure pessimism?

Probably the most important indicator of pessimism, apart from the polls, is emigration. It is clear that the lack of confidence in the future in a certain place prompts a person to move to a place with better prospects. It is clear that confidence in the future is different in Cluj compared to Hura-Humorului, or in Bucharest compared to Ludus, at the local level, it is clear that there is more pessimism in rural areas than in urban environments. People decide to build the future where they believe it is.

What can be a clear signal of pessimism is net emigration. It is noted that in Romania over the past 20 years, emigration has ranged from -7 to -1 per thousand, with a downward trend in recent years. It is impossible to assess whether this trend is due to renewed optimism about Romania’s future or simply a decrease in the number of people able or willing to emigrate.

If we take after the emigration, it is clear that there were mass waves of pessimism in Romanian society.

On the other hand, emigration is not necessarily a good indicator, because emigration is often generated by very pragmatic calculations, out of sentiment. In a situation where the income does not cover the cost of living, emigration is a completely rational decision that excludes pessimism or optimism. There are indicators that are measured by surveys, such as “Financial Expectations of Consumer Sentiment”, which can roughly estimate the state of mind of the population. There is some relationship between “consumer confidence” and the state of optimism or pessimism, but they are not 100% equivalent.

The graph in fig. 4 shows us large waves of mistrust and smaller, shorter waves of trust.

It can be seen that decreasing confidence intervals correspond to increasing emigration intervals, and increasing confidence intervals correspond to decreasing emigration intervals.

Therefore, if emigration and consumer confidence are taken into account as indicators reflecting optimism or pessimism of citizens (consumers), it follows that Romanians are mostly pessimists.

It can be assumed that at least partially the economic development of Romania is moderated or reduced by this pessimism.

Pessimism, a self-fulfilling prophecy

Negative expectations lead to negative results. On a personal or social level, negativism breeds judgment and indecision. Here are some examples of critical processes for society that generate economic phenomena that can be represented as downward spirals:

1. Birth. Perfectly able to conceive and with a relatively good financial situation, they decide to postpone the conception of a child due to pessimism about the future. If pessimism is a social phenomenon, meaning that the number of procrastinators is large enough, we see a massive decline in the birth rate. Due to the decrease of the young generation, the economic situation will be negatively affected in the future. A negative situation creates even more pessimism.
2. Consumption. Pessimism leads to lower consumption, which reduces corporate and government revenues, which leads to pessimism and accelerates the decline.
3. Investment: Pessimism leads to less investment, which reduces intermediate consumption, which leads to less investment in intermediate consumption (manufactured goods). Reduced investment leads to stagnation and economic decline, which leads to pessimism, and the cycle accelerates.

The vicious mechanism by which pessimism leads to decline is essentially simple. Decisions made under the influence of pessimism are, in fact, decisions that have negative consequences. Negative consequences lead to legitimization and deepening of pessimism. The phenomenon can be described as a snowball rolling down a snowless slope, it will lose layer by layer and at some point crumble.

But in all situations where we talk about consequences, the cause is a significant fluctuation of the supposed causal phenomenon. If a dose of pessimism is constant in society, it is impossible to say how much and how it affects economic development. We can say that the growth of optimism (the opposite of pessimism) will have a positive effect on the birth rate, reduce emigration, and stimulate consumption and investment.

Pessimism in public administration

Public administration is also affected by pessimism, at a subtle but potentially devastating level. The administrative process by which an idea gets from the initial phase to the implementation and completion phase is a complex, painstaking process involving an enormous amount of individual decisions of a bureaucratic nature. At one point in one institution, I counted 126 signatures (with and without stamps) for the purchase of a roll of toilet paper. Perhaps this is an extreme case, a reasonable number is probably closer to 60-70 for a similar product in an institution with a more streamlined hierarchy.

But how many signatures and approvals are required for large public investments? I couldn’t find a complete list anywhere, but I estimate the figure to be in the thousands, including the entire circuit. We are talking about 8-38 approvals issued by various institutions, necessary only for approval of urban planning. Each output has an average of three signatures, each request has an average of two signatures, with files of different sizes and different numbers of signatures attached. Or in this whole mechanism, some officials are asked to express their consent to what ultimately involves their responsibility. There is an intangible factor represented by pessimism. A pessimistic official who does not trust the signatures in front of him and very carefully analyzes all the legal aspects of the document, even if they have been previously checked by other officials, will decide in two days what he could decide in two hours. , and has a high probability of rejecting the document and sending it back for corrections or additions, which also involves repeating the entire process up to this point. The decision is legally sound, but it leads to a delay in the decision-making process. At the level of a state investment project, it may happen that the duration of the entire process is extended. For 1,000 signatures, an average extension of one day per signature means a minimum of 1,000 days, or almost three years of extended decision making. This means that an investment decision has a 75% probability of being implemented after more than 5 years, but very often investment ideas die because the initiator rarely has the determination to see the whole process through, and sometimes the person who initiates the project ends up delegating it or changing jobs.

The cumulative effect of thousands of decisions made in the public sector alone can be devastating, especially when the state must, at least theoretically, intervene quickly in economic crises. A time gap is created between initiative and implementation, practically making intervention late.

The spread of pessimism

There is a phenomenon documented in the financial sphere, but known in the economic sphere in general, the phenomenon of social contagion. This phenomenon suggests that people influence each other, states of mind spread from one person to another, and thus states of mind on a social level.

This phenomenon, best exemplified by bank panics documented around the world, has grown in importance over time, especially in recent years, thanks to social media. Social networks are a very fast channel of distribution in society of messages that carry sentiments and spread them to all vulnerable people.

Another channel of transmission of negative states, such as pessimism, is mass media. People are more sensitive to danger and negativity and tend to pay more attention to them than to positive news. A pessimistic opinion will, as a rule, be received more favorably than an optimistic one. Even if a news agency or news portal publishes an equal amount of positive and negative news, the public will tend to pay attention and retain negative news rather than positive news.

Social networks and the like use algorithms that provide users with information that selects from the multitude of shared messages the ones that most attract their attention. By default, users themselves will teach the algorithms to choose negative or pessimistic messages.

Probably, in this mixture of somehow ordinary or natural phenomena, situations of the nature of information warfare also arise. -Read the rest of the article on Contributors.ro