I think it's more like this: The people who really produce goods get caught up in the 'downcycle' and are unable to produce as much as they would normally, which has a real impact on the economy by reducing the amount of product to go around, which makes more people tighten their belts and the economy gets worse.
These days it seems like the ups and downs of our economy are at least 95% driven by human psychology rather than real necessity.
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"Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery." - Winston Churchill
"All men dream: but not equally. Those who dream by night in the dusty recesses of their minds wake in the day to find that it was vanity: but the dreamers of the day are dangerous men, for they may act out their dream with open eyes, to make it possible." Seven Pillars of Wisdom, T.E. Lawrence
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