Is Economics about Vox Populi, Vox Dei?

In response to my recent article, a top honcho of a non-bank finance company emails

I would venture a guess that the number of people you meet who share your view of the world would probably be closer to zero than to 100. Do you find this frustrating at all?

It's amazing how people defend the bubble hardly by addressing the issues. And the reason I am responding to this is because the above theme has been a common objection.

Yet what are crashes and recessions made of? Because "closer to 100 people" or a majority saw them? 

Well sad to say that the answer is the opposite. Crashes and recessions occur because the "closer to 100" or the majority didn’t see them.

Proof? 

In 2008, United Kingdom's Queen Elizabeth at the London School of Economics asked the economic industry “why no one saw the credit crunch coming”

From the Guardian: (bold mine)

During a briefing by academics at the London School of Economics on the turmoil on the international markets the Queen asked: "Why did nobody notice it?"

Professor Luis Garicano, director of research at the London School of Economics' management department, had explained the origins and effects of the credit crisis when she opened the £71 million New Academic Building.

The Queen, who studiously avoids controversy and never gives away her opinions, then described the turbulence on the markets as "awful".

Prof Garicano said: "She was asking me if these things were so large how come everyone missed it." He told the Queen: "At every stage, someone was relying on somebody else and everyone thought they were doing the right thing."

Put differently, if the majority sees panics, crashes, recessions or crises, there won't be one. [updated to add: Let me rephrase this statement: if the majority is always right, then there won't be panics, crashes, recessions or crises.]

It's sad to see people resorting to the fallacy of the appeal to the majority (argumentum ad populum) in defending the bubble. Nonetheless such mindset resonates with the political spectrum where political correctness is determined by populism: the tyranny of the majority. 

Yet the comment demonstrate of how deeply embedded the convictions have been to see current conditions as a ONE way trade.

And to further demonstrate how the majority responds to the stock market cycles, here are the psychological-sentimental characters of the stages of bubble.

In bubble tops, the majority thinks “Wow I am Smart” or Everyone is a genius! 

In bubble tops, the majority claims "new paradigms", "this time is different" or in the recent context “transformation”

A famous quip is from the late economist Irving Fisher who in 1929 declared "stocks have reached a permanently high plateau". Stocks eventually crashed in October 1929 which paved way for the Great Depression

I conclude with a tip from Warren Buffett’s mentor the value investor Benjamin Graham

You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.

Anyway to my critic, thank you for your patronage.