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The Global Economy’s Hesitation Blues

NEW HAVEN – Economic slowdowns can often be characterized as periods of hesitation. Consumers hesitate to buy a new house or car, thinking that the old house or car will do just fine for a while longer. Managers hesitate to expand their workforce, buy a new office building, or build a new factory, waiting for news that will make them stop worrying about committing to new ideas. Viewed from this perspective, how worried should we be about the effects of hesitation today?

Hesitation is often like procrastination. One may have vague doubts and feel a need to mull things over; meanwhile, other issues intrude on thought and no decision is taken. Ask people why they procrastinate, and you probably won’t get a crisp answer.

So how does such behavior become sufficiently widespread to bring about an economic slump? In fact, the reasons for postponing activities that would stimulate the economy may be difficult to discern.

One thinks first of feedback from others who are hesitating. Income effects and crowd psychology may amplify individual vacillation. But there must have been some initial factor that started the feedback cycle – some underlying source of hesitation.