Opinion | We are now firmly in the claws of a bear market. The government must prepare people for hardship

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.jaimewatt: We are now firmly in the claws of a bear market. The government must prepare people for hardship via torontostar

Four days remain until the House of Commons rises, and politicians trot back to their constituencies to hit the infamous summer BBQ circuit. While they will surely be grateful for the break, anxiety about a litany of economic harbingers will surely cloud their summer mood.

The latest round of public opinion research by our firm Navigator revealed that nine in 10 Canadians say they are affected by inflation. What’s more, they are pessimistic about the near term, with eight in 10 expecting inflation to rise over the next year. The 2008 crisis proved the power of economic irrationality, after millions of mortgages were approved without proof of income. Consequently, “nudge theory” — a concept popularized by economist Richard Thaler — rose to prominence among policymakers and new acolytes of behavioural economics.

The nudge concept works alongside another key principle of behavioural economics: loss aversion. The loss aversion principle states that the pain of losing is psychologically far more powerful than the pleasure of gaining. Now is a crucial moment for the government to convey the dangers of our current economic reality, nudge behaviour where it can and manage expectations around loss.

 

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