Expectations shape behaviour

Surely you have heard that if you fear for something it is bound to happen. But I have never thought that this could be applied even to economic events. In an article in the Buenos Aires Herald it is argued that psychology matters a lot and that many of the consequences of global recesion, such as inflation, are shaped by what workers, managers and investors expect. In this article it is said that if they fear inflation, they act in ways that bring it about. This argument is based on what happened after the recession in late 1948 and 1949 when inflation stopped because people did not expect it to continue. Economists say that inflation is the result of too much demand chasing too little supply. Is it possible for both arguments to be correct? What do you think? Can psychology influence economy?
To read the article click HERE.

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