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I have been reading Paul Krugman and he talks about the confidence fairy... what is the free market answer to rebuttal the confidence fairy?

This question asked by Chris B. from Silverton HS

 

Good question. There is no simple answer. Confidence is a hugely important aspect of markets. When expectations (or confidence) is unreasonably high prices rise and when that confidence is shattered – markets adjust downward. The thought that we can remove human emotions from the way markets work is not realistic. What we can do is learn to temper expectations by providing every market participant with complete information about the costs, benefits, and risks associated with each decision.  When markets are transparent in this way the end results is almost always beneficial for society.

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