Probably without realizing it, most Americans had accepted the fundamental promises of contemporary economics. These were: First, we know enough to prevent another Great Depression; second, although we can’t prevent every recession, we know enough to ensure sustained and, for the most part, strong recoveries. These propositions, endorsed by most economists, had worked themselves into society’s belief structure.

Embracing them does not preclude economic disappointments, setbacks, worries or risks. But for most people most of the time, it does preclude economic calamity. People felt protected. If you stop believing them, then you act differently. You begin shielding yourself, as best you can, against circumstances and dangers that you can’t foresee but that you fear are there…

So modern economics has been oversold, and the public is now disbelieving. The disillusion feeds stubbornly low confidence. Because psychology is so important, the good news is that if the economy surprises on the upside, the boost to confidence could accelerate the recovery. The bad news is that if the recovery continues to disappoint, the discrediting of mainstream economic thinking will grow. The resulting intellectual void will summon forth new ideas. Some may be good, but others — though superficially appealing — will be fringe or lunatic.