For months all the major stock exchange indices have been plummeting… until the past few days. So have been employment numbers, and the unemployment rate is higher than it has been in 25 years. In the publishing field, not all that large to begin with, more than a 1,000 jobs have vanished in the last few months. So have at least half a dozen “name” imprints, as well as one of the major wholesale distributors. The second largest retail book chain — Borders — is teetering on the brink of financial and sales disaster. Some of the larger newspapers across the country have either closed — like Denver’s Rocky Mountain News — or are threatening to do so.

And everyone seems to be speculating on just how bad things will “really” get. Will the drop in stock prices rival the percentage decline of the Great Depression? Will oil prices get so low that oil companies will stop drilling? Will and should General Motors go bankrupt? What about Citicorp? Will publishers stop buying debut novels for the next year or so… or longer?

Yet, some two years ago, financial pundits were talking about the possibility of the Dow reaching 30,000 [instead of plummeting toward 6,000, as it was early last week], and seasoned homebuilders were hammering out new houses at a record rate. New publishing imprints seemed everywhere.

Now… while I was trained as an economist, and while I do follow the economic indicators and the economy very closely, I’m not about to predict how bad matters will get… or when. The one thing I did learn during my years of doing such things for a living was that the only thing you can be sure of is that the more economists agree on something, the less likely they are to be right. In fact, I actually wrote a short study on that subject at the behest of one employer.

What I am convinced of, however, is that, just as people followed trends “upward” far, far longer than made any rational sense, so too will they follow trends downward far, far longer than makes any rational sense. Already, thousands and thousands of investors are buying Treasury notes which yield almost nothing, because they feel T-bills are “safe.” In a sense, they are, because not much will be worth much of anything if the government collapses, but buying them at such rates guarantees an absolute loss. That’s because, if the interest rates go up, the value of the notes goes down, and when the yield is close to nothing, the only things that rates can do is stay stable or go up. So the best all those investors can do is end up with the same amount of money. That’s the best they can do. In the meantime, the short-sellers in the stock market are betting heavily that investors will overreact and continue to sell short on the downside, exacerbating the pressures for overreaction. The current “up” bounce may very well be another over-reaction, because the basic economic news hasn’t really changed.

The previous “up” and “down” trends, as well as the present short “up” trend, illustrate, to my mind, the fact that human beings in groups always over-react. Teen-aged girls in crowds at rock concerts over-react. Young men in gangs over-react. Bankers in groups over-react. So do groups of politicians linked by party symbols. Young and middle-aged male-investors linked together by the internet over-react.

And while I’ve observed this for years, I don’t have an answer… except to consider that to over-react is clearly human.