Socionomics is an area of study pioneered by Robert Prechter of Elliottwave International. It is the study of social mood and how it affects economics and politics. Traditional thought has it that good economic times cause euphoria and lead to investor optimism. Socionomic theory stands this on its head and says that investor sentiment is cyclical and as investors become more optimistic that causes the markets to rise. Optimistic crowds ignore bad news and focus on good news. Pessimistic crowds focus on bad news to the exclusion of the good news thus generating self- fulfilling prophecies.
One hard measure of the well being of the masses is the “Misery Index” which is calculated by adding the inflation rate to the unemployment rate. As the misery index climbs social unrest climbs. Currently, the misery index is just a hair below 13% and we can see the discontent and anger manifested in things like the “Occupy Wall Street” (OWS) movement. Previously high levels of the misery index resulted in the resignation of Richard Nixon and Jimmy Carter being a one term President.
For a complete look at the political implications of the misery index and the accompanying chart see InflationData’s Misery Index.