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Understanding dog psychology is as simple as understanding how a natural pack of dogs behaves and modifying your own discipline techniques to reflect that. Anyone who has ever studied anthropology, psychology or sociology knows that through thorough observation you can deduce any group's mentality traits, thereby understanding what will and won't work with regards to integration into said group and in the case of pack animals like dogs, putting yourself in alpha position and commanding respect and obedience. The idea that you have to have been a dog to know how one thinks is fallacy, if that were true there'd be no such thing as animal behaviorists, or criminal psychologists, for that matter.
It's been proven that you can deduce the way an animal thinks by research and studies (broadly, it's called behavioralism) involving their actions. Jane Goodall's entire life revolves around this principal, and you'd be pretty hard pressed to find any individual more versed in Chimpanzee behavior and psychology than her.
The point is, that once your recognize a dog as a dog, not as a person, you can begin to treat his behavior like an alpha dog would. This doesn't mean no touching, no reprimands, no discipline.. It just means touch a dog can understand as discipline, not attack, reprimands that are immediate and to the point and constant discipline. As dogs are pack animals, they're only truly happy and balanced when they have a place within their family group and understand their boundaries and their place on the totem pole. I think a key to having a balanced dog is to avoid anthropomorphizing the animal and treat it like nature intended it to be treated by those of it's own kind (with certain concessions, of course).
Anyway, if you don't agree that treating like with like is the way to go, that's your prerogative. It's worked for me.
Those are my thoughts on dog behavior, anyway...
To the OP: I think adoptedbyachicken is right on the money with the suggestion that a dog needs to be offered constructive outlets for their natural tendencies too.. People use this technique for working breeds all the time, retrievers are taken to the lake and made to bring in "prey", herding dogs and terriers do incredibly well with agility training, mastiffs enjoy pulling wagons etc. IMO, a dog who has been bred for a specific purpose is happier at then end of the day when he feels he's done his job. There are a plethora of information sources regarding extra curricular activities that help keep working class dogs happy and balanced (not to mention adequately exercised). The idea that a dog will be happy cooped up in the yard with only one or two walks a day and no mental or physical stimulation (read, challenges) is a bad one.. dogs have a strong tendency to become bored and destructive when left to their own devices, to say nothing of their tendency to become emotionally unbalanced over time.
Aaaaand lastly (soap box warning here), just because people did things a certain way in the past doesn't mean it's okay to do them the same way now.. Theoretically, we know better nowadays. I don't think society is "going down hill", and even if it was, it wouldn't be because people don't think it's acceptable to belt their kids anymore. I think that we have a tendency to think society is "bad" now because in the information age it's so much easier to be privy to all of these escaped closet skeletons we see dancing across news stations and websites.
As the verse goes: "What has been will be again, what has been done will be done again; there is nothing new under the sun."
