Cato Institute fellow Will Wilkinson wrote earlier this week:
I am slowly reaching the conclusion that the current debate over fiscal stimulus — like prior debates over monetary stimulus, and the causes of the financial crisis — has exposed the cluelessness of (many? most?) professional economists and ought to be considered an embarrassment to the profession.
In the debate over economic stimulus, I hear many otherwise brilliant people making a lot of baseless conjectures about mass psychology — about consumer and creditor “fear” and “uncertainty,” and what to do about it. But, as far as I can tell, none of them has even a rudimentary theory about the causes of micro-fear or how it scales up to aggregate consumer demand or aggregrate credit supply, etc.
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If booms or recessions are really based in coordinated psychological changes, then why should we think that monetary or fiscal policy is the most relevant policy lever? If the thoughts and feelings of the population are the issue, then maybe the real problem is that the mass media are unduly scaring people. Wouldn’t it follow, then, that good economic policy would have at least as much to do with controlling the media as controlling the money supply?
Today, under the header Wanted: Personal Economic Trainers. Apply at Capitol, Washington Post columnist Steven Pearlstein confirms Wilkinson’s diagnosis of macroeconomics:
My modest proposal is that lawmakers be authorized to hire personal economic trainers over the coming year to sit by their sides as they fashion the government’s response to the economic crisis and prevent them from uttering the kind of nonsense that has characterized the debate over the stimulus bill during the last two weeks.
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As any economist will tell you, the economy tends to be forward-looking and emotional. So if businesses and households can see immediate benefits from a program while knowing that a bit more stimulus is on the way, they are likely to feel more confident that the recovery will be sustained. That confidence, in turn, will make them more likely to take the risk of buying big-ticket items now and investing in stocks or future ventures.
Pearlstein wants us to hire economists so that Washington can better help Americans emotionally feel better? Is that really the only value added macroeconomists can offer? If the only thing macroeconomists are really good for us making us feel stimulated, then as Wilkinson asks: “Somebody please tell me why anyone thinks Larry Summers is better at mass mind-control than Scarlett Johansson?“
