Monday, February 16, 2009

Maybe We Can Fake Our Way Through the Recession?

If economists Paul Krugman and Robert Reich are correct in their fears that the economic stimulus package recently passed by the U.S. Congress and due to be signed this week by President Obama is too small, some are suggesting another option: Bluff.
That's the idea that is discussed by neuro expert Jonah Lehrer in a recent posting in his blog.
Lehrer, who will speak on "the science of decisions" February 19 at a Commonwealth Club Inforum program, writes:
Over at the Economist, a number of economists have been speculating on the possibility of an economic "placebo" that would boost consumer confidence without actually triggering a massive spike in government spending. In other words, it would be a Keynsian bump without the cash, akin to giving someone a sugar pill and telling them it's Prozac.
...what does this mean for a potential economic placebo? The key lesson is that placebos work by manipulating our expectations: because we expect the pill to make us happier, we end up feeling happier. This suggests than any economic placebo would need to entail more than just a piddling rebate check, or some other short-term (and hopefully cheap) stimulus. The problem with these measures it that they don't alter our expectations - they just make the present a little bit less unpleasant. Instead, a genuine economic placebo would need to focus on modulating our long-term expectations, so that we become convinced that next month, or next quarter, or certainly next year, things will start getting better. The question, of course, is how the government could do this.

So even a placebo is going to cost a lot of money? I guess there's no cheap way out of this.
See Lehrer for yourself at The Commonwealth Club. And read his blog for some intelligent and often humorous applications of the "science of decisions" to our lives.


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