The stimulus, animal spirits, and yes State Rep. X, GDP did grow...

"It has been said that man is a rational animal. All my life I have been searching for evidence which could support this."

                                                                                                                                 --Bertrand Russell

 

 

“Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”

Paraphrased variant: “The markets are moved by animal spirits, and not by reason.”

                                                                                                                            --John Maynard Keynes

 

 

So I attended an event in Walton County on Thursday night for my state senate race.  I utterly flubbed the forum kind of bumbling my way through losing my normal thread of bullet points.  Normally I stay for the other races to listen, just like to hear what the politicians are saying.  But this time I kind of scurried out the door and went downstairs finding a few locals to talk to on the steps of the old courthouse in Monroe.

 

A state Rep that is running in another race was out there and at some point we started talking about different issues facing the state.  The subject turned to the stimulus.  He argued that the stimulus didn't work and that it was a waste of money.  While you can argue that the stimulus didn't do enough--and you fear a double dip recession--you can't argue it didn't get us back on a quicker path to having the economy run at full capacity; GDP did grow via the stimulus.

 

So yesterday I'm sitting in the car listening to NPR (that wasn't intended to rhyme) and this segment on the stimulus comes on...

 

As Obama Touts Stimulus, Americans Are Skeptical 

"The public doesn't feel we've turned the corner yet. They're still pretty gloomy about the state of the economy," Dimock says. "And they're skeptical that the stimulus plan passed last year has really made much of a difference."

In a Pew survey this month, more people said they think the president's policies are hurting the economy than said his policies are making it better. The largest group thinks the policies haven't made much difference.

In fact, many independent economists say the stimulus has helped to revive the economy and prevent even bigger job losses. But Vice President Biden, who oversees the government program, says it's "totally understandable" that many Americans don't see it that way.

"It's real simple," Biden says. "The measurement is: Is it feeling better? Am I more confident? Can I go, instead of getting my hair cut every seven weeks, can I go back to getting it done once a month or once every three weeks? Can I take a vacation? Am I going to buy this car? Do I feel better I'm going to be able to make my mortgage payment?"

I was shocked that he didn't know basic facts about the economy or the stimulus--for instance he told me all of the stimulus was spending when in fact most of the stimulus was in the form of tax cuts.

 

I couldn't help think about the fact that this is a person that sits in on committee hearings to ask questions, and as last minute amendments and changes to bills fly back and forth on the last days of the session he is supposed to be able to process these changes within a tiny window of time.  This is also someone that is--if he's doing his job--speaking with business leaders, community groups, and local officials about whats going on locally.

 

I kept thinking to myself on the drive home---I bet there is a small business owner somewhere in his district that is considering expanding his business but is hesitant too do so because he fears we aren't on the path to recovery. 

 

This kind of behavior is an example of the "animal spirits" first talked about by Keynes, but more recently discussed by George A. Akerlof and Robert Shiller in their book entitled Animal Spirits:How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism which discussed the most recent economic crash via a bursting of the housing bubble.

 

Rational Market Theory argues that actors in the economy are rational and act via rational decision making.  The Great Recession utterly destroyed the simplistic model which is promoted by free market ideologues--and was sacrosanct in committee hearings under the Gold Dome when I was a legislative aide in 2008 and 2009.  In a rational setting small business owners would make their decision to expand by looking at specifics of the economy--seeing that growth was real and unemployment high would mean now is the time to jump in--you'll even get a great deal with many highly qualified job applicants willing to work for a lot less than their market value a few years ago would have implied.

 

No wonder unemployment in this state sits at 10.2%.  If all across this state local elected officials are using their bully pulpit to push ideology rather than actual economic numbers anyone can find in the wall street journal or financial times.

 

Its not rocket science all he had to do was turn on NPR where they noted many--and I'd add "if not most"--independent economist agree that the stimulus helped us get our economy growing a lot faster than it would have without the stimulus.

 

 

Posted via email from Jim Nichols