Stimulus plan and a new economic agent
February 28, 2009
Reacting to Daniel’s post from earlier this week. Yeah, these are valid points, especially about the mechanisms/market devices but there is something to add here, which is absent from the discussion (at least the bits I read/heard) and that is how crucially important is the overall sentiment (both public at large, policy makers and academics) for the success of the stimulus plan. Let us see, hypothetically, how such a sentiment can evolve. I agree completely with Daniel about the dominance of the archetypical ‘rational’ economic agent who will not use a tax for spending but, instead, save the additional funds. What we should be aware of is that, over the last few decades, successive generations of policy makers and economists collaborated in constructing that agent. The rise of supply-side economics along with the rolling back of the welfare state, are just two of the long-term trends that, coupled with intellectual support from leading economics departments, eroded the belief in the validity and usefulness of a Keynesian worldview. This may sound depressing as it implies that today’s public and policy makers are not just facing a dire economic situation but also have to deal with a dominant type of economic agent who is, in essence, antithetical to expansion plans. That said, there is hope here, I believe, because the same way the current ‘rational economic agent’ was put together, a different one could also come in its place – an Obama-style Homus Economicus, perhaps?