What is behavioral economics? | Financial Times

What is behavioral economics? | Financial Times



This article is a live version of Martin Sandbu’s free lunch newsletter.registered Here Make newsletters delivered directly to your inbox every Thursday

It is not difficult for everyone to find that President Biden’s economic policies are completely different from what we have seen in the United States (and even anywhere else) for a long time. Given that Biden has long been recognized as the supreme centrist among Democrats, this huge policy push has surprised many people. However, in only about 100 days, he proposed three plans, each of which is radical in itself: the American Relief Program, the American Employment Program, and the American Family Program. The first one has passed, and the last two must still pass Congress.

The political logic or potential risks of this approach have also received many comments. Less is its knowledge base. But it is important: if policies are primarily based on political considerations, then we should expect their staying power to be less durable than policies based on principled beliefs and coherent analysis of the economy. Megan Greene Recent controversy It is believed that “behavioral economics” is indeed the latter, a “different framework” that can make it resist some criticisms of its scale, and if it is considered successful, it can “renovate” economic thinking.

I believe she is right, but don’t believe me. In the past week, the Biden administration has wavered in defense of its plans. What is striking is a very clear call for a different analysis of how the economy works.Last week’s briefing Biden’s Council of Economic Advisers (CEA) stated that the Trump administration’s tax cuts “reflect the old concept of lower tax rates. [while the] President Biden’s “American Employment Program” and “American Family Program” are based on different economic theories.

On Tuesday, Treasury Secretary Janet Yellen walked into the lions’ den to defend the government’s package of public spending and tax increases. Speech To the American Chamber of Commerce. Here, the appeal of a different analysis of the economy is also obvious: “I believe we must readjust the framework of US fiscal policy. For decades, the main focus has been on reducing and then limiting the government’s share of the economy’s demand. … Now is the time for our government to take on a more active and smarter role in the economy.”

The recurring argument in these two documents is that Biden’s economic policy strategy will increase the productivity of the private sector and the entire national economy. The CEA notes emphasized the four different elements of the three plans, all of which are reasons for the belief that productivity is lower than it should be because the plan intends to correct past policy mistakes.

The first is that public capital (such as infrastructure) and innovation spending have a positive spillover effect on (other) private sector companies. The decline in public expenditures for both makes the supply of both fall short of demand. From the perspective of the economy as a whole, resuming such expenditures may not only pay a price.Yellen pointed out that although any individual public investment may lose money, “what we recommend is folder Public investment together Will directly bring considerable positive benefits to the American people” (my italics).

Second, the government emphasizes the need for the government to play a role in coordinating the behavior of the private sector to make it as effective as possible. The examples provided are pandemics and supply chain disruptions in the carbon transition-in both cases, it can be said that the optimization of the private sector may eventually coordinate good and bad investment paths, and the government can help ensure that things get better.

Third, Biden’s economists cited overwhelming evidence that investing in early childhood care and education can bring huge economic returns by cultivating a population with higher skills, abilities, and productivity.

Finally, although eliminating inequality is a goal in itself, the CEA statement also emphasizes the growing body of evidence that greater equality is not only good for oneself, but also good for innovation and productivity.

Each of these arguments is sensible enough that it may not be obvious that they have reshaped the overall policy and political arguments to some extent. If productivity depends on policy choices in this way, then in Green’s words, “the economy may tend to a variety of different systems”. She correctly concluded that the role of policy must be ambitious, not to stabilize the economy according to the previous path, but to “prevent the economy from falling to a fundamentally lower balance or to push it up to a higher balance.”

I want to add two things. First, this economic analysis also provides a strong political argument for the government. If Biden’s strategy can push the U.S. economy to a permanent or even higher growth path, then virtually everyone can get better—including countries where he is demanding more taxes. Yellen held this view: “We believe that the investment and taxation proposals in Jobs’ plan will serve as a package plan that will increase our company’s net profit and increase its global competitiveness. We hope that business leaders will look at it this way. To it and support the Jobs plan.”

Another implication is that the debate about “whether behavioral economics will cause inflation” misses a big question. If the government correctly believes that its policies can shift the U.S. economy to a higher or even faster growth path, its supply capacity will be expanded to meet current demand stimuli that are more than expected by standard analysis. After all, the positive productivity shock is deflation, so the productivity argument in the government argument implies that price pressures may be reduced and the Fed keeps interest rates low.

Don’t be fooled by the size of the expenditure. This is supply-side economics, but not what you think.

Other reading

  • Multilateral think tanks claim that the International Energy Agency has dropped a blockbuster on global climate change No new fossil fuel exploration If the world is to achieve zero net carbon emissions by 2050, it will start this year.

  • If the EU’s newly popular social agenda will influence the EU’s economic decision-making, it will adopt Ongoing political work Rather than institutional reforms.

  • Chronicle of Fragmentation: The Chinese authorities are Restrict data transfer abroad Produced by smart cars.

  • The Resolution Foundation and Economic Performance Center of the London School of Economics has Initiated the “British Decade”This is a powerful question about how the country must reform its economy before 2030.

Number News

  • In a long reading of the Financial Times Weekend, Ruchir Sharma’s stock is fascinating Billionaire Research, How their destiny came from different sources in different countries, and how they increased their share of social wealth during the pandemic. Who knew that billionaires have more national wealth in Sweden than in the United States? Or is France a country where billionaires owe most of their wealth to their parents?

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