Saturday, August 25, 2012

Hence, we are where we are...

So Jane's rapid recovery (per yesterday's column) correlates with her discovery of her husband's peanut butter cups. And as far as Jane is concerned, it was not simply a case of correlation, it was indeed a case of causation.

So the economy's recovery correlates with fiscal and monetary stimulus. As far as the politician and the Fed Chairman are concerned, we're talking causation there as well.

Of course there are ancillary benefits to consider. Jane has grown (and I do mean grown!) to love that curious combination of chocolate and peanut butter. And the politician and Mr. Bernanke sleep much better knowing that they can tap trillions to avert a career-killing (theirs) economic contraction. In other words, there can be substantial short-term [egocentric] incentives to believing a certain thing.

Others have incentives as well: If you're the CEO of Hershey's, you'll promote Jane's science. If you're a recipient of government subsidy, or an economist in line for an appointment to the President's Council of Economic Advisors, you'll praise the efforts of Washington and the Fed.

If you're today's voter who doesn't give much thought to the importance of the business cycle and free markets, their rhetoric, alas, makes perfect sense to you. Hence, we are where we are...

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