What You Do Know Can Hurt You

by: IPE at UNC

By Kindred Winecoff

Robin Hanson asks whether macroeconomists should clam up during times of crisis:

Wise taxpayers who get stimuli tax rebate checks should mostly save them, realizing that future taxes must rise to pay for those checks. For similar reasons, wise taxpayers should also spend less upon hearing about government spending increases. So with wise taxpayers it is not obvious that tax rebates or government spending increases would help much with the downturn.

The consensus among macro-economists seems to be that people can in fact be fooled by such stimuli, but as Tyler indicates, it is not clear which policies most fool us. In particular, the more public attention we give to the stimuli, the less they might work. We might make people realize that they need to compensate via saving, and the more we scare folks into thinking we need huge stimuli, the more we might scare them away from normal economic activity levels.

Believe it or not, there's a pretty deep literature on "rational ignorance" but Hanson is wondering about the potential social benefits of intentionally keeping the populace in the dark.

I'll extend the question even further: If it's appropriate to keep the populace in the dark, then why not take the extra step and deliberately mislead them in order to get them to operate in the most socially beneficial ways? To ask that question is to answer it.

If Keynesian macroeconomic models really are contingent upon the populace acting irrationally, then we're all in trouble. Since I don't think that is the case, it would be better to have public debates and discussions about economic policy, even if it means having to listen to Joe the Plumber and Michelle Malkin from time to time.