If You Can't Grasp The Status Signal Economy Then You Have No Place Commenting On Macro

From Will Wilkinson by way of NEWMARK’S DOOR.

Behavioral econ offers policymakers an added dimension of evasion. A government can make a big hullabaloo of caring about energy consumption and climate change by sending folks mail detailing in vivid color their energy use relative to social norms instead of making themselves unpopular by making voters poorer. Not only is behavioral economics not some sort of master-key for effective policymaking, it gives politicians a fresh way to appear forward-thinking, activist policymakers while really doing nothing much at all.

Or rather, behavioral economics illustrates why people are resistant to constant forced transfers. :)

The public has decided that the secondary effects, and related costs, of monetary policy are simply too high.

For this reason the governments both here and in Europe will have to insert money into the economy through industrial policy (targeting) rather than through consumer liquidity. Period. End of story. Stop wasting everyone’s time with consumer stimulus.

An economy is not a society. Any economy making use of macro policy must be a relatively homogenous polity. Why? Because ALL MONETARY POLICY IS REDISTRIBUTIVE.

We are not going to end up with the happy homogenous world policy makers and Keynesian economists using the convenience of aggregates desire. That’s because small homogenous nation states with their own currencies are egalitarian and redistributive and therefore tolerant of monetary policy. The citizens of large modern empire-economies like the USA and the Euro Zone find redistributive policy intolerable to the populations. The similarity between the USA’s current culture of political impasse, and the Euro’s culture of monetary impasse is driven by the very same very human behavior – dislike of redistribution across cultures.

And if governments succeeded in enforcing macro policy on those populations over the objections of the populations simply because macro is EASIER to enact than industrial policy, then one of two things would happen: a) the political structures would become increasingly weak and unstable leading to increasingly totalitarian measures, or b) citizens will ‘check out’ of society and the economy.

People will undermine a government that uses their money for purposes with which they disagree. And Germans reject redistribution to Greeks as much as Americans reject redistribution to blacks and hispanics and muslims. It doesn’t matter if it’s unacceptable to state it openly. It’s just reality. And since status signals are more important than money to EVERY HUMAN BEING then human behavior is not going to change. Just as humans cannot think and plan without money and prices, they cannot think and plan without status signals that suit the abilities of their social class. In other words, status signals are as necessary to human cooperation as are prices.

Mr Keynes’ aggregates only apply to homogenous nation states for this reason. I’ll keep promoting this idea until I drop.

And chiding ‘behaviorism’ only serves to reflectively criticize Keynesianism on the same grounds because it likewise relies upon behavior: If we can make use of one cognitive bias by fooling people into thinking they’re wealthier than they are so that they spend by increasing the supply of money faster than sticky prices and contracts can adjust, then we certainly give validity to behavioral methods.

People are not egalitarian across status signals. They are only egalitarian with money BECAUSE it increases the value of their status signaling.

If one cannot grasp this basic fact of reality then one has no place promoting macro – or commending on policy whatsoever.

Which is why I throw it at Krugman and his trio at every opportunity.