Saturday, July 18, 2009

Economic Crisis and the Art of The Stimulus- To Boldly Go Where No Man Has Gone Before?

From the "The Art of The Stimulus- The Final Frontier" Dept., the "Economics- Why hast thou forsaken me?" desk.

Christina Romer wrote an interesting guest article in the Economist on the Lessons on 1937:

The article states that the response to the fiscal stimulus in the early 1930s was pretty rapid, and cautions against switching to a contractionary fiscal and monetary policy too soon.

My take? I found it interesting that Ms. Romer picked healthcare reform as an example of how the government could bring about long term fiscal stability, given the various trade offs the government can make. Overall, the chart, and the numbers certainly tell a story.

Does Ms. Romer's argument convince? Yet?
Despite the seemingly obvious story we can glean from the chart, I would like to I would like to dig a little more into life and times in the 1930s. This is not my excuse to watch Public Enemies (deft touch there, isn't it?).

What would be the clincher?
I would like to leverage the economic data artefacts of the time strictly as socio-economic archeaological evidence that develop a socio-economic anthropological view (phew!) of the time.

Socio-Economic Anthropological Snapshot? What? Why?
1> If we seek solutions, then we need to delve into why some solutions worked in the past. A cool chart demonstrating exponential growth as a result of a stimulus is really a starting point.

2> How is this different from research already published? Isn't there enough research out there that succintly (parsimoniously) captures conditions in the 1930s via standard economic models?
A great example of how I differ can be found here:

3> Socio-economic anthropological snapshot? Phew! Yes, if the objective is to stimulate the economic engine, how else do you do it without understanding the motivations behind the number?

4> How specifically does a "better understanding" help us act? This understanding may tell us whether the current socio-economic climate contains "discontinuties" that would impact the models [**] we are counting on to help us solve the current crisis. This understanding of the discontinuities may help us improve the solution.

5> If it further helps drive home the point, here's an apocalytic scenario I have previously posted about:

What do YOU think? As always, I welcome your insights.

[**} Am I being "circular" here? Or am I truly rejecting economic modeling as an approach?
- My contention is that current models may not help us define solutions.
- At the risk of sounding like a behavioral economist, we need to dig a little deeper into the context and gain insights.
- However, as an agent in a behavioral market, how can I count on I getting real insights on potential differences between the crisis in the 1930s and the crisis we face now?
- Even if I do, should I not be able to find proxy variables to develop a "new model" that leads to an actionable approach?

1> The ideas were first published on a macroeconomics forum on July 12, 2009 while gaping at Tim Geithner on Fareed Zakaria GPS. Many thanks to Prof. Rosensweig for the wonderful forum.
2> The ideas in the post above are a further elaborate my thoughts below, earlier this year:
3> The next post stretches my ideas on economic models a little further:



  1. structure produces behaviour

  2. structure produces behaviour