The Smart Way to Do Nothing
By Bryan Caplan
Here’s a fair challenge from Surowiecki and The Economist‘s mystery blogger:
And as The Economist‘s mystery blogger noted
yesterday, anyone’s who’s paying attention to the stock market knows
what would happen if Obama announced today that he was abandoning his
plans for a major stimulus package:
Markets would plummet, with significant knock-on effects,
based on the actual news that government spending would not nearly
close the American output gap, but also given the signal that America
was no longer committed to serious stimulus.
This sounds right to me. But the main reason that such an announcement would have scary consequences isn’t that the stimulus package is intrinsically helpful, but that the announcement would provoke another psychologically-driven panic. The trick is to reassure people without actually hurting them. And as every Machiavellian doctor knows, that means placebos. May I recommend a cocktail of tax cuts and charisma?
P.S. Of course, if you want to do better than mere placebo, you could suspend the payroll tax…