Larry Summers: genius economist, failure at Psychology 101

by New Deal democrat

Larry Summers: genius economist, failure at Psychology 101

One of my recurring themes is how macroeconomic theory, no matter how elegant mathematically, consistently errs because it fails to take into account basic psychology — i.e., how the human animal actually works.

A big component of this failure is that humans, like other primates and apparently like just about every other social species, are hard-wired to inflict punishment on “winners” from inequitable distributions, even at cost to themselves. For a hilarious example of this, see what happens when an experimenter rewards one monkey with a cucumber while feeding another a delicious grape.
One such failure to take into account elementary psychology was on display in an article a few days ago, wherein Larry Summers, in the course of lambasting the rubes for trying to undermine global trade, concluded:

A strategy of returning to the protectionism of the past and seeking to thwart the growth of other nations is untenable and would likely lead to a downward spiral in the global economy. The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges.

To which the appropriate response is something like: “Well, you f*****g genius, how many decades have you had to study the problem??? What have you ever proposed?”
Since the real answer to that question is “nothing,” we know that you actually don’t care.  And there, the genius economist runs headlong into freshman level psychology.
Because, even if his defense of globalization is accurate, what the suffering middle/working classes have done is to serve notice that Summers’ cherished economic progress will be destroyed until the benefits are equitably shared. There will be no “maintaining openness” until “help[ing] workers at home” is accomplished first.

In other words, the masses are saying, “Do we have your attention now?!?” Reading Summers in this article and Brad DeLong in virtually every article in the last several months, I would say, “yes, we do.”

See, that animal behavior works!

cross posted with Bonddad blog

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