Economics: The Great Moderation
May. 2nd, 2008 09:11 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
snousleRecent denial over the lack of a recession in Q1 has astounded me. It shouldn't.
I have come to realize that there is an enormous, glaring problem in the average person's understanding of the economy. Media reporting on the economy is all drama, drama, drama. The economist's view, in contrast, is that we have undergone a historic transformation in how the economy works. No, this is not the "New Economy" of the endlessly rising stock market. It's something much less mediagenic.
It's called the Great Moderation. It seems to me that this is the most under-reported story of my lifetime. Because it's really, really big. And really, really boring. That it's Wikipedia article should be a mere stub is astonishing. A relatively good discussion, something less dry than the Bernake speech linked above, is worth reading here.
It has occurred to me that not understanding the moderation is a driver of economic inequality. Being a pessimist means betting on volatility and change. If you believe things are going to hell, you don't invest. And if you don't invest, you get left behind. I mean "invest" in the most general sense; whether it be in money, education, relationships, whatever - it's what you do when you believe the future is in some sense predictable.
That's what bothers me about economic pessimism. This addiction to media drama is leading people to squander their resources out of fear of losing them, when they could be riding the bland wave of the Great Moderation instead.
The media response to the non-recession also makes sense in this context. When I went to dog training classes a few years back, the instructor spent some time talking about "extension behavior". When a dog misbehaves in order to get a particular result, and that result doesn't happen, the short-term response is to try harder. In this case, the yapping dog of the media, which through its noisemaking grabs our attention and sells it to advertisers, has had less and less to work with. Headlines like "Rapid rise in oil prices results in surprisingly little disruption to the economy" don't sell papers. So over the past twenty years, the media has had to yap louder and louder over smaller and smaller stories, due to the systematic damping-out of real economic drama.
It's a dysfunctional relationship, and the accumulation of cognitive dissonance is resulting in some seriously abberant behavior. Like trying to re-define "recession" so that we can satisfy the collective psychological need to be in one right now.
I have come to realize that there is an enormous, glaring problem in the average person's understanding of the economy. Media reporting on the economy is all drama, drama, drama. The economist's view, in contrast, is that we have undergone a historic transformation in how the economy works. No, this is not the "New Economy" of the endlessly rising stock market. It's something much less mediagenic.
It's called the Great Moderation. It seems to me that this is the most under-reported story of my lifetime. Because it's really, really big. And really, really boring. That it's Wikipedia article should be a mere stub is astonishing. A relatively good discussion, something less dry than the Bernake speech linked above, is worth reading here.
It has occurred to me that not understanding the moderation is a driver of economic inequality. Being a pessimist means betting on volatility and change. If you believe things are going to hell, you don't invest. And if you don't invest, you get left behind. I mean "invest" in the most general sense; whether it be in money, education, relationships, whatever - it's what you do when you believe the future is in some sense predictable.
That's what bothers me about economic pessimism. This addiction to media drama is leading people to squander their resources out of fear of losing them, when they could be riding the bland wave of the Great Moderation instead.
The media response to the non-recession also makes sense in this context. When I went to dog training classes a few years back, the instructor spent some time talking about "extension behavior". When a dog misbehaves in order to get a particular result, and that result doesn't happen, the short-term response is to try harder. In this case, the yapping dog of the media, which through its noisemaking grabs our attention and sells it to advertisers, has had less and less to work with. Headlines like "Rapid rise in oil prices results in surprisingly little disruption to the economy" don't sell papers. So over the past twenty years, the media has had to yap louder and louder over smaller and smaller stories, due to the systematic damping-out of real economic drama.
It's a dysfunctional relationship, and the accumulation of cognitive dissonance is resulting in some seriously abberant behavior. Like trying to re-define "recession" so that we can satisfy the collective psychological need to be in one right now.
![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
no subject
Date: 2008-05-03 02:58 pm (UTC)I do wonder, though, if in evaluating the US economy, Americans understand how difficult things are in the rest of the world even compared to the absolute worst-case scenarios here. That's a whole 'nother issue.
no subject
Date: 2008-05-03 08:22 pm (UTC)