This is a hypothetical. I know you can’t debate a hypothetical but I’m posting this here as I think it’s the best place for it. Mods, if I’m wrong, you have my apologies.
In this hypo’ you first have to imagine there is no such thing as the internet. The only form of news media is through newspapers and TV. Now imagine, despite the way things really are, all the news media organizations just outright lie. They tell the public: Greece is turning there financial problems around, the auto industry is booming, employers are hiring like never before, etc…
Unless people actually start having an easier time finding jobs, can sell their houses for what they were worth a decade ago, make good money from their IRA’s, and so forth, I don’t see it making a lot of difference. Reality is what it is.
Personally I’d be much more subtle than that. Imagine what would happen if the official statistics were manipulated by:
redefining the definition of unemployment from time to time to make it more restrictive.
publishing employment stats that include a big guess about new jobs being created.
changing the basket of commodities used to generate the consumer price index, and excluding things like housing and gas costs from the same.
-switching between using median and mean figures as it suits you.
Then you’d just rely on the media to blithely report the figures in your press releases without any sort of analysis. Job done.
The point I was driving at: Wouldn’t a false sense of confidence encourage people to start spending money hence improving the economy, making everything else fall into place?
Yes. People would figure out that something was going on. It would probably cause a financial panic in the long run as people figured out was happening; after all if the media is systematically lying about the economy, just how bad must things be?
But you can’t have radio silence on just that one thing. In order for a society to be structured as you propose, it would have to operate on the level of North Korea. How much consumer spending goes on there?
No, it would at best have no effect since unemployed people don’t have anything to spend. More likely as I just said it would make things worse as the rumor mill started up on what was really happening.
I think the change in confidence would have to start at the top, with corporations and financial institutions. If they were convinced that prosperity was just around the corner, they might start lending, hiring and increasing production, which would boost the economy and become a self-fulfilling prophecy. I’m not sure that the confidence level of the average individual, or even many average individuals together, would have much influence.
Right. Unemployed people don’t have money. But business owners and investors do. If they start throwing around the cash that means that the unemployed might find themselves some work; once again contributing to the economy. No?
It’s not enough for people to have confidence in the economy. They have to have confidence that they have the money to spend and that there will be more tomorrow to replace what is spent today. In other words, a reliable paycheck. If we want to increase demand and jumpstart the economy, then we need to arrange for large numbers of people to have such a paycheck again; lying to them about what’s happening somewhere else won’t do a thing for that. They’ll still be just as aware that they and lots of people they personally know don’t have a job.
That won’t happen. It’s demand that stimulates job production; businesses are sitting on piles of cash right now. They are doing just fine. They aren’t going to hire people for any other reason than demand. And they’ll know that demand isn’t up from their own business; they can just do the equivalent of looking at their shelves and seeing unsold product to know the demand isn’t there no matter what the media says.
But even in this bad economy most people do have a job. Many are not spending because the know the economy is bad and they are worried they won’t have a job tomorrow. Meanwhile the businesses aren’t hiring because they know the economy is bad and so they expect no one will buy their products.
A fair amount of self delusion can do wonders for an economy at least in the short term. See FDR’s there is nothing to fear but fear itself. As a second example of practical psychology in financial markets look at how Brazil took care of hyper inflation in the 90’s
I disagree. I can say that manufacturers, at least, have to speculate what the demand is going to be in the fututre. They would have to start hiring NOW in oreder to meet that demand.
Well, if the media were their only information source for global economics, it could make a difference to what international investors do, perhaps. But TBHI think the financial media does often tell half-truths at best, often negative.
Eh, demand would increase with consumer confidence. Those with money being more confident and willing to part with their cash would increase demand for goods and services.
The mass media lies about life, portraying it as more sanitized with more attractive characters than it really has. The end result isn’t that we change our behavior to match mass media, it is that we become neurotic messes because we can’t live up to what we see in the mass media. Most of us are average looking, anonymous, fairly boring with lots of skeletons in our closet which is a far cry from the mass media image of life where everyone is telegenic, famous/successful, interesting and lives a life lacking in serious shame or insecurity. We don’t become what the media implies, we just become neurotic that we lack it.
I think the same thing would happen with the economy (and arguably has), people would just become neurotic. I think if people spent more time talking to people they know nearby, they’d realize a lot of people are struggling more than the media tells them. Young workers, older workers, retirees, college students, etc. All having problems that in some ways do not get the airtime they deserve in the media. The media seems to be more adept at promoting self hatred by making people think the outside world is more successful than it really is. Arguably that is going on right now.
Then again if people thought there was economic security when there wasn’t, maybe demand would go up and start getting us out of this slump. But this slump is also due to trillions in debt (public and private) combined with trillions in lost equity and wealth. You can’t sweep that under the rug.
Business owners and investors have many sources of information that the mass media don’t report, and can’t control. They aren’t going to be persuaded by CBS or Fox that things are going to be rosy next month. They will look at their own info sources, and continue to sit on their money. All your hypothetical manages is to get Joe Blow to start hoping, but not yet spending. Then Joe starts wondering a year later when that prosperity is going to hit him. Then he starts doubting what he’s being told. Things continue downward from there…