In the days before the US election, Congress got together to consider yet another economic stimulus package.
Once again, they considered sending small checks to many Americans in the hope that spending would stimulate the economy.
Most economists agree that this kind of stimulus package is at best a short term boost to the economy, and that the global economic crisis requires long-term solutions. So, why consider a stimulus package again? I suggest that one reason is that the economy has a poor user interface.
Clearly politicians will try to do things to help the economy recover. The question is how most of us will know that things are doing better. Certainly, economists have developed all sorts of statistics to measure the health of different aspects of the economy. Turn on the news, and you'll hear about the gross domestic product, consumer confidence, housing starts, retail sales, and all manner of other economic indicators.
Those numbers don't communicate much to the average person. Most of us are swayed by our daily lives. Do we have money in the bank? Can we pay our bills? Are people around us working? Are there houses for sale in the neighborhood that aren't selling? That is, what makes us feel that the economy is doing well or poorly has as much to do with our own circumstance as it does with news about economic facts and figures.
Now, this is a problem. The economic problems are going to require long-term solutions that will take effect slowly. But, the factors that make us feel secure are local and in our current environment. And in the United States, the election cycle is short. In only two years, every member of the House of Representatives and a third of the Senators will have to be re-elected. Two years is not a lot of time to turn around the global economy.
The need to make it look like politicians are working on the economy will drive them toward short-term solutions like stimulus packages. Perhaps we would all be better served by having experts in economics work with psychologists to develop a user interface for the economy.
Back when the internet boom was first starting in the late 1990s, companies rushed to put up websites to sell everything from books, to drugs, to groceries, to gardening supplies. Most of these companies went bust. And many of them failed because they didn't take into account the way people shop and make decisions. The websites were hard to navigate, and they didn't make it easy to get the information you might want to make a good choice. Now, successful internet retailers make sure that they work with people trained in Psychology to help develop user interfaces that mesh with the way people want to shop. If you want a good readable introduction to this area, check out Don Norman's book The Psychology of Everyday Things.
I suggest that a similar thing needs to be done for the economy. People need to have a more tangible sense of how the economy is doing. It should not have taken a significant crisis in the housing market for most people to discover that the economy was in trouble. Similarly, it would be nice to have a way for people to recognize that the economy is getting stronger, long before it is blindingly obvious.
I'm not an expert in economics, so I can't suggest how to build that interface. However, I do think that fruitful collaborations between economists and psychologists might give us a start in that direction.
