Good comments from Emanuel Derman about Obama house economist Larry Summers’ appearance last night on Charlie Rose:
On Charlie Rose last night, Charlie played straight man to Larry Summers. "What economist has influenced you most?" Charlie asked. "Keynes," Summers answered, trying to look like he wasn’t saying something obvious, "Keynes."
Keynes understood psychology, but there is something about human psychology that all this end-of-days talk about Keynes misses. When the government throws money at the populace, and keeps describing it as a Hail Mary pass they regret they have to make, it must vitiate the effect of the stimulus itself. The first time Keynesianism was used, it was a surprise move to a nation that wasn’t an expert on economic theory; the second time around, everyone knows what is supposed to happen, and that can’t be good. In human affairs, history matters.
Penicillin works even if they tell you they’re going to give it to you, maybe even better. But people’s minds are different from people’s bodies. Is a stimulus so stimulating when they keep telling you they are going to stimulate you? Can you get excited when everyone around you is watching to see how excited you get?
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