Supply-Side Psychology

[hmkpoker]

A good economy must exhibit two key elements: an efficient allocation of resources, and high productivity. Any increase in either that does not come to the overwhelming detriment to the other will inevitably lead to greater purchasing power per unit of labor.

On paper, it would seem that supply-side economics, aimed at stabilizing currency and increasing productivity while freeing tax dollars, would work perfectly. But, as many economic liberals would claim, the error to this comes from the fact that classical economics assumes that all people behave rationally, when in truth they do not. It then becomes reasonable to assume that certain social implements could exist that appear counter-productive, but ironically are useful to provide incentive to irrational beings to be more productive, and would result in productive ends outweighing the counter-productive means. (It must be aimed at drastically increasing productivity, because it comes at the direct expense of resource allocation efficiency.) This is the justification of inflationary spending; a rapid increase in the monetary supply makes the people "confident" in the economy, so much so that they work much, much harder, thereby reducing the subsequent recession and resulting in a much, much stronger economy. It gives the economy a "boost."

The problem here is that there is no explanation for how, why (or even if) inflationary spending gives people this overwhelming sense of productive confidence. Claiming that "people are irrational, so sometimes you have to provide an irrational incentive" is asinine. This is like claiming that a missile fired into the air behaves irrationally, so therefore we can effectively employ an irrational missile trajectory if we want to hit our target. People, like missiles, may be irrational, but they are also lawful. An attempt to manipulate them must stem from lawful, scientific reasons, not blind irrationality.

Keynes asserted that inflationary spending would increase the demand and make people want to work harder, and really had know knowledge of how or why this would work. And how could he? He's not a psychologist. B.F. Skinner's findings on basic operant conditioning didn't even exist yet. The answer of how to motivate irrational beings to work harder cannot be explained by economics, which is merely the study of interaction between more-or-less rational beings; it must be explained by psychology.


A Simple Example


The goal is to increase the rate of a certain behavior. This is a simple matter of manipulating the size and proximity of the reward. Let's say we have a rat in an operant chamber (Skinner box). There is a lever that releases food pellets*. The experimenter is able to control several variables in the equation, including the rate of food dispensing (the time between the lever being pressed and the food being dispensed), food release regularity (a random element can be employed that makes it so that sometimes the lever releases food and sometimes it doesn't, the probability of which can be controlled) and the amount of food dispensed. Food can also be dispensed manually by the experimenter.

So how do we assign values to these variables to make our rat press the lever the most? Simple. Set the rate of food dispensing to be immediate, set the amount of food released to be high, set the probability that the food will be dispensed to be 100%, and don't manually release food.

Proximity of the reward to the goal is a phenomenally important variable. We want our rewards now. Immediacy increases the level of satisfaction associated with the task necessary in obtaining it; this is, in fact, the basis of all addictive behavior**. Regularity, that is, the predictibility with which the food will be dispensed, is also highly important.

Size of the reward is also important. The rat is willing to work for more food rather than less. There can be a point where the variables set the reward to be so low that the rat won't even bother doing it, no matter how immediate or predictable the reward is. For example, if you set the system such that it takes ten lever presses to get one tiny pellet of food, the rat will, within minutes, stop pressing the lever with any regularity; when animals subconsciously estimate that the caloric energy expenditure involved in getting the food is greater than the caloric energy the food can provide, it won't bother. This is a basic evolutionary mechanism.***

Manually releasing the food is wholly counter-productive. The goal is to get the rat to associate the reward with the work. Manually releasing the food in these kinds of field experiments almost always inhibits the rat's motivation to press the lever; you have just told the rat that it can get something for nothing, and that's exactly what it will do to get it.


Applying this to economic policy


Ok, so on to the other half of the analogy. Productive labor is the operant behavior to be increased, fiscal/material compensation is the reward. We need to increase the proximity of the reward, the percieved size of the reward, the regularity of the reward, and deny reward to unproductive behavior.

This is a powerful argument <u>for</u> supply side economics! Reduction of taxes increases the direct size of the reward and makes people want to work harder. Decreasing inflation increases the reliability of future rewards****, so people have more faith and confidence in the dollars they earn today. Denying them the inflationary benefits that the "boost" provides forces them to work.

Inflationary spending and the establishment of government programs violate all of these principles. By giving people something for nothing, it rewards and encourages non-productivity. By not decreasing taxes, it fails to increase the size of the reward. By creating inflation, it devalues the dollar and makes the consumer less confident in his reward.

And lastly, if the inflationary period fails to increase productivity so much that it curbs the subsequently predicitible recession, as it always has...well, given the basics of operant conditioning, what do you think will happen to the rat's lever pressing when you just cut his reward?

I see no reasonable evidence, either theoretical or empirical, as to how or why inflationary spending conducive to economic strength.





*in these experiments, it should be noted that the food pellets are somewhat low calorie, and the rats are usually starved somewhat before the experiment to ensure that the incentive is there. More = better. The rat's hunger and high metabolism usually makes "being full" a non-issue if the experiment is conducted properly.

** one of my favorite examples of this is the greatly higher addictive potential of acetylized morphine (heroin) compared to non-acetylized morphine (medical morphine). Heroin has already decomposed into morphine by the time it reaches the opiod receptors; it is the same exact chemical. The diacetyl group just makes it more fat-soluble, and allows it to pass into the brain faster. Heroin "hits fast." That's the only difference.

*** Yes, it is true that if you set the box to dump assloads of pellets whenever the lever is hit, the rat won't press the lever very frequently. However, because supply is limited in the economic part of the analogy, this is irrelevant.

**** Humans, being smarter than rats, can be influenced by potential future rewards.

[hmkpoker]

I'm bumping this because it's the most brilliant thing you've ever read.

[madnak]

I don't like some of this. I say let the market handle it. It's the only way to guarantee productivity anyhow, since value is subjective.

On of the big reasons I hate government so much is their tendency to screw around with operant conditioning in society. Bad news IMO.

[hmkpoker]

That's not what I'm saying. I'm not advocating propaganda here. I'm saying that the economic policies involved in curbing inflation and encouraging the expansion of the free market are inherently more conducive to productivity than inflationary spending.

[madnak]

I agree, but I think it's dangerous to suggest that the government "provide incentives" to business. The incentives already exist; government just has to leave well enough alone.

[hmkpoker]

[ QUOTE ]
I agree, but I think it's dangerous to suggest that the government "provide incentives" to business. The incentives already exist; government just has to leave well enough alone.

[/ QUOTE ]

Someone. Help. Please.

[madnak]

I'm not arguing with your points so much as your terminology.