How Would B.F. Skinner Stimulate The Economy?

In his 1971 classic, Beyond Freedom and Dignity, behavioral psychologist B.F. Skinner argued that a “technology of human behavior” could solve almost all major human problems, from over-population to warfare. Could a science of human technology figure out how to stimulate the economy by getting people and businesses to spend money? Maybe, but first economists might have to examine some of their closely held beliefs about human behavior.

Source: PSY 1001 blog

That’s a fair inference, given European Central Bank board member Peter Praet’s remarks last October at an economic conference in Frankfurt, Germany. “Individual households are heterogeneous in many respects,” Praet said. Hence, “it is important to measure and analyze this heterogeneity because it can have important implications for aggregate figures.” Bloomberg Businessweek’s Brendan Greeley boiled down Praet’s remarks to this: “People are different . . . and we need to understand how to understand the economy.”

This makes sense, but many economists based their predictions on a “single imaginary person who stands in for everyone,” one who, like any rational person, will spend an extra dollar (or euro). If that’s the case, then why do we need any data to tell us that, Greeley opined. “And conveniently, relying on a single person made the math behind the modeling easier,” he added.

The International Monetary Fund economists are rethinking some of their modeling assumptions. In a 2013 working paper, IMF economists Olivier Blanchard and Daniel Leigh found mistakes in the fund’s growth forecasts, concluding, “Consumption may have depended more on current than on future income.”

Another reason for the models’ faulty predictions lies in new economic trends that emerged in 2010. The drop in home values, tighter credit, and frozen interest rates were some of the trends the traditional models did not foresee, according to Christopher Carroll, a professor from Johns Hopkins. Carroll also presented at the Frankfurt conference, bolstering claims by earlier researchers challenging the “single imaginary person” model.

 

Carroll argued for a multi-agent model after observing differences in the spending habits of poor and rich people. Summarizing Carroll’s analysis, Greeley wrote, “Rich people behave like the hyperrational agent. They plan for the future. They save during a stimulus, thinking about the taxes to come. And they can borrow during a fiscal contraction.” On the other hand, “poor people are what economists call ‘borrowing constrained.’ They tend to have more needs than are being met, so when money arrives, they spend it.”

 

So, how would Dr. Skinner stimulate the economy?  No one can say for sure (he died in 1990), but, as a behavioral scientist, he might begin by studying spending behavior and the stimuli that trigger it, noting how different stimuli affect different groups of people. But perhaps Skinner wouldn’t assume that having extra money necessarily stimulates economic growth. Instead, he might begin by identifying the behaviors associated with such growth and the stimuli that shape and maintain them.