Policy fetishism
Are we making a fetish out of economic policy?I ask because of an omission from today’s newspapers. None, AFAIK, reported that the Bank of England said yesterday that the cash holdings of non-financial companies have risen at an annualized rate of 22.8% in the last three months, having fallen sharply for most of last year. But this turnaround is great reason for optimism; the more cash firms have, the less likely they are to cut spending on jobs and inventories. And yet, whilst omitting this fact, the dead trees are full of talk about the G20 meeting, even though most sensible observers doubt it will produce anything other than banalities.It seems that newspapers - aided of course by Brown - believe the fate of the economy hangs upon the actions of policy-makers, but are ignoring evidence of whether it might recover anyway, even if fiscal or monetary policy do little to help.Which raises the question. Why do they pay so much attention to policy, and so little to the underlying economy? Here are three possibilities:1. The availability bias. Policy is big and obvious - more so than Bank of England statistics - and it’s natural to think that things that leap easily to mind must be important. 2. The leadership illusion. Newspapers are hugely hierarchical organizations. This contributes to a faith in the power of leaders to affect things. This faith might be exaggerated. 3. The glamour bias. From a distance, policy looks exciting: all that power! All that testosterone! And it’s easy to think that this matters. But in fact, the question of when the economy will recover rests upon deeply unglamorous and downright dull evidence - about such things as the inventory cycle and monetary growth.
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