In the social sciences, you cannot always observe the variable whose effect you wish to measure. For instance, there is no single exact measure of car safety. So, one might use percentage of cars with seat belts or number of airbags. In this case, these variables become a proxy for safety. In other words, they stand in the analysis in place of the unobservable variable.
Using proxies can be dangerous. Sometimes variables will unintentionally serve as proxies for other variables. For example, consider a time-series where number of accidents and the average speed limit is observed each year. Over time, the number of accidents goes down as the speed limit goes up. Does this mean I should drive 80 mph around my neighborhood to avoid an accident? That does not seem to make sense. It seems more likely that safety features and the quality of cars have increased over time, allowing the speed limit to increase while overall the number of accidents falls. Speed limits over time served as a proxy for safety, with undesirable consequences.
Currently, as we are all well aware, the United States is dealing with an economic recession and a financial crisis. Partly, I argue, the government is at fault for this crisis. For the past 6 months, the government has been responding and attempting to remedy the recession and the crisis. Starting with the Bush Administration and continuing with Obama, the willingness of the government to spend money has been pushed upon us as a proxy for confidence. In my opinion, this proxy will also lead to undesirable consequences.
Intuition lends some insight into this ’solution’. If a gambler has lost everything and goes to the bank to borrow a little bit more, to win it all back, would you lend money to him? Rarely, do we, as a society, view borrowing as a solution to debt. Except, of course, in the case of the U.S. government. Historically, we have griped about this debt, but dealt with it and prospered. The size of the government in absolute terms has grown tremendously since the founding of this great nation.
Now, we have what appears to be a specific problem with banking and housing. Perhaps things are not so simple because the government has yet to aggressively address these issues. It appears more willing to spend money on its agenda and bailout corporations. If we had a plan buried in the trillions of dollars we are spending, we expect to see the willingness to spend money be positively related to confidence and recovery, even though, as in the safety-speed example, the plan was the real cause, not the proxy. We don’t have a plan buried in the proxy though. Not that I’ve seen. Not that the Treasury Secretary has proposed. Not that the markets have responded to (positively).
We have an empty proxy for confidence. When that shroud disappears, we will be disappointed with what we see. Trillions of dollars in TARP and a stimulus bill. Money that we can’t get back, but we can only pray serves its role.
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spencerb
I don’t want to go off on to abstract a tangent here, but your post reminded me of something that has really been bothering me lately.
First, my perspective on economics is so confused. Part of me believes in a very libertarian, hands off, capitalist economic philosophy. The other part of me believes the concept of modern day capitalism and the globalized economy is brutal and inefficient because of individualism and greed (those factors combined). To be honest, I hope in hundreds of years people are laughing about how archaic these methods are.
But I have one gripe that is absolutely the most frustrating for me when it comes to the capitalist perspective (and grounded in thoughts not in the stratosphere lol). Every time I hear capitalists talk about the government they want it to stay out of their way as much as possible, until the economy turns sour, at which point it becomes the government’s fault and their duty to fix.
Now you know I don’t particularly like the things the US government does, so I’m not in any way defending their actions. This is especially true because I haven’t followed current events at all in over a year, so I really have no idea about the details of the actions being taken. I just take issue with that part of capitalist perspective.
The inherent contradiction in this issue I have with capitalism makes me believe there is a better perspective out there and that we have to find it – or work toward finding it.
This is about the time when my thoughts turn to ants. If you’ve never seen the Animal Planet documentary on killer ants in the jungle and then tried to relate that to individualism, life, and economics that might not make sense to you… Then again, I was really fucking high when I saw that
My views on this subject…I’m not sure what to call it…economic structures? are somewhat difficult for me to explain, mostly because it is a very theoretical normative belief.
I prefer to shy away from cornering myself or anyone into sort of pre-packaged structures.
In my opinion, the role of the government is fairly straightforward in concept, but not so in implementation. I think there are obvious functions and benefit to the government. Adam Smith identified these more than 200 years ago, summarized as defense, justice, and infrastructure. I would say the role goes beyond this to creating institutions that foster rational valuation.
This means that people realize the actual costs of their actions and value it in a definable way. The mechanism to make all of this happen institutions and prices.
Not a specific plan of action, but its my belief and I’m sticking to it.