As the Keynesian revolution was merged with the models of Robert Lucas, it eventually morphed into something called neoclassical economic thought. The general gist was that economic agents can be tricked into changing their behaviour through surprises in monetary policy, which yes, has somewhat miraculously become the mainstay of central bank economists.
As Jeffery Snider of Alhambra Investment Partners succinctly puts it, the academic transition led to the “economics of money shifting to economics of psychology”. In old Keynesian thinking, recession came as a result of “animal spirits” changing, which roughly translated into modern day parlance, equates to ‘irrational exuberance’, albeit with an ‘apathetic’ twist.
Confused? Don’t be. If collective exuberance and apathy is the sole cause of the business cycle, then it logically follows that human emotions need to be manipulated accordingly. Only by doing so can policymakers smooth out the ups and downs in economic activity. And what better way to do that then to change the money supplied to the general public. If we, as society, have more money then we will surely feel better and apathy can be turned into exuberance. If psychology was not a “soft” science self-conscious economists would view them self [sic] as therapists for the collective.
In Crypto-current (forthcoming from Time Spiral Press) the diagnosis is so eerily similar that I can’t help hating on the Bawerk author (just a little bit), even if I obviously totally agree with him:
Fractional reserve banking partially anticipates macroeconomic governance in the discretion it affords to money creation, but – in itself – it offers only the faintest glimpse of the new world that is arising. It is the systematic incorporation of Keynesian ‘animal spirits’ into the realm of government policy objectives, beginning – very tentatively – in the 1930s, and then ascending to dominance in the post-war world, that completes the politicization of the economic sign. Money is now invested with mass psychological meaning, identified with a technocratically-accessible dimension of collective arousal, and economic sentiment becomes an explicit object of administrative manipulation, through the money supply. The profundity of this development is easily under-estimated. In the era of macroeconomics, monetary policy is seamlessly fused with psychological operations, oriented to strategic public mood alteration or ‘demand management’ orchestrated with reference to an array of guiding concepts which are overtly attitudinal: ‘wealth effects’, ‘money illusion’, and ‘wage stickiness’ prominent among them. It is now the psycho-social propensities to save or spend that are to be theoretically reconstructed by the academic-administrative economic complex, with integral cynicism, on the functional analogy of pharmacological medicine. Economic and clinical therapeutics become increasingly hard to distinguish in principle, as they are differentiated only by their specific techniques of psychological intervention, and by the scales of their domains. In each case the (individual or collective) patient, vulnerable to ‘depression’, is subjected to expert treatment through the measured application of artificial ‘stimulus’. Feedback is provided by economic sentiment polling, designed to gauge business and consumer confidence. There is nothing metaphorical about any of this, except insofar as euphemism is called upon in the public presentation of monetary and fiscal objectives. Macroeconomic policy is – quite simply, and exactly – mass mind-control. As it is normalized, it sees ever less need to disguise the fact.