The autistic macroeconomist

Tyler Cowen is a huge fan of Scott Sumner's blog, but despite this golden endorsement I don't read him regularly because his posts are long and technical and macro is not my passion. But here Sumner reviews Cowen's excellent new book (highly recommended, by the way - I thought it was a truly path-breaking work that could materially change society's view of autism over time), and veers off on a fascinating tangent.

For context, Sumner believes that he, like Cowen, displays some strong characteristics of the autistic cognitive style (again, read the book). The operative principle in this particular case is that autistic people are less likely to be swayed by what behavioral economists call "framing effects" (and Naseem Taleb refers to derisively as "narratives").

Cowen pointed out that autistic people often seem to act more like a rational “economic man” than the non-autistic. They are less swayed by framing effects and also less swayed by emotions such as envy and revenge, which can be counterproductive. I always thought it was obvious that it was better to get a 5% real wage increase, when all your colleagues got 10%, then to get a mere 4% real wage increase when all your colleagues got 2%. But as I got older I realized most people don’t look at things that way. The world is not full of characters like “Spock” on Star Trek.

I won't paraphrase Sumner's wonky build-up around coin collecting and monetary economics and NGDP (his post is worth reading in full), but here's the kicker:

I believe that the financial crisis of 2008 was the mother of all frame jobs. The commercial bankers were framed, when it was really the central bankers that created the severe recession.

Over the past few months I have rolled out one quotation after another, trying to show that if one believes the logic of modern macroeconomics, the implications are clear. Fed policy was effectively highly contractionary, and a more expansionary policy could have prevented the sharp fall in NGDP. And there is no evidence that the fall in RGDP is anything more than what one would expect from this sort of monetary policy failure.

So why am I not making any headway? Because the post-Lehman crash was a very powerful framing device. It’s a great story.

That stopped me in my tracks, because it is so true. The fall of Lehman is such a powerfully compelling narrative, and most of us are so drawn to narratives, that it is difficult to dislodge from either our minds or the public discourse once it's taken hold. But what if, 10 or 50 or 100 years from now, dispassionate (autistic?) macroeconomists - or alien archaeologists and economic historians, for that matter - marvel at how the powerful narrative of the credit crisis blinded us to the mundane economic reality of the cause of the recession in which the world now finds itself mired?

I am still shaking my head at how original and powerful this thought is. Wow.