This week in Say More, PS talks with Antara Haldar, Associate Professor of Empirical Legal Studies at the University of Cambridge.
Project Syndicate: In September, you explained that the stagflation of the 1970s was treated with a neoliberal Chicago School prescription of “disciplining government spending and freeing markets,” and argued that “many of the biggest problems confronting the global economy” may well be “more psychological than material.” How would a behavioral approach have changed our understanding of – and response to – the latest bout of inflation?
Antara Haldar: If one views macroeconomic policy through a behavioral lens, it becomes clear that controlling inflation while causing avoidable human suffering is counterproductive. For example, the United Kingdom’s adoption of austerity policies under Prime Minister Margaret Thatcher and after the 2008 global economic crisis led to the catastrophic – and entirely unnecessary – economic disaster that was Brexit.
Conventional economic theory assumes that people in acute economic pain are somehow comforted by the prospect of tax cuts at some point in the future. In the real world, which the behavioral perspective illuminates, they feel anxiety and panic in the present. This stifles productivity and hampers economic recovery, while stoking popular anger against the political and economic establishment – precisely the sentiment that Brexit campaigners redirected against the European Union.