Knowing and Making

From David Smith's column today: Economists are sometimes sceptical about consumer-confidence measures. What can consumers know that economists do not ? In the past couple of years, however, consumer confidence has tracked the road to recession well. What consumers know that economists do not is how much money consumers are going to spend. How much they're going to invest. How much risk they want to take. Consumer confidence is not a forecast of economic conditions by consumers (though it might be linked with that) - it's a primary data point governing consumer behaviour. One may as well object to the use of the Baltic dry-shipping index as a predictor of GDP by asking what a ship knows that an economist does not. Apparently, quite a lot.

More on bailouts: Paul Greenberg in the New York Times says we should bail out writers. Of course, he doesn't analyse the economics properly - but what should we expect - he's a writer. No doubt it would be useful to reduce the oversupply in the writing market; but should we also then be paying bloggers not to post? Is this how farm subsidies got started? And Richard Posner follows up an earlier article about the US automotive bailout arguing that the three big US car companies are fundamentally insolvent but it is better to support them another couple of years and then  let them go bust. I sympathised initially with this view but the comments on that posting - mostly taking the opposing view - are actually quite persuasive. If the companies are going to go bust anyway, maybe now is the time to get the bad news out of the way; rather than wait till a fragile confidence is taking hold and then shatter it again. Posner's argument is (I think rightly) psychological; but so i...