5th Annual Meeting of the Academy
Co-sponsored By: DePaul University
September 17-20, Chicago, IL, USA
BEHAVIORAL ECONOMICS: STIMULUS OR AUSTERITY?
Elior Kinarthy PhD (emeritus), Rio Hondo College, California
This paper will show that implementing a stimulus package based on appropriate behavioral studies will expand economic recovery and reduce budget deficits.
From the perspective of behavioral economics, there are two main psychological reactions to recessions and other adverse financial conditions. One reaction is the rational tendency to reduce spending and “tighten the belt” within an existing economic structure and the other behavior is to change the current financial structure and stimulate economic growth.
Logical thinking and common sense support the rational of austerity programs. Decisions are made on the basis of the untested hypothesis that in the short-term austerity measures will reduce the risk of financial collapse. The response to a financial crisis stems from the psychological attitudes of government officials and their economic advisers. Austerity measures are often based on the fear of the consequences of a monetary default. There is little psychological consideration given to the human personality and behavior in the decision-making process. Government policy does not tend to rely on research or behavioral studies to verify its reactions to an economic crisis.
The stimulus response to trade and industry recessions is both psychological and economical as it is based on verifiable research. The studies of Kahneman, Thaler, Sunstein, Krugman and other behavioral scientists show the psychological strengths and weaknesses in implementing a stimulus package. Research confirms that the role of government in a financial downturn is to stimulate wealth-creating jobs in infrastructure and education in order to reduce unemployment. Austerity programs are needed only when a society fails to organize itself over and over again.
Full paper may be available after presentation by request from researchers, respectable journals, professors or universities. All rights reserved.
At first I opened my http://www.drelior.wordpress.com because I thought a posting about North Korea’s aggression would be a psychological topic. Half way through I switched to www.eliorkinarthy.wordpress.com because I realized that North Korea wants to rob South Korea of its wealth by invading the country like they did in 1950, after all history does repeat itself. So now we have, for your understanding, two issues here: aggression and its psychology and wealth and its ownership.
Aggression: First I want you to know that according to psychology the rules that explain the behavior of nations and the behavior of individuals are the same. Both will behave aggressively if they gain something and get away with it. North Korea killed South Koreans and surprisingly received foreign aid and a request for a conference to improve relationships!! Dr. Skinner (and 100 other prominent psychologists!) subscribe to the research findings (replicated 1000 times!) that behavior is controlled by its consequences. South Korea rewarded North Korea’s aggression (and they are doing it again!). More pain is coming to the South.
Wealth: South Korea is wealthy, the North is poor. Throughout history nations and individuals robbed the Jews of their wealth. The Nazis couldn’t do it legally so they killed the Jews first and took their gold teeth! Listen, the only wise thing for the South Koreans to do is what the Jews didn’t do – protect their assets. It is very simple: The North will not attack the South if the signals are that the North will lose. I you are the president of South Korea, add 10 billion dollars to your military budget, triple your missiles and read the biography of Teddy Roosevelt. You are good guys and should be respected. You will, if you talk softly and carry a big stick – and don’t give a penny away to the North, not in food aid or foreign aid, unless the North behaves! Strength with care can do magic for you as a peaceful individual or country!
1. I am not sure China is the new colonial power in Africa? let’s analyse what’s happening there step by step:
2. China buys lots of cheap raw materials from Africa and sells Africa its finished products at the best price the Chinese can get. Is that colonialism? No, that’s good business for the Chinese.
3. China pays Africa for the raw materials less than the going rate in international markets. Is that exploitation (colonialism) or that Africa’s dictators don’t care to get the right price for Africa’s raw materials? Obviously, what a dictator and his entourage earn from the Chinese is plenty for their lavish life style, why should they compete to earn more?
4. China sells Africa its finished products at good prices. That is not colonialism either, that’s good business for the smart and educated Chinese.
5. So, what we have is not Chinese colonialism, it’s morality and ethics: Do I have the right to exploit you economically when you are weak and uneducated? (Philosophy asks a lot of stupid questions). Is it my duty (job) not to exploit you? (another stupid question). Both questions are stupid because they question Darwin’s theory about the survival of the fittest. The Chinese are more fit than the Africans in doing business.
6. The answer: China is not a new colonial power in Africa. The Chinese are educated behavioral economists. It is the responsibility of the Africans not to be exploited. How? The two best ways to do that is, 1) Get education, and 2) Get rid of the dictators and fight for democracy. If you do that, I would say “viva to the future of Africa.” I just gave you the answer. Go for it!
I wrote 2 books on the psychology of investing. I sold about 100 copies in 3 years, all over the world. The moral of this story is that what I think works investors are not interested in. I spoke at UCLA and at the University of Valencia. Only 2 professors were interested, one from the Republic of Georgia and the other from Kenya. The moral of this story is that what I think works professors are not interested in. I have a website on cancer, http://www.cancer-VCRC.org. I get less cancer patients visiting it in 12 years than visit most others blogs on cancer in 12 months (my place on Google is on the bottom). The moral of this story is that what works most cancer patients are not interested in. I have 2 blogs, this one, http://www.eliorkinarthy.wordpress.com and http://www.drelior.wordpress.com, with a couple of thousand of visitors to both since inception it is no record either. The moral of my story is that very few people are interested in my research of what is a better life, or how to become wealthy.
THE TRUTH: Most of the information that I put out there in the world is top 10% of science – incredible, awesome, almost unbelievable, works like magic but it has no impact because people see it as magic. Not as solid information. Grant you, it looks like magic, reads like magic, smells like magic, sounds like magic, but it is solid information how to cure cancer, have awesome relationships, be happy and make millions. Here is one example, all true, but you won’t believe it because — it reads like magic:
I bought 1000 shares of Apple early in 1997 for $15 per share: The total cost was $15,000.00. In September 2012 the value of my investment was around $2,800,000.00! Here is another example: in 2011 at age 76 I was dying of 2 cancers (Stage 4). Today the prostate cancer is gone and the bone cancer is in remission. Now you realize why most people who hear my incredible lectures or read my blogs or websites (3) just think. “Oh, well, here goes another bragging professor; who wants to listen to this stuff.” Yes, you are right about most cases reported on the Internet, but not this one. Well, here we go again…you either get of you don’t!!
If you are a cynic visiting my blog and you think that it is just another blog, oh well, I’ve seen them all, some are even interesting but none provide the real solutions we need…if you think that way about my blog, please get off it and go browse elsewhere, people like you render the internet useless, you don’t see the fruit tree in the forest of pines. But, listen, read my blog more critically and you will see that the solution for the suffering of people in Cyprus is right here:
Hey, Cypriot, walk to the parliament in force and force the deputies to declare a new election. Vote only for representatives who can define behavioral economics. Elect as chiefs those who know who are Kahneman, Thaler, Sunstein or Krugman. These B.E.’s can not only straighten out the Cypriot economy but make it an example for Spain and Greece. I just came from a lecture in Spain on this subject. No interest. We need a new parliament somewhere who dares and cares about citizens’ sufferings. The plan:
1. Borrow the money, print it, get it in credit, sell bonds, accept bailouts, do it all but do it all only with the most favorable rates( MFR). This is a must. Fire those who said, “Oh, well, I didn’t know I could get it for less than 2.1%.”
2. Send a government education committee (GEC) from Nicosia to California and copy the structure and operations of the best community college district (CCD) in the state. Go back to the island and set it up a CCD in every city in Cyprus. Fire those who say, “Oh, well, I didn’t know that we could also set up an associate degree program in software engineering.
3. Appoint BE,’s fund managers and regulators who will continue to spend the money only on productive projects such as the community colleges. Fire the one who said “Oh, well, I didn’t know that paying off part of the national debt to the EU is not a productive activity.”
4. The key to stop the suffering of the people of Cyprus is a new behavioral leadership . Fire all those who cannot define what is a behavioral leadership (about 50% of the people. For example, If you think that a feeling is a behavior, call me, you are fired. Let’s get going. The people are suffering.
The title above implies that a culture of wealth is not here yet. What is a culture of wealth? The US is a culture of wealth and freedom, to some extent, but I am thinking of a much better culture in the future. A culture of wealth is a new system of living, more behavioral than living in the United States today. Right now millions of people dream of somehow, legally or illegally, they will end living in the United States where they can earn a diploma, create a good living for themselves and their families, get hired for a decent job, buy a nice home, a car and eat their cultural food, listen to their music and decorate their home like it would look if you wer rich in the old place.
What’s behavioral economics got to do with it? Behavioral Economics is a system that is sweeping the world. Obama hired Sunstein, Cameron hired Thaler, both leading behavioral experts. I am not going to tell you more about the politics of it, just about behavior. The ratio of productive behavior to unproductive behavior in the US today is about 1:4, meaning only about 25% of what you do contributes to health, happiness and wealth. I am now retired, thanks God, but when I was working I was in constant fighting with mentalist bosses. Today, 25% of the bosses are behavioral, a better chance for the culture of wealth to develop. Can you imagine how wonderful it would be when 75% of all the bosses are behavioral rather than mentalist. For those of you who find it hard to follow my two original concepts, I will give you a few examples from 30 years of working as a psychologist:
1. Boss: The tests show that David is Schizophrenic.
Behavioral psychologist: His behavior is consistently normal.
B: He is diagnosed as schizophrenic.
BP: He is normal.
2. Boss: This hospital will be closed soon. We are losing too much money treating this generation of patients who have too many problems
Bp: Set up a behavioral treatment program. Trim the mentalist workshops, the one-on-one sessions, reward good behaviors such as work, exercise, eating a balanced meal and losing weight. For example, buy a tread mill and give Mary money for losing 25 lbs per quarter
B: Are you kidding?
3. Boss: George is an alcoholic in remission. Every one at the AA knows that, even George himself.
Bp: When was the last time he had a drink?
B: Oh, I know what you are aiming at, but you are wrong. It’s not logical.
Bp: When was the last time he had a drink?
B: 2 years ago?
Bp: George is not an alcoholic in remission. You, the boss, is a rationalist. Time to get off it, boss.
B: You are fired.
4. Boss: We can’t hire Steve. His CV came fifth on the list of qualifications.
Bp: I had a feeling that Steve would make a great instructor. I rated his behavior as A+ and asked 25 students to rate his performance in two of my own classroom.
Boss: We can’t use that information.
Boss: The education code does not allow us to hire instructors based on their behavior.
5. Boss: Your friends Dr. Thomas Szasz and Dr RD Laing say there is no such thing as mental illness, they are two crazy psychologists.
Bp: Read their books. They believe that all diagnosed patients with normal brain chemistry only have behavioral problems
B: What kind of behavioral problems?
Bp: They fail in relationships and can’t hold a decent job.
B: I can’t buy empirical evidence, I am a rationalist, not a behaviorist.
I have a hundred more! If you ask.
Elior: He is not.