Akerlof sees the role of government in macro-policy as being based on the ability to correct money illusion and the various misconceptions the permanent income hypothesis or rational expectations would lead policy-makers to believe.
An alternative way of looking at the matter is to posit that people take their wages as a measure of their self-image and of what they believe they deserve. The role of government would therefore be to make sure just deserts prevails in the society because just deserts is an important factor in how people make their individual decisions.
When the economy heats up – where people are making too much easy money, money they do not deserve – a financial bubble with its attendant mis-allocation of resources is in the making, and the government needs to intervene to correct it. It is not a matter so much of regulation as it is about setting long term expectations in society so that people are able to coordinate better and make better decisions.
No comments:
Post a Comment