Looking for the placebo

by on January 30, 2009 at 6:55 am in Economics | Permalink

I was invited to contribute to an Economist symposium on Olivier Blanchard's guest essay.  My piece is here and here is my bottom line:

Most of all, I don't think we are paying enough attention to the
placebo idea. It is well known in the medical literature that sometimes
placebos work as well as the drugs themselves.

Here is the complete set of essays, featuring Shiller, Caballero, Alesina, Thoma, and others.  Here is Bryan Caplan making a similar point about placebos.

Michael Tinkler January 30, 2009 at 7:20 am

I like the idea of a placebo for the economy, because it sounds cheaper. How much cheaper can we get away with?

Let’s give the trustees of Brandeis, though, Valium. Selling off an art collection is definitely panic mode.

Cliff January 30, 2009 at 8:39 am

Yes, I have heard that the “Placebo effect” may well be a myth, other than for pain, where the mechanism by which placebos act is understood. The problem is that most studies do not compare placebos with the relevant alternative, which is no treatment. Those that do typically find no significant placebo effect as compared to no treatment. Rather, many disorders naturally improve over time, with no treatment or with a placebo.

Will Garvin January 30, 2009 at 10:33 am

While I agree that the placebo effective may be useful (and even more useful in economic settings where fear may be the driving force), a placebo effect is based on the patient not knowing the treatment is a placebo. Because we have a free press, it may be difficult to pass off small government expenditures as great economic programs. Thus, spending large amounts of money may be necessary even under a theroy where you want to utilize the placebo effect in order to signal to the populace and the media that grand economic activities are taking place. Perhaps this is one of the major drivers of the current stimulus package.

Silas Barta January 30, 2009 at 11:15 am

This has long been a complaint of mine about medicine. Instead of referencing placebos only to say, “oh, puh-leeze, that’s just a placebo effect”, they should be diverting SIGNIFICANT resources to asking, “okay, why is there a placebo effect at all, and how can we better understand and exploit the mechanism responsible for it?” I mean, sheesh, when you can literally get the effects of freakin’ *morphine* just from convincing the patient that this next dose is also morphine, don’t you think it would be a great idea to learn how to transform worthless substances into something with the effectiveness of powerful drugs?

And Cliff, no, the pain placebo effect is *not* well-understood, or else I — and everyone else — would be cured by now. And no, browbeating me into believing my pain’s gone … doesn’t count.

Mario Rizzo January 30, 2009 at 12:36 pm

What interests me most is Tyler’s comments on the need for any stimulus not to prevent the reallocation of resources out of over-expanded sectors.

Cliff January 30, 2009 at 2:04 pm

Silas, I will admit to a lack of expertise. However, the fact that a mechanism is understood does not mean that replication is simple.

mickslam January 30, 2009 at 11:27 pm

You should be talking about Chapter 12 with this post, Tyler.

The restoration of ‘animal spirits’ is a big deal. We should be thinking in what might restore those spirits. The election of Obama has done something along these lines, but we need to do more.

mulp January 31, 2009 at 7:30 pm

What I think is needed is a rational view of reality. If as Tyler Cowen argues the current problem is fear, then the current situation was caused by security, or absence of fear. Being absolutely fearless, politicians, (at least those in power), and many bankers, investors, bond rating agencies, regulators, et al, argued that 10-12% ROIs are assured by free market capitalism so we have no reason to need regulators, no reason to worry that house prices won’t rise more than the 12% interest rate after the teaser, that profit isn’t assured on bad credit risks, that consumers will suddenly not be able to borrow to continue consuming, that one doesn’t need to save because past savings will grow faster than the need for added savings, that one’s job is so secure, savings are unneeded.

Of course, we also have the fearlessness of “no need to continue the disproved liberalism of government investment in bridges paid for by taxes” and “the Iraq was will pay for itself” leading to tax cuts spending the Iraq war profits instead of hiking taxes to pay for the war.

Eric Rasmusen February 1, 2009 at 10:05 pm

My colleage Mike Alexeev likes to point out that one reason we’re in recession is that Bush, Paulsen, and Obama have been loudly proclaiming how bad things are. Self-fulfilling expectations?…

ValOrtelt February 10, 2009 at 6:11 pm

People! The anecdotal body of cases where people used their minds, in terms of concentrated thoughts, to change their health, finances,etc. is so large at this point that there is no excuse for not believing that the placebo effect is at least possible! I vote with the opinions to put this information out there on a massive scale and fund research. I would love to be in a study group that uses mind to heal physical ailments, since I am already doing it informally.

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