HOW CAN A PEP TALK HELP? Kids, have you ever wondered why political leaders in time of recession go out on a limb with optimistic pronouncements such as: “Prosperity is just around the corner.” Here is one theory as to how it could help: Back in the day, Keynesian economics gave a lot of attention to how the government could increase investment when there was a recession. Professor Shiller points out that a decision not to invest may be prudent for the individual and bad for the economy. As a business owner, I want to invest (or hire a new worker) when the economy is growing and not when the recession is continuing. The trick is to get lots of people to invest at the same time. That is what a pep talk might accomplish. However, I think in today’s economy, there are mechanisms other than pep talks which can serve as coordinating signals and which may work better than a pep talk.

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