When the Federal Reserve Needs To Be a Therapist


Sometimes, the Federal Reserve should care about psychology.

They need to recognize how experiencing crashes, booms, and natural disasters affects our future behavior.

The Psychology of Money

After a UC Berkeley economist began to wonder why Germans are so obsessed with inflation, she wound up understanding the psychology of money. Through her research, Ulrike Malmendier concluded that we respond to unemployment with many years of frugality. We use more discount coupons, buy lower quality items, and look for sales. Demonstrating our pessimistic outlook, we spend significantly less on food and question pricier purchases for furniture and new homes. By contrast, after living through prosperity we display more optimism and spending.

Varying by age group and geographic region, many of us experienced elevated unemployment after the 1980 and 1982 double dip recession, and the Great Recession (12/2007-6/2009):

psychology of money and unemployment experience

But here’s where it gets interesting.

Our unemployment experience-based attitude makes us wealthier. Having buoyed our saving, we wind up with more.

Our Bottom Line: The Fed’s Dual Mandate

At this point, because past experience can shape future spending, we need to leap to the Fed’s dual mandate. Articulated by the Congress in 1977, the dual mandate requires that the Fed’s goals should be stable prices and high employment. Consequently, they monitor the consumption component of aggregate demand and also the residential housing section of investment. The dual mandate dictates that their policies appropriately shift aggregate demand to achieve stable prices and the employment that flows from GDP growth. As a result, it requires that they optimize their understanding of how contractionary and prosperous economic environments affect our psychology.

Below, we’ve graphed the state of the economy. Where AD (aggregate demand) crosses SRAS (short run aggregate supply), we have real GDP to the left of the economy’s potential (shown by long run aggregate supply). At that time, the dual mandate suggests moving closer to LRAS by shifting AD (consumption+investment+ government spending+exports minus imports):

implementing the dual mandate

So, if crashes and booms, inflations and natural disasters all affect our experience-based outlook and behaviors, the Fed needs to give extra weight to these behaviors when they select their policy initiatives. Or, as the Federal Reserve expressed in a 2019 paper, “Scarred Consumption,” past macro events and unemployment have predictive power.

My sources and more: Thanks to the Katy Milkman podcast Choiceology for explaining investor psychology. From there, we discovered a Federal Reserve paper on “Scarred Consumption.” And finally, we checked on the dual mandate.

The post When the Federal Reserve Needs To Be a Therapist appeared first on Econlife.



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Google is experimenting with a new policy restricting the amount of free storage provided to some accounts. New Google accounts (including new Gmail accounts) created in certain regions will be limited to 5GB of free storage when they’re first set up. That’s only one-third of the amount of storage that has been typically offered. There is a way of increasing the amount of free storage you get when setting up a new account, though: you can unlock it by linking your phone number.

When approached for comment by Android Authority, a Google spokesperson confirmed that the new policy was being tested to “help us continue to provide a high-quality storage service to our users, while encouraging users to improve their account security and data recovery.” The statement didn’t clarify which regions the policy is being tested in, nor for how long the testing period will last.

Notably, a Google One Help support page about account storage has been updated to state that each Google account contains “up to 15 GB of storage”, as noted by 9to5Google. Previously, the page didn’t say “up to”; it simply stated that accounts come with 15 GB of storage. So far, the experiment doesn’t appear to stretch to pre-existing accounts.

Per a screenshot shared by Reddit user Sungusungu on R/DeGoogle (a subreddit dedicated to finding alternatives to Google services and products) Google is collecting phone numbers to make sure that the full 15 GB of storage is only redeemed once per person. Of course, that’s easily evaded by using a burner phone to set up multiple accounts, should you want to. The pop-up directs users to a webpage to learn more about storage management. However, at the time of writing, the link redirects to the help center landing page instead.

How to link your Google account with a phone number

If you’re in the process of setting up a new Google account in an impacted region, then you might be prompted with the option of unlocking an extra 10 GB of storage using your phone number via a simple pop-up menu. If so, you can go ahead and follow those steps. However, if you want to link your phone number with a pre-existing Google account, then here’s what you need to do. Using your computer, you need to:

  1. Open your browser and head to myaccount.google.com, then navigate to “Security and sign in” on the left-hand toolbar. This should open a list of security options.

  2. Select “Use your phone to sign in” and then “Set it up”. 

  3. Add a phone number using the “Recovery phone” option.

  4. Follow the on-screen steps to verify your number and finish linking it to your account.

Your options might look a little different if you already have a recovery number set up with your account.

Alternatively, you can connect a phone number to your Google account from your Android device, iPhone, or iPad. Much like on a computer, you connect your number by adding it as a recovery phone. First, head over to myaccount.google.com. Then select “Personal info”, followed by “Phone”. From there, you should be able to add or edit your phone number by navigating to the “Recovery phone” section.





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