June 23, 2021

Economic View: The Mental Strain of Making Do With Less

Understanding why this is the case can illuminate a range of experiences, including something as far removed from voluntary calorie restriction as the ordeal of outright poverty.

Imagine that you are attending a late-afternoon meeting. Someone brings in a plate of cookies and places them on the other side of the conference table. Ten minutes later you realize you’ve processed only half of what has been said.

Why? Only half of your mind was in the meeting. The other half was with the cookies: “Should I have one? I worked out yesterday. I deserve it. No, I should be good.”

That cookie threatened to strain your waistline. It succeeded in straining your mind.

This can happen even with no cookie in sight. Dieters conjure their own cookies: psychologists find that dieters have spontaneous self-generated cravings at a much higher rate than nondieters. And these cravings are not the dieters’ only distraction. Diets force trade-offs: If you eat the cookie, should you skip the appetizer at dinner? But that restaurant looked so good!

Many diets also require constant calculations to determine calorie counts. All this clogs up the brain. Psychologists measure the impact of this clogging on various tasks: logical and spatial reasoning, self-control, problem solving, and absorption and retention of new information. Together these tasks measure “bandwidth,” the resource that underlies all higher-order mental activity. Inevitably, dieters do worse than nondieters on all these tasks; they have less bandwidth.

One particularly clever study went further. It tested how dieters and nondieters reacted to eating a chocolate bar. Even though the bar provided calories, eating it widened the bandwidth gap between dieters and nondieters. Nondieters ate and moved on, but dieters started wondering how to make up for the calories they had just ingested or, even more fundamentally, pondered, “Why did I eat the bar?”

In other words, diets do not just strain bandwidth because they leave us hungry. They have psychological, not just physiological, effects.

The basic insight extends well beyond the experience of calorie counting. Something similar happens whenever we make do with less, as when we feel that we have too little time, or too little money. Just as the cookie tugs at the dieter, a looming deadline preoccupies a busy person, and the prospect of a painful rent payment shatters the peace of the poor. Just as dieters constantly track food, the hyper-busy track each minute and the poor track each dollar.

As Prof. Eldar Shafir at Princeton University and I argue in our new book, “Scarcity: Why Having Too Little Means So Much” (Times Books), a similar psychology of scarcity operates across these examples but with varying degrees of force. If a cookie can tax our mental resources, imagine how much more psychological impact other forms of scarcity can have.

Take the case of poverty. In a paper published last month in Science, with Profs. Anandi Mani at the University of Warwick and Jiaying Zhao at the University of British Columbia, Professor Shafir and I waded into politically charged territory. Some people argue that the poor make terrible choices and do so because they are inherently less capable. But our analysis of scarcity suggests a different perspective: perhaps the poor are just as capable as everyone else. Perhaps the problem is not poor people but the mental strain that poverty imposes on anyone who must endure it.

One of our studies focused on Indian sugar cane farmers, who typically feel themselves to be both poor and rich, depending on the season. They are paid once a year at harvest time. When the crop is sold, they are flush with cash. But the money runs out quickly, and by the time the next harvest arrives they are stretched thin: they are, for example, 20 times as likely to pawn an item before harvest as after it. Rather than compare poor and rich farmers, we compare each farmer to himself: when he is rich against when he is poor. This kind of comparison is important because it addresses valid concerns that differences in psychological tests merely reflect differences in culture or test familiarity.

Sendhil Mullainathan is a professor of economics at Harvard.

Article source: http://www.nytimes.com/2013/09/22/business/the-mental-strain-of-making-do-with-less.html?partner=rss&emc=rss

Economix: How Bernanke Answered Your Questions

Open Market
In the Chicago trading pits during the news conference.Frank Polich/Reuters In the Chicago trading pits during the news conference.

Before Ben S. Bernanke, the Federal Reserve chairman, took questions from the media Wednesday, I took questions from you. I got to ask only one question at the news conference — I asked why the Fed was not doing more to reduce unemployment — but many of your other questions were also answered in some form by Mr. Bernanke.

Here are some of your questions, and the answers that he gave. (A video of the briefing is available on the Fed’s Web site.)

Q. Since both housing and unemployment have not recovered sufficiently, why are you not instantly embarking on QE3? — Michael A. Kamperman, Waco, Tex.

Mr. Bernanke: “Going forward, we’ll have to continue to make judgments about whether additional steps are warranted, but as we do so, we have to keep in mind that we do have a dual mandate, that we do have to worry about both the rate of growth but also the inflation rate…

“The trade-offs are getting — are getting less attractive at this point. Inflation has gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. And in my view, if we’re going to have success in creating a long-run, sustainable recovery with lots of job growth, we’ve got to keep inflation under control. So we’ve got to look at both of those — both parts of the mandate as we — as we choose policy.”

Q. The stated mission of the Fed is to “conduct the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.” Is there a hierarchy in that list? If not, how would the chairman explain the lack of more stimulative activity with such high underemployment in the face of persistent low inflation? — Josh, Boston

Mr. Bernanke: “I think that even purely from an employment perspective, that if inflation were to become unmoored and inflation expectations were to rise significantly, that the cost of that in terms of employment loss in the future, as we had to respond to that, would be quite significant.”

Q. Long rates have risen since the announcement of QE2 and the continuation of the Fed’s zero interest rate policy. The steeper yield curve has seemed to inhibit real economic activity, while stimulating speculative action in stocks and commodities. Have the policy actions of the Fed backfired? — Tom Brakke, Excelsior, Minn.

Mr. Bernanke: “Well, first, I do believe that the second round of securities purchases was effective. We saw that first in the financial markets. The way monetary policy always works is by easing financial conditions. And we saw increases in stock prices. We saw reduced spreads in credit markets. We saw reduced volatility …

“You would expect, based on decades of experience, that easing financial conditions would lead to better economic conditions. And I think the evidence is consistent with that as well…

“Now the conclusion therefore that the second round of securities purchases was ineffective could only be validated if one thought that this step was a panacea, that is was going to solve all the problems and return us to full employment overnight. We were very clear from the beginning that — while we thought this was an important step and that it was at an important time when we were all worried about a double dip and we were worried about deflation, we were very clear that this was not going to be a panacea, that it was only going to turn the economy in the right direction.”

Q. When can we expect to see a rise in interest rates? — SMM, Monterey, Calif.

Mr. Bernanke: “I don’t know exactly how long it will be before a tightening process begins… ‘Extended period’ suggests that there would be a couple of meetings probably before action. But unfortunately the reason we use this vaguer terminology is that we don’t know with certainty how quickly response will be required and, therefore, we will do our best to communicate changes, in our view, as — but that will depend entirely on how the economy evolves.”

Q. Why the Fed has evidently failed in restraining the inflationary trend in the economy? If the Fed has any policy to protect senior citizens on fixed income from continuing rising prices of food, gas, energy and services, etc.? — Daniel Farooq, Streamwood, Ill.

Mr. Bernanke: “There’s not much that the Federal Reserve can do about gas prices per se, at least not without derailing growth entirely, which is certainly not the right way to go. After all, the Fed can’t create more oil. We don’t control the growth rates of emerging market economies. What we can do is basically try to keep higher gas prices from passing into other prices and wages throughout the economy and creating a broader inflation, which would be much more difficult to extinguish.

“Again, our view is that most likely — and of course we don’t know for sure, but we’ll be watching it carefully — our view is that gas prices will not continue to rise at the recent pace, and as they stabilize or even come down, if the situation stabilizes in the Middle East, that that will provide some relief on the inflation front.”

Q. The dollar has been steadily losing its value, vis-a-vis other currencies. In your estimation, is this trend beneficial to the U.S. economy? — AM, New York

Mr. Bernanke: “We do believe that a strong and stable dollar is in the interest of the United States and is in the interest of the global economy. Our view is that the best thing we can do for the dollar is first to keep the purchasing power of the dollar strong by keeping inflation low and by creating a stronger economy through policies which support the recovery, and therefore cause more capital inflows to the United States.”

Q. How could the Federal Reserve be more transparent with their decisions that affect the economy? — Nicolas Tanguay-Leduc, Ottawa

Mr. Bernanke: “Well, the Federal Reserve has been looking for ways to increase its transparency now for many years, and we’ve made a lot of progress. It used to be that the mystique of central banking was all about not letting anybody know what you were doing. As recently as 1994, the Federal Reserve didn’t even tell the public when it changed the target for the federal funds rate.

“Since then, we have taken a number of steps… We now provide quarterly projections, including long-run objectives, as well as near-term outlook. We have substantial means of communicating through speeches, testimony and the like. And so we have become, I think, a very — a very transparent central bank. That being said, we had a subcommittee headed by the vice chair of the board, Janet Yellin, looking for yet additional steps to take to provide additional transparency.”

“We’re not — we’re not done. We’re continuing to look for additional things that we can do to be more transparent and more accountable. But we think this is the right way to go.”

Article source: http://feeds.nytimes.com/click.phdo?i=fa0cde9d3c60660afd12890524b28f0b