Economy Needs Cheerleaders, And A Pep Band

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ARI SHAPIRO, host:

If you have money to spare Uncle Sam wants you to spend it. The problem is many consumes are nervous about the economy. Recently, top officials have been pointing to good economic signs, perhaps in an effort to inspire confidence.

Richard Thaler is a behavioral economist at the University of Chicago's Booth School of Business. We asked him whether statements from government officials can actually influence the economy.

Professor RICHARD THALER (Behavioral economist, University of Chicago's Booth School of Business): From what we know based on our studies of human behavior and consumer behavior, I think quite a bit. People are in a situation that they've never been in before. So people are grasping at straws as to what to do. And if the president and Larry Summers and Tim Geithner start talking, people are listening.

SHAPIRO: If their message is that people should get out and start spending money, does there have to be some nuance to that to prevent people from falling into the same trap that got us into this in the first place where we were overspending and overcharging our credit cards?

Prof. THALER: Absolutely. And I think one of the problems that the administration has is that it's difficult to give nuanced messages via sound bites. For the people who are unemployed, or who are employed but in debt up to their ears, their first job should be to get out of debt. For the people who are employed and aren't heavily in debt there's no reason why this might not be a pretty good time to spend.

SHAPIRO: But while the administration is trying to inspire confidence on the one hand, on the other hand they seem to be saying this is such a dire situation that we need dramatic extreme action to fix the problem.

Prof. THALER: Well, of course, that's exactly the needle that they need thread. Initially, their focus was in getting Congress to act, to give them permission for various bailout activities. And for that they had to be stressing how bad the situation was. But I think you noticed the minute that they got that stuff through, the language started to change.

And I think the reason for that is that they were scaring the living daylights out of the American public and they needed to get back to telling people, yes, it's bad, but things are improving. And if you're doing fine get your wallets out.

SHAPIRO: You've described what the government does. What's the impact that it has?

Prof. THALER: In terms of messaging, I think most of it is probably not at a conscience level - I just feel a little better about things, and if I'm more reassured, I feel more comfortable about spending.

SHAPIRO: Americans are inundated with messages today, from the Geico caveman to Jared the Subway sandwich salesman to the Dell computer guy, is a message from the government fundamentally different?

Prof. THALER: No, absolutely not. And, in fact, the government can learn from the private sector. The private sector has spent years and hundreds of millions of dollars fine-tuning messaging campaigns that nudge people to buy their products. And the government has to be at least as sophisticated.

SHAPIRO: Richard Thaler is co-author of the book "Nudge: Improving Decisions about Health, Wealth, and Happiness."

Great to talk with you.

Prof. THALER: Thanks, Ari.

(Soundbite of music)

SHAPIRO: This is NPR News.

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