Noticing the “overdue correction” in  stock markets around the world today, Bailout Nation author Barry Ritholtz observes at his blog how economists of unshakable faith in the prestidigitation of perception management are stumped by the general public’s seeming reluctance to jump back in the getting-and-spending game:

There seems to be this subsection of pundits who believe that if we only could manipulate the sentiment, everything else would improve. This of course gets it exactly backwards — when the economy’s fundamentals improve — jobs, wages, credit, etc. — sentiment will follow.

Ideally, it would work that way — well-informed market participants would have unbiased and undistorted information at their fingertips and would form their sentiments accordingly and then report them honestly to surveys, which are themselves being conducted without an agenda. And consumer confidence would be a similar matter of well-informed individuals taking an honest stock of the fundamentals of their economic situation and the status of their consumption needs and draw appropriate, authentic conclusions, that is, conclusions rooted in verifiable facts processed rationally and not wishfully.

But the truth is, the fundamentals are hard for us to access; they come to us filtered through our fantasies and fears, or interpreted to us by those with exploitation in mind. We can’t achieve some sort of neutral point from which to receive the data, even if its presentation could be purified of rhetoric and misleading inferences and surreptitious slants.

It would be more ethical, perhaps, if in trying to right the economy we attempted to improve the fundamentals rather than manipulate one another, but then that begins to touch upon the fundamental question of what an economy actually is — a set of social relations of production and consumption. Keynes spells out the ethical conundrum of sentiment in terms of a fundamental contradiction in the social purpose of investment (“to defeat the dark forces of time and ignorance which envelop our future”) and its private purpose (” ‘to beat the gun’, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow”). We then waste our energy trying to predict and control what others think about the state of our development for the future rather than carrying out the development.

String theory: behavioral economics's Punch-n'-Judy show.

Manipulating sentiment with misleading presentations of data is typically justified as a means of stirring the Keynesian animal spirits, memorably detailed in chapter 12 of the General Theory. Keynes explains that our investment decisions rest on a conventional belief in the status quo, “that the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change.” This (the essence of business sentiment) is a silly thing to believe, as Keynes points out, but usually enough of us believe it to secure sufficient investment. When it seems especially vulnerable, however, we need to resort to tricks to spur the animal spirits that prompt us to want to affect the future even if we have no rational reason to expect to profit from it, if we really think about it.

But what if we collapse the simulacrum of development and investment with the actual practices? What if they reach a saturation point at which they cannot meaningfully be distinguished, so that manipulating perceptions about investment is itself an investment activity? At a certain point, development itself will seem to consist in contriving more and more elaborate means for manipulation and control of others: that economic growth lies in the production of new media forms and techniques, and the use of these purposely to create financial bubbles.

Fearful of speculative bubbles, Keynes famously argued that “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” The shift from a goods to a service economy, from manufacturing products to manufacturing consent, and the rise of media and its attendant technologies as the predominant industry in and of itself, may have changed the equation, making capital development and the hullabaloo of bubble making one and the same.