The New York-based blogger for The Economist's Free Exchange replies to my lament by arguing that economists do have a theory of the psychology of coordinated expectation. They do, sort of. But they don't have the kind of theory that I have in mind. Harvard's Gregory Mankiw admits as much when he blogs:
Yale's Bob Shiller argues that confidence is the key to getting the economy back on track.
I think a lot of economists would agree with that. The question is what would make people more confident. Bob thinks that confidence would rise if the government borrowed more and spent more. Other economists think that confidence would rise if the government committed itself to, say, lower taxes on capital income. The sad truth is that we economists don't know very much about what drives the animal spirits of economic participants. Until we figure it out, it is best to be suspicious of any policy whose benefits are supposed to work through the amorphous channel of “confidence.” [emphasis added]
In what macro textbook can one find references to empirical psychological work on confidence? On individual-level variability in confidence, on the conditions under which the confidence of various personality types is affected by economic variables, on the relationship between changes in condfidence and changes in economic behavior, on the social “infectiousness” of changes in confidence, etc.
I have a lot of respect for Shiller, but Mankiw is right. Shiller doesn't have any real evidential basis for claims about what policies will induce confidence. And neither does anyone else.