Yerkes-Dodson Law: Stimulus in Blagojevichland

♠ Posted by Emmanuel in , at 2/06/2009 01:19:00 AM
Einstein once said that insanity was doing the same thing over and over again and expecting different results. So it is with modern-day America. Just as the current mess was brought about by Bushian untax-and-spend policies, the current administration is attempting to undo the mess by enacting even larger untax-and-spend policies. Unfortunately, America expects this orgy of nonsensical spending to be at LDCs' expense. I'll spare everyone why the rest of the world should tell Uncle Sam to go suck an egg when given such an indecent proposal as I've covered this before [1, 2] This pile of mostly unrelated spending takes a "toss it against the wall and see if it sticks" approach. In psychology, there is a body of research concerning this everything-but-the-kitchen-sink pathology. You may accuse me of stretching the stimulus analogy too far, but for what it's worth...

The Yerkes-Dodson Law--let's just say the "law"part is iffy--is a psychology theory concerning the relationship between performance and stimulus drawing from the pioneering research of the eponymous authors. As the chart depicts, there is an inverse u-shaped relationship. At lower levels of stimulus, subjects do not perform well because their interest or motivation is not really engaged. Ideal levels of stimulus occur at some middle range, where the tasks given balance arousal with the subject's ability to cope. However, excessive levels of stimulus stress overwhelm the subject's cognitive mechanisms. You know exactly what I have to say here. Like a lab rat, America overwhelmed with stimulus doesn't have a clue what to do anymore as it is embarks on loosely related tasks it can ill endure. All this stimulus has reduced it to a nervous wreck--and I do mean wreck.

Those of us from developing countries are watching US plans to pour $900 billion in stimulus down the money pit with no small amount of bemusement. I can probably pick nits with lots of items. For brevity's sake, let me just say rebuilding America through infrastructure projects is high comedy. The House version of the stimulus bill allocates $30 billion to highways alone. Here is a critique from the days when the famous American anti-corruption crusader Paul Wolfowitz ruled the roost at the World Bank before being himself removed for corruption:
Just as the [World Bank] vows to get tough on corruption, it has simultaneously announced a big increase in its support for infrastructure, the sector perceived to be the most corrupt globally according to Transparency International. In fact, approximately half of the World Bank anti–corruption unit’s investigations that have led to specific corrective actions were linked to infrastructure projects.

Massive, centrally planned and financed water, energy, transport and other public works projects are particularly prone to corruption, thanks to their complexity, capital intensity and high price tags. They offer larger spoils than small-scale projects and programs to increase the efficiency of existing infrastructure. Unless corruption is checked in the earliest stages of the planning process, corrupt politicians, government officials and construction companies will always favor large-scale projects to address a country’s infrastructure needs.
You can download the quoted reports by the World Bank on infrastructure projects and Transparency International on the same. Equally amusing (in a very sad way) is the assertion that these projects will create jobs that America needs. Throughout the developing world, roads are forever being dug up and fixed. Ostensibly the result of efforts to provide employment, these amount to little more than doling out jobs based on patronage--vote buying. This is not saying that American public works are by nature corrupt; rather, these large-scale projects present opportunities for adverse selection in awarding contracts and hiring workers. The following is an excerpt from FT reporter Edward Luce's fine book on India, In Spite of the Gods (pp. 88-89):
The government cannot blame lack of manpower [for the decrepit roads in Uttar Pradesh]: the highways department [of India] employs one worker for every two kilometers of road, among the highest ratios in the world. But many of them do not bother to turn up for work because they cannot be sacked; and any attempt to offer voluntary redundancy to public sector workers prompts an outcry about abuse of workers' rights.
For so long, America has shoved the "clean government" agenda down LDCs' throats. It turns out America's rhetoric stops at the water's edge. When the US itself gets into trouble, it too will resort to corruption-prone infrastructure projects. With massive projects coming down the pike Stateside, pay-to-play is the order of the day--in Illinois, appropriately enough here. Somehow, I remain unconvinced that all this Blagojeviching will spur untold economic growth--just as it hasn't in any number of LDCs where patronage politics accompany infrastructure projects. Uncle Sam, I will have none of your Kool-Aid. Just like Obama's economic adviser Larry Summers, this $900 billion stimulus bill is, alas, full of pork.