So, as you may know, I’m one of the brains behind The Economist’s economics blog, Free Exchange. This week, the blog is hosting a discussion among economists on IMF economist Olivier Blanchard’s suggestion that pervasive uncertainty is at the root of the crisis (check it all out here).

Tyler Cowen is one of the participants. He writes:

First, to the extent that the real problem is fear, this militates in favour of placebo policies. By that I mean initiatives which appear bold and have great symbolic value, but which don’t necessarily cost us very much. I haven’t seen us make a major attempt to identify such proposals, but it is unlikely that an $800 billion stimulus fits the bill.

He notes that placebos often work as well as actual medication. The risk, of course, is that sometimes they don’t, and where delay is costly, wasting time on a placebo when actual medicine is needed can be disastrous.

But the underlying point is intriguing — that much of the value of action may be psychological. Even if a government plan isn’t directly contributing to public welfare, the idea that something is being done which will improve things will encourage people to spend, businesses to invest, banks to lend, and so on.

This gets at something that another participant, Robert Shiller, calls the “confidence multiplier,” of which he says:

The focus has to get off of “what fraction of this stimulus will be spent” to “how does this stimulus affect confidence”.

This is worth considering when we read that Americans are strongly in support of significant infrastructure investments. I know that I’ve been all over the map in terms of what the stimulus should include and how it should be structured, but it does occur to me that authorizing a plan to move forward on major infrastructure projects, even if we know those projects won’t come online in the next year or two, could have strong, immediate beneficial effects for the economy (in additional to the long-term effects of the value added by the infrastructure). Critics may note that we’ll wind up spending money after the economy has already recovered, but of course, that’s less of an issue when you’re building things that need to be built in any case.

Perhaps we would be wise to announce that national high-speed rail network now after all.