In a newly released commentary (available soon here under the title “Economic Outlook and the Biases That Limit Our Thinking”), Wells Fargo chief economist John Silvia points to several problems that plague economic policy.

We expect the economy to expand at 1.9 percent for the year ahead, driven by many components as opposed to a major contribution from just one segment. …

… However, while the economy is growing, the pace of growth is subpar compared to prior economic recoveries. This brings us to our first policy problem and the biases that unnecessarily limit our choices. In his book, Into Thin Air, Jon Krakauer offers us an example of mountain climbers who seek to reach the top of Mount Everest.2 After a considerable expense of training, equipment and time, the climbers reached the last camp just before the approach to the summit. However, the approach to the summit was more difficult than anticipated and a number of climbers who started the final ascent after the recommended last departure time subsequently died. This real-world example brings up the problem of the sunk cost bias—the tendency to escalate commitment to a course of action while ignoring the mounting costs of these actions relative to the anticipated benefit. In military terms, this is the story of many of the battles of the Somme, Ypres and Verdun in World War I.

In economic policy today, the challenge is for us to judge weather another fiscal stimulus program, another quantitative easing, another housing program or another financial regulation will achieve faster growth, more housing or greater financial stability than what we have so far.

Could we be violating some sort of economic rules where the continued pursuit of these policies only bring us ruin? The basic question is whether the marginal cost of expanded policy actions would outweigh the marginal benefits of such actions.

Silvia also points to an overconfidence bias, the overweighting of recent experience, the “illusory correlation,” and several others.