Everywhere we turn we hear the opposite. It's standard operating procedure to blame protectionism for the Great Depression. Shiller knows it can't be demonstrated from the data. Hence the psychological argument.
Quoted here:
Shiller said he did not believe there would be a significant inflationary effect to the U.S. from steel and aluminum tariffs, but he warned that heated trade rhetoric from both sides could send the American economy reeling into a recession.
"When you ask about the size of the impact on the economy, I think a lot of it is more psychological than direct, unless they really slam on tariffs," he said. The Yale economist pointed to the "most famous tariff war of all" during the Great Depression, which he said did not "plausibly, directly" affect economic growth "in a major degree," but it may have helped "destroy confidence" and willingness to plan for the future.
"It's exactly those 'wait and see' attitudes that cause a recession," he explained.
