I and others, particularly Paul Krugman, occasionally make reference to "freshwater" vs. "saltwater" economics. Here's a little background to explain the terms and, I hope, shed a little light on current disputes in macroeconomic theory. First, let's go back in time. The stuff that economists study, namely the economy, economic behavior, and markets, really emerged as it's … Continue reading Brief History of Macroeconomics and The Origins of Freshwater vs. Saltwater Economics
The simple version of Keynesian economics suggests that if the economy is suffering from too little economic activity and high unemployment there are some policy options. Specifically Keynes suggests there are three general kinds of policy options: The central bank (The Fed in the case of the U.S.) could lower interest rates and create money … Continue reading Obama’s So-Called Keynesian Stimulus Efforts Aren’t Very
I want to follow up a little on my discussion of the liquidity trap that we are have been in. Brad Delong has an excellent post today called "Four Years After the Wakeup Call". In it he shows some graphs which illustrate very well our the liquidity trap. Delong first serves us two graphs on … Continue reading What a Liquidity Trap Looks Like in Pictures
One of the claims that Tea Partiers, Republicans, and conservative/neo-liberal economists have been making for some time is that "the stimulus has failed". They conclude that Keynesian economics and economic policies are failures. Since, like most claims of Republicans and other politicians, these assertions are usually repeated uncritically by the news media, it's close to … Continue reading There Was No “Stimulus” Spending in Aggregate
It's become fashionable, particularly among Republicans and Conservatives, to claim that Keynesian Policy doesn't work despite the empirical record. Methinks they don't know what Keynesian policies are analyses really are. Mark Thoma points out: Issa: Everyone Knows That the Policies I Called for Don't Work Republican House member Darrell Issa has an op-ed in the … Continue reading Who Says Keynesian Policy Doesn’t Work?
A central tenet of U.S. "conservative" and Republican economic policy since at least the election of Reagan in 1980 is that tax cuts cause people to work more and longer hours. This is part of the so-called "supply side economics". The implication is that the longer hours and more labor supply will then raise the … Continue reading Tax Cuts Do Not Increase Labor Supply
From Economicshelp.org: There are quite a few misunderstandings about Keynesian fiscal policy, two of them include: Successful fiscal expansion relies on having a war and large military spending. No, fiscal expansion would work much better if it is targeted on public services under provided in a free market, such as: transport, health and education. These … Continue reading Myths about Keynesian Policy
Brad Delong summarizes and links some quotes from dueling Freshwater (Classical Macro) vs. Saltwater (Keynesian and others) at Macro Wars The conflict in many ways boils down to this: is economics to be philosophy where internal, logical consistency of the theory is most important and absolute faith in the theory is commanded of all true-believers … Continue reading Quotes from the Freshwater/Saltwater Wars