Roger E. A. Farmer: Economic Policy Through the Lens of History
[Roger E. A. Farmer is Distinguished Professor of Economics and Chair of the Department of Economics at the University of California Los Angeles. He is the author of two new books on the current global economic crisis. How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies, is written for the general reader and specialist alike, and Expectations, Employment and Prices is written for academics and practicing economists. Both books are published with Oxford University Press.]
Ideas are powerful. They dictate the way we behave. When ideas are acted upon by powerful people they affect all of our lives.
In 2008 the world experienced a financial crisis. In the space of a month, the stock market lost 40% of its value and the world entered the worst recession since the 1930s. The U.S. unemployment rate went from 4.5% to 10%. Between September 2008 and September 2009 the economy lost half a million jobs a month.
Following the 2008 crisis, there was a fierce debate in the press between classical economists like Eugene Fama of the University of Chicago and Robert Barro of Harvard, and Keynesian economists like Paul Krugman of Princeton University and Brad Delong of the University of California at Berkeley. Classical and Keynesian ideas have been actively debated by economists for seventy years. When one side or the other gains more credibility, the effect on all of our lives is substantial.
Policy makers are guided by economic theories. In the 1990s and early 2000s classical economists argued that markets should be given free rein. Their ideas led to deregulation of the financial markets in the late 1990s and the repeal of legislation that had been put in place during the Great Depression. Classical ideas ascended for thirty years, beginning in the 1970s and ending with the onset of the financial crisis in 2008.
In response to the 2008 crisis, the pendulum of economic ideas has swung back towards regulation. Policy makers in the Obama administration are influenced by the ideas of the English economist, John Maynard Keynes. Keynes argued that free markets need to be controlled and that government should be held responsible for ensuring that everyone who wants a job has one.
Why is there such disagreement amongst economists, politicians, and journalists about economics? Who are the classical and Keynesian economists and what did they say? Most importantly, how has economic history influenced the development of classical and Keynesian ideas?...
Read entire article at History Now (Gilder Lehrman)
Ideas are powerful. They dictate the way we behave. When ideas are acted upon by powerful people they affect all of our lives.
In 2008 the world experienced a financial crisis. In the space of a month, the stock market lost 40% of its value and the world entered the worst recession since the 1930s. The U.S. unemployment rate went from 4.5% to 10%. Between September 2008 and September 2009 the economy lost half a million jobs a month.
Following the 2008 crisis, there was a fierce debate in the press between classical economists like Eugene Fama of the University of Chicago and Robert Barro of Harvard, and Keynesian economists like Paul Krugman of Princeton University and Brad Delong of the University of California at Berkeley. Classical and Keynesian ideas have been actively debated by economists for seventy years. When one side or the other gains more credibility, the effect on all of our lives is substantial.
Policy makers are guided by economic theories. In the 1990s and early 2000s classical economists argued that markets should be given free rein. Their ideas led to deregulation of the financial markets in the late 1990s and the repeal of legislation that had been put in place during the Great Depression. Classical ideas ascended for thirty years, beginning in the 1970s and ending with the onset of the financial crisis in 2008.
In response to the 2008 crisis, the pendulum of economic ideas has swung back towards regulation. Policy makers in the Obama administration are influenced by the ideas of the English economist, John Maynard Keynes. Keynes argued that free markets need to be controlled and that government should be held responsible for ensuring that everyone who wants a job has one.
Why is there such disagreement amongst economists, politicians, and journalists about economics? Who are the classical and Keynesian economists and what did they say? Most importantly, how has economic history influenced the development of classical and Keynesian ideas?...