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Difference between classical and keynesian economic theory
Difference between keynesian economic theory and supply side economics
Compare and contrast freshwater and saltwater
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Shortly after the financial crisis in 2008, many economists had to rethink their approach to the market. Everyone knew we had a panic because the stock market and the housing market collapsed. American economy was reaching to the bottom. Many people considered it as a second worst recession after the great the Great Depression. But what was the cause? Who were responsible for the crisis? What can we learn from this turmoil? In the recent New York Times Sunday magazine article, Nobel Prize winner Paul Krugman offered his explanation for the causes and insight toward fixing the economy.
In the article, Krugman addresses several problems underlying the recent state of the economy. He traces the cause for our recession all the way back to academia. The problem is rather subtle. He argues that faulty thinking about the market is the primary reason that has led to the 2008 and 2009 recession. The crisis has evoked the two schools of macroeconomics thought for long have stayed dormant: the “freshwater” and the “saltwater” economist. Both have their own ideology in resolving the crisis.
As Krugman put it “freshwater economists are, essentially, neoclassical purists.” They assume that people are rational and markets work. They do recognize the use of Keynesian theory but just do not trust the government interference. Therefore, they usually prefer monetary policy over fiscal policy. On the other hand, Krugman says that “saltwater economists are pragmatists.” Their approach is to do apply any methods that can keep the economy running smoothly whether it’s a fiscal or monetary policy. They usually favor Keynesian theory.
Freshwater economists base their practices on the perfect market. They trust that the market system will not ever fa...
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...hould accept the inconvenient truth that the markets sometimes do not function properly. Second, economists should re-embrace Keynesian practice because it does offer a legitimate answer for economic downturns. Finally, they should consider the realities of finance in the world of macroeconomics (Krugman 2009). As an upcoming economist from George Mason, primarily a “freshwater” school, I find the first suggestion a bit difficult for me to accept. I think the best option right now is to stay neutral and open-minded because I still have a lot to learn about economics.
Works Cited
Krugman, Paul. "How Did Economists Get It So Wrong?" How Did Economists Get It So Wrong? The New York Times, 2 Sept. 2009. Web. 09 May 2011. .
Mankiw, N. Gregory. Macroeconomics. 7th ed. New York, NY: Worth, 2009. Print.
Philip Crawley, 9 Oct 2010. Web. The Web. The Web. 6 Jan. 2014.
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Just as John Stuart Mill did in the Principles of Political Economy, Paul Krugman in The Return of Depression Economics and the Crisis of 2008 felt that the government should not only help American businesses gain profits, but also play a major role in protecting the people against big businesses and moguls. Krugman believes that the average citizen cann...
Waggoner, John. "Is Today's Economic Crisis Another Great Depression?" USA Today. N.p., 4 Nov. 2008. Web. 7 Mar. 2014.
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Despite its size, only 190 pages, the authors address the basic concepts of economics while also applying those politically and for personal finance decision making. Those basic concepts include scarcity, gains from trade, marginal decision-making, profit management, income growth, and Adam Smith’s invisible hand theories are all discussed within the first part of the book; allowing readers to understanding the concepts, Gwartney applies the same concepts to the creation of wealth and the importance of competition, private property, open trade, monetary stability, and lower taxes. This book educates its audience by evaluating our economy and government mechanisms without the overpowering display of charts, formulas, and graphs; which you would typically see in a textbook allow...
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The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
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