There has been a lot of talk about how economic theory has failed us in our current crisis. With all the different schools of macroeconomics, it’s not really that much of a surprise that there wasn’t a lot of agreement how to tackle this crisis. It’s really even less surprising that people now think that someone in power would have listened if their theory was better able to predict what has occurred.
The different schools of macroeconomics have all come out in defense of their beliefs. Robert Lucas at the University of Chicago, has stood up in defense of the “freshwater” schools. Paul Krugman, who stands more on the interventionist side of Keynesian thought, recently wrote an article pointing out the flaws in the theories of other economic schools (This is a long article, but contains a lot of information). Brad DeLong also has pointed out the failure of some macroeconomic thought.
In an attempt to reform the current orthodoxy in macroeconomics, George Soros has created the Institute for New Economic Thinking. This new think-tank/foundation has a number of high quality scholars on board, such as Joseph Stiglitz and George Akerlof. The INET think-tank, is a straightforward attack on the idea that the free-market system cannot be improved.
Questions you might try to answer:
- Which of these schools do you believe are correct? Or at least, on the right track?
- Do you believe that macroeconomics is in a “dark time”? Or is this basically the way things have always been, and now non-economists are actually interested?
- Comparisons of different monetary theories should show that there is a wide array of beliefs. Which fundamental errors have been made, if any? What primary assumptions about monetary theory have been the least likely to hold?
I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.