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Breaking the Secret Code of Macroeconomics Lingo (Part I: Overview) August 24, 2012 12:00 AM | Tagged as Hayek, Keynesian, macroeconomics
Ref: WSJ 8/23/2012, page A12 Editorial “The Cliff the Keynesians Built”
Understanding today’s WSJ editorial is critical to the outcome of the presidential election and needs to be understood.
To understand the lingo of macroeconomics and to reach informed decisions about vital economic issues, readers need a basic taxonomy. I have provided the basics in three parts, plus an opinion piece.
Here’s Part I, a short overview . Part II will be about Keynesians. Part III will be the Hayekians. Part IV will be a Biz Bucks opinion.
Unlike microeconomics, macroeconomics is a mess! There are many camps of macroeconomists, Keynesians, Classicals, Monetarists, Supply Siders, Rational Expectationists, and so forth. These camps vehemently disagree with each other on many issues. However, they tend to group into two broad schools: Keynesians and, for lack of a better term, “Hayekians”.
Politically, the Democrats support Keynesian principles. The Republicans are not so homogeneous. Many moderate Republicans have been “schooled” by the Keynesian school for so long that they fall in line with Democrats on economic issues. The more right wingers of the Republican party, the conservatives, support the Hayekian school. Libertarians tend to be Hayekians. In fact, Hayek was himself a libertarian.
In American politics, Keynesian thought was predominant in the 50’s and 60’s. It was not until Milton Friedman’s life’s work that more common sense macroeconomic principles have been represented in the halls of Congress and the executive branch. Our current political debate on economics is a clash of these two broad schools.
The next two blogs examines the basic principles, the modeling techniques, and the notable adherents of each school. The names of such notables are important, so the reader can identify immediately the bias of a writer.
First, the Keynesians.
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