Monthly Archives: March 2014

“Dangerous Economic Ideas”

I noticed this article on Forbes titled “Three Dangerous Economic Ideas” that came out last Saturday but I have been too busy to really pay much attention to it until now.

The explanation of the first two economic ideas was not really that exciting: “Expansionary Fiscal Contraction” and “High Public Debt Causes Low Growth.” The first section went on about how the idea of fiscal austerity creates freedom for private sector growth is dangerous because it is endorsed by politicians more than economists. And we all know politicians can’t do anything right. The second section discussed a paper by Reinhart and Rogoff which warned that government debt levels above 90% of GDP damaged economic growth. A paper which turned out to be entirely wrong but still made an impact on policy around the world.

So after reading two thirds of the article and not really caring all that much I was almost ready to delete the article from my stash of “Articles I have saved and will eventually get to” but miraculously the third “dangerous idea” was a lot more intriguing and wonderfully relevant I think to the next segment of our class: Is Macro Broken?

Dangerous Economic Idea #3: The banking sector is irrelevant in Macroeconomics.

The author gives a shout out to “one JM Keynes” for being one of the notables who recognized that Classical Macroeconomic models leave out the banking sector, the creation of money and the role of lending. In her eyes, the damage has been done, macro has failed. Or at least it failed to predict the Great Recession by not noticing the growth of bank credit. Clearly this last idea is the most important to the author since she goes on to blame policy makers and associated economists for unemployment, poverty, and human misery. That’s harsh.

You can check the article out for yourself at the link below. Maybe it will start the transition into thinking about what is coming next in class.