The Global Economy: Opportunities for and Threats to Prosperity Introduction Recently we have seen a spate of controversial and thought-provoking books dealing with both the short run and the long run performance of the economy, as well as the role government should play in managing our prosperity. For the purpose of this lecture, I bought and read two of the most important of these books. They were both written by individuals at the very top of the economics profession. There is a good chance that you have heard of these books (they have made the news) and some of you may have read them, perhaps in your own language. I want to spend about 40 minutes today discussing these books, since they are directly aimed at the topic of our week-long discussions -- namely short run global economic development. These books do not all agree on the solutions to our economic problems and how we might proceed with policy. They present approaches, and argue what we should do, based on facts that the authors have conveniently marshaled for their cause. Without a doubt, they are full of value-laden judgments. They are clearly not the last word on the subject. But, the dilemma posed by these works gives us an important foundation on which to think and reason. Economics is not a science. It is instead a branch of logic, or as John Maynard Keynes said, it is an “apparatus of the mind”, a tool that allows its possessor the ability to come to useful conclusions on vexing problems that defy a single easy answer. We should not ask which of these books states the truth, but rather which tends to strengthen our conviction or confidence in its usefulness and reasonableness. We must find the value in each and apply it to our lives appropriately. This is all we can hope for in a world under constant change and where truth is often as fleeting as our last hot meal. But, that should be enough. The two books I want to discuss deal with short run fluctuations of the economy. The first is entitled “End This Depression Now” by Paul Krugman of Princeton University and published January 28, 2013. The second book has the title “First Principles: Five Keys to Restoring America’s Prosperity” and was written by John B. Taylor of Stanford University and published May 28, 2013. These two men have looked at virtually the same data and the
same economic circumstances, but have come to very different conclusions about what the government should do. They differ substantially on the subject of making policy and even
the very way in which we make policy. Their arguments are very relevant to you in your everyday work back home in your own country. Professor Krugman believes that we have enough knowledge and resources to improve our economic conditions through large scale discretionary fiscal and monetary policies, if we would only exercise the political will to undertake these policies. By sharp contrast, Professor Taylor believes that we should have limited government initiatives, which are always guided by rules rather than discretion. The argument between these two famous economists is an argument about (i) what should be the scope of government intervention in the private affairs of citizens and institutions and (ii) whether this intervention should be free to vary according to policymaker’s discretion or whether the policymaker should be forced to transparently state rules by which they make policy. The problem Krugman sees is not that we are in the dark about what to do, but that special interests and political grid-lock are preventing us from enacting policies that would immediately and easily allow the economy to recover. We are too timid and are allowing obstructionists in the Republican Party to stand in the way of progress and fairness. Conservative economists are scaring the public into believing that loose monetary policy will only generate inflation and a debasement of the currency. These same conservative economists reject the efficacy of...
Please join StudyMode to read the full document