Friday, August 26, 2011

Undergraduate Economics at Harvard Subordinates Macro to an Imperfect Micro Theory

link here to article

Robert Barro teaches economics at Harvard along with Greg Mankiw who served in the Bush administration. The Director of Undergraduate Economics Education at Harvard is also a prominent libertarian. The undergraduates who leave Harvard after taking introductory courses from Barro and Mankiw will leave with their views of the economic world. This article criticizes an article by Barro in the Wall Street Journal (where else?) that assumes a view of the business cycle that has no empirical evidence behind it. It is called the "real business cycle" theory. Its key assumption is that events outside of the economy are responsible for recessions. The economy, as described by micro-economic theory, paints a perfect picture of the economic world. Macro-economics is unnecessary given the perfection found in micro economic theory. Moreover, fiscal policy espoused by Keynesians can't possibly work even in theory.

Krugman does a nice job of destroying Barro's argument. Unfortunately, our future leaders who graduate from Harvard, and move on to Wall Street, have been given a very different picture of the economy and how it operates.

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