Wednesday, November 19, 2014
German Ideation About Economics And Recession
Economists in the US have very different views about macroeconomics. The Chicago School belittles Keynesian ideas that place a decline demand as the cause of recession and the use of fiscal policy to stimulate demand. This article describes the dominant view of economics in Germany. It argues that the German view precludes the idea that a decline in demand can be responsible for recession. Consequently, fiscal stimulus will only make things worse. Apparently, fiscal stimulus violates an underlying moral impulse in German economic thinking. Bad things happen in the economy because people misbehave. Economic thought in Germany is like the Chicago School in its worship of market efficiency, and economic models that that have been developed to reflect the efficiency of markets. Again, consistent with the Chicago School, the economic models which are based upon the efficiency of markets, are not subject to empirical test. It does not matter that the economy is not behaving as it should behave in accordance with the elegant economic model of the economy that idealizes the real world. This seriously restrains policy options in the eurozone.