by Martin Essex
Wall Street Journal
December 7, 2011
There’s a widespread view that economists are failing to come up with the answers when asked how to solve the current global financial crisis. Here are some personal views on why that might be.
First, there’s still no agreement between the Keynesians, who argue that more government spending will boost economic growth and thereby shrink nations’ debts as a percentage of GDP to more manageable levels, and the neo-classicists, who argue for austerity leading to lower debts, lower interest rates and a general return of confidence.
At least in part, this is, of course, a political divide between the left, supporting the Keynesians, and the right, backing neo-classical economics. It is nowhere more obvious than in the U.K., where the Labour Party argues the Keynesian case for counter-cyclical spending, and the governing coalition argues the need for austerity.
Second, some say there’s a divide between the economists who work on Wall Street in New York or for the City in London, and those who can be broadly described as academics. The former say the latter sit in their ivory towers making no contribution to solving the world’s global macro-economic problems.
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