http://krugman.blogs.nytimes.com/2009/01/27/a-dark-age-of-macroeconomics-wonkish
ID: 1252424 • Letter: H
Question
http://krugman.blogs.nytimes.com/2009/01/27/a-dark-age-of-macroeconomics-wonkish/http://www.dimensional.com/famafrench/2009/01/bailouts-and-stimulus-plans.html
Now read and analyze those columns, to write a summary of each column. Your summary should contain:
• A description of the column’s introduction: (1) the subject, (2) why the AUTHOR (not you) thinks the subject is important, and (3) what the main conclusion/point of the column is.
• A description of the column’s body: the essential content of column, that is, the logical argument and the empirical evidence that the author used.
• A description of the column’s conclusion: (1) the main conclusion/point of the article and (2) what the AUTHOR thought the implications and/or consequences of that conclusion are.
Summary 1 –
INSERT THE SUMMARY OF THE FIRST ARTICLE HERE
Summary 2 –
INSERT THE SUMMARY OF THE SECOND ARTICLE HERE
Explanation / Answer
Summary 1 –
Nobel Prize-winning economist and New York Times columnist Paul Krugman presents a strong counterargument to Fama's piece in Dimensional, the second article discussed below. Krugman quotes Fama, and then goes on to write:
"What’s so mind-boggling about this is that it commits one of the most basic fallacies in economics — interpreting an accounting identity as a behavioral relationship. Yes, savings have to equal investment, but that’s not something that mystically takes place, it’s because any discrepancy between desired savings and desired investment causes something to happen that brings the two in line."
In essence, Krugman is taking Fama's argument about the nature of stimulus spending and budget deficits - grounded in the most fundamental basics of economics, as explained in summary #2 below - is a fallacy. Instead, Krugman argues, deficit spending must be large to help offset immediate economic collapse. He goes so far as to argue that the stimulus bill (passed in early 2009) did not spend nearly enough to help correct the recession.
It turns out that Krugman's argument had considerable traction to it, as Barack Obama is now set to pass an even larger "stimulus" package - a "jobs" bill to get people "back to work" via even more government spending.
Summary 2 –
The second article discusses bailouts and stimulus plans, opening with a reference to one of the most well-cited and well-known macroeconomics equations:
I hope that you found this explanation useful, and I'd sincerely appreciate a Lifesaver rating. It would really make my day! :)
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