Kokomo Tribune; Kokomo, Indiana

Opinion

July 4, 2013

MICHAEL HICKS: Economic theory and the Fed

Benefits have become trivial compared to its cost.

Political folklore has it that economists are infamously divided between Keynesian and classical explanations for the cause of the boom-and-bust cycle. This is largely fiction; of course actual research into the economy just does not work that way. Still, a rough appreciation of these competing models is very helpful in understanding the big problems in economic policy today.

The classical economists and their co-intellectuals, the Austrians, understand recessions to be caused by real events, such as a huge spike in energy costs. They also argue the bursting of an asset bubble caused by too much easy money or monetary stimulus can lead to a recession.

Keynesians believe recessions are caused by a drop in demand for goods and services, precipitated by a shock to the economy that allows mistakes made by households and firms to ratchet down economic activity. This shock could also be an energy price spike or the bursting of an asset bubble.

The first group would argue recessions are a necessary response to such an event, while Keynesians believe government can largely plug the gap and mitigate the associated unpleasantness.

These two views represent only a minor disagreement among economists. For example, in an 800 equation model of the U.S. economy, one need only modify half a dozen equations to change the result. Of course this results in huge policy differences from austerity to stimulus. So, with so much policy riding on modest differences in economic theory, studies that evaluate the actual data are critical. The challenge here is we have few recessions to examine. Fortunately for us we’ve had fewer well-documented recessions in American history than we had tropical depressions and hurricanes in the Caribbean last year. It would be surprising if statistical analysis yielded unambiguous answers, so a great deal of economic research is devoted to better understanding just a few issues.

Text Only | Photo Reprints
Opinion
  • Vasicek: Celebrating Easter I have shared a few bits of Easter humor over the years, so I thought I’d start with a new one. Joseph of Arimathea was the wealthy Pharisee who is famous for helping to bury the body of Jesus. He procured the body, asking Pilate’s permission, and, w

    April 20, 2014

  • Public Eye: Was Turner the only one?

    CNHI Statehouse Bureau Chief Maureen Hayden and other Statehouse reporters didn't get an answer as to why the House ethics committee hearing concerning State Rep. Eric Turner was postponed, but it now appears the committee will meet Wednesday. A note

    April 20, 2014

  • DAY: God trusted us with them Well, you heard about my wife and I, and our families from the past, so it is time for me to tell you about two of the prettiest girls I have ever known. They are our daughters Debbie and Patty. They are the greatest gifts from God that we have had i

    April 19, 2014

  • LoBianco: Bigger ethics questions raised in House Turner review

    Members of the House Ethics Committee who will take up Rep. Eric Turner’s case face daunting tasks as they try to answer two questions: Did their powerful colleague violate any ethics rules in privately lobbying against a measure that would have hurt his family’s business?

    April 18, 2014

  • Letters to the Editor: April 18, 2014

    Attendees at the Tipton County Board of Commissioners meeting April 7 were treated to an appalling lack of both action and concern by the commissioners.

    April 18, 2014

  • Letter to the Editor: April 17, 2014

    On March 20 of this year I attended a public meeting of the Tipton County Economic Development Alliance. Members of this group include the three county commissioners, a member of the county council, two members from the city council, and the mayor.

    April 17, 2014

  • Hicks: Measuring the unmeasurable

    One aspect of economic research I think is especially powerful is the ability to measure or monetize the things that humans clearly value but for which a market price is not necessarily apparent. This is one of the aspects of economic analysis that gives it such dominance over other social sciences.

    April 17, 2014

  • Rob Burgess House of Burgess: Bush presents 'The Art of Leadership'

    On April 5, “The Art of Leadership: A President’s Personal Diplomacy,” opened at the George W. Bush Presidential Library and Museum on the campus of Southern Methodist University. The display, which runs through June 3, boasts “portraits of more than two dozen world leaders” painted by Bush, according to the official literature.

    April 16, 2014 1 Photo

  • Bohanon: ‘Economics is fun’ in Vegas or in Bible study

    I am writing this on an airplane to Las Vegas. I’ll be attending the annual conference of the Association of Private Enterprise Education along with two of my colleagues and six of my students.

    April 16, 2014

  • Letters to the Editor: April 16, 2014

    At the time the agenda for the April 7 commissioner meeting came out, I was happy to see that the neglected commissioner board appointments were finally going to be addressed. These appointments had been in limbo for months on end.

    April 16, 2014

Featured Ads
Only on our website
AP Video
Raw: More Than 100,000 Gather for Easter Sunday Raw: Greeks Celebrate Easter With "Rocket War" Police Question Captain, Crew on Ferry Disaster Raw: Orthodox Christians Observe Easter Rite Ceremony Marks 19th Anniversary of OKC Bombing Raw: Four French Journalists Freed From Syria Raw: Massive 7.2 Earthquake Rocks Mexico Captain of Sunken SKorean Ferry Arrested Raw: Fire Destroys 3 N.J. Beachfront Homes Raw: Pope Presides Over Good Friday Mass Raw: Space X Launches to Space Station Superheroes Descend on Capitol Mall Man Charged in Kansas City Highway Shootings Obama Awards Navy Football Trophy Anti-semitic Leaflets Posted in Eastern Ukraine Raw: Magnitude-7.2 Earthquake Shakes Mexico City Ceremony at MIT Remembers One of Boston's Finest Raw: Students Hurt in Colo. School Bus Crash Deadly Avalanche Sweeps Slopes of Mount Everest
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
Obituaries
Poll