The paper "Principles of Economics" is a wonderful example of an assignment on macro and microeconomics. Barry argues that economists failed to anticipate the financial crisis in 2008 intensifying the doubt on the ability of the field of economics to guide public policy. They also differed on the cause of the recession and were unable to provide an effective response to the crisis since they could not agree on the cause. The crisis discredited economic models because they failed to give a possibility of the crisis. The models were unable to prepare economists with the knowledge to provide policies to prevent such calamities.
The models stress on theoretical and technical mastery but not intuition and real situations. According to Barry, both simple and complex models are essential in the modern world. Simple models make straightforward and counterintuitive points that explain things like Paradox of thrift which assists people to save more. Complex models are significant in providing special cases. However, the models require evidence to make them useful in providing practical advice in times of crisis. Barry says that there is an evidentiary evolution by younger economists about the operation of an economy.
There are four approaches for providing policy advice namely big data, new data, historical evidence, and institutional history. Big data enhance people’ s knowledge and predicts responses. New data use information from the web to important issues. Historical evidence uses data from the past to prevent similar events from happening. Institutional history involves empirical analysis of institutions that play a role in the economy. He says that models still needed to interpret the data from the new approaches.
Future policy advice will be shaped by the ability to fit facts into analytical frameworks. The intellectual confusion is the lack of a consensus by the prominent economist on the source and solution of the crisis. The economists have different causes for the recession and also have different responses on how to combat the problem thus the intellectual confusion. Principles of Economics called into question. The principle of too much money causes inflation. The Federal Reserve is responsible for monetary policies which control the economy. In this case, the policy was loose causing the increase of money in the economy which contributed to the crisis. Response to incentives.
The politicians encouraged subpar mortgages which led to the citizens with low credit accessing loans. The banks offered loans at high-interest rates. This situation increased the level of debt. It also increased the amount of money in the economy causing inflation and thus the crisis. The Keynesian and classical economics effectiveness was under scrutiny. Both approaches were unable to predict the recession. The two give the short and long-term effects of policies, regulations and government spending on the economy. The distinction between "theoretical" economics and "historical" economics related to "positive" economics and "normative" economics. The author says that theoretical economics involves the mastery of the theories and techniques without practical applications.
The concept is similar to normative economics which is which uses value judgments and opinions. It involves subjective analyses and focuses on theoretical situations only. Historical economics is the use of evidence from past events to solve and even prevent similar incidents from occurring. Positive economics is identical to historical because it is objective and relies on facts. It involves the analysis of variables and explains the relationship between them.
It considers the occurrences in the economy and proposes actions to policymakers just like in historical economics. The distinction between "policy advice" and "regulatory integrity"? The author says that policy advice is information from experts like economists to policymakers on various issues. Regulatory integrity is the availability of ethics in regulations. He says that the Federal Reserve let the crisis to occur due to their loose policies so they lacked regulatory integrity. The author is recommending the use of both the models and the new approaches to policy advice.
The models provide an analytical framework which is required to interpret data from the new approaches like big data, new data, policy history, and institutional history. The historical policy approach by Barry is about employing historical evidence to make better policies and avoid repetition of past crisis. The current US administration policy prescription is about defending vital U. S. interests. The various policies are using historical data to make policies that prevent past events from repenting and affecting the country. The administration is focusing on the benefit of the nation.
An example is the healthcare bill that wants to change the previous one.