How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies"Of all the economic bubbles that have been pricked," the editors of The Economist recently observed, "few have burst more spectacularly than the reputation of economics itself." Indeed, the financial crisis that crested in 2008 destroyed the credibility of the economic thinking that had guided policymakers for a generation. But what will take its place? In How the Economy Works, one of our leading economists provides a jargon-free exploration of the current crisis, offering a powerful argument for how economics must change to get us out of it. Roger E. A. Farmer traces the swings between classical and Keynesian economics since the early twentieth century, gracefully explaining the elements of both theories. During the Great Depression, Keynes challenged the longstanding idea that an economy was a self-correcting mechanism; but his school gave way to a resurgence of classical economics in the 1970s-a rise that ended with the current crisis. Rather than simply allowing the pendulum to swing back, Farmer writes, we must synthesize the two. From classical economics, he takes the idea that a sound theory must explain how individuals behave-how our collective choices shape the economy. From Keynesian economics, he adopts the principle that markets do not always work well, that capitalism needs some guidance. The goal, he writes, is to correct the excesses of a free-market economy without stifling entrepreneurship and instituting central planning. Recent events have shown that we cannot afford to treat economics as an ivory-tower abstraction. It has a direct impact on our lives by guiding regulators and policymakers as they make decisions with far-reaching practical consequences. Written in clear, accessible language, How the Economy Works makes an argument that no one should ignore. |
Contents
1 | |
CHAPTER 2 Classical Economics | 21 |
CHAPTER 3 The Impact of Keynes on the World Economy | 39 |
CHAPTER 4 Where the Keynesians Lost Their Way | 49 |
CHAPTER 5 The Rational Expectations Revolution | 65 |
CHAPTER 6 How Central Banks Impact Your Life | 81 |
CHAPTER 7 Why Unemployment Persists | 97 |
CHAPTER 8 Why the Stock Market Matters to You | 109 |
Other editions - View all
How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies Roger E. A. Farmer No preview available - 2014 |
How the Economy Works: Confidence, Crashes, and Self-Fulfilling Prophecies Roger Farmer No preview available - 2010 |
How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies Roger E. A. Farmer No preview available - 2010 |
Common terms and phrases
aggregate demand assets Bank of England began believe Bernanke billion bubble business cycle theory capital caused classical and Keynesian classical economics classical economists classical theory commodity confidence crash deficits demand and supply Depression determine dollar economic theory equilibrium theory expenditure explain fall FIGURE financial crisis firms fiscal policy fiscal stimulus free market full employment fundamentals future Glass-Steagall Act Greenspan Hayek high unemployment house prices households income index fund inflation influence intentionally left blank interest rate investment banks investors Keynes’s Keynesian economics Keynesian economists Kydland long-run lowering the interest Lucas macroeconomics market participants Milton Friedman monetary policy money prices new-Keynesian economics Nobel Laureate Pareto Phillips curve Pigou predicted Prescott purchase quantitative easing quantity theory rate of unemployment rational expectations real business cycle real economy Samuelson shocks stagflation theory of money Treasury bills unemployed workers unemployment rate United University Walras welfare theorem