Tag: crowding out

The current recession has seen the re-emergence of many of the intellectual battles fought amongst economists between the two worlds wars and again from the 1960s to the 1980s. The current debate has hinged around the appropriate policy response to the current recession. Is the solution a Keynesian one of stimulating aggregate demand; or is it a new classical one of keeping public spending under control to make room for private spending and to allow the market to function to best effect? And what about banking reform? What are the arguments here? The following articles by Lord Skidelsky examine the debate.

Robert Skidelsky, Economists clash on shifting sands Financial Times (9/6/09)
Robert Skidelsky, Economic reform needs a dose of reality Guardian (27/7/09)

See also the following video:
Robert Skidelsky, The financial challenge of our times Guardian (2/3/09)

Questions

  1. Explain the ways in which economics is (a) similar to and (b) different from the natural sciences.
  2. For what reasons would new classical economists criticise the fiscal stimulus packages pursued by many countries in the past few months?
  3. Under what circumstances would a fiscal stimulus crowd out private spending? Do these circumstances apply (a) today; (b) over the next two years?
  4. Why may crowding out in practice depend on issues of confidence?
  5. What ‘Keynesian lessons’ have been learned from the banking crisis and recession?