Fiscal Policy

Lecture handout: Fiscal policy*

Keynesian approaches to aggregate demand management became popular because they were seen to have explained the problem of the Great Depression. My video on the Great Depression explores some of the history, and also have a video looking at The Financial Crisis of 2008-09. The big debate between Keynesian and Hayekian economics was popularised by Russ Roberts and John Papola in the rap battles Fear the Boom and Bust and Fight of the Century.

This article from the New York Times has a great visualisation of how unemployment is measured.
For some documentaries on the Obama stimulus, see:

A practical example of the empirical claims of the signal extraction problem are mentioned in this letter sent to Sequoia founders and CEOs: “In downturns, revenue and cash levels always fall faster than expenses”.

Here’s the official website of the Williamson Tunnels and for more on Chinese “ghost towns” you can watch China’s Empty City, or read this short World Bank blog post on the Rise of the Chinese Ghost Town. The photo of manual labourers in North Korea scrubbing the road comes from this article, and my grad school buddy Curtis Melvin created North Korea Economy Watch.

Despite what I say in the lecture… not all dog rescues are disasters….

Some podcast episodes that I particularly recommend:

The content on policymakers feeling pressurized to “do something” is an element of crisis management more generally. An interesting example of the types of trade off that policymakers face is BBC Radio 4’s ‘Discussion Time: Coronavirus‘. Even though it relates to an epidemiology situation, it is relevant for any PR situation. Policymakers face a balance between maintaining public confidence, being seen to be providing a quick and clear response, without inciting a general panic. This relies on having good frameworks and tools that relate to the specific situation (the Radio 4 panel explain how important expert forecasts of the spread of foot and mouth disease were, in a recession economic impact studies play a critical role); but also an ability to manage public expectations. The goal of successful crisis management is to balance these things without introducing new uncertainties.

Suggested reading:The case for cuts was a lie. Why does Britain still believe it? The austerity delusion‘ by Paul Krugman, The Guardian, April 29th 2015

Finally, my video on Macro Policy summarises policy makers options. [Macro Policy flashcard]


This page ties into Chapter 9 of Economics: A Complete Guide for Business

Learning Objectives: Assess the efficacy of fiscal stimulus and aggregate demand management

Focus on diversity: Christina Romer was the Chair of Obama’s Council of Economic Advisors during the stimulus. You can learn more about her here

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