The main differences..

After many discussions with conservative economists, often in the comment section of the numerous economic articles we’ve written, we think we’re able to condense the main differences of views on the economy to essentially a single issue. Let’s describe some of these differences, and see how they fit into a central theme. The main policy differences are, according to us:

• The risks of large budget deficits
• The risks and efficiency of hyper expansionary monetary policy

We will try to show that much of the difference in views about these policies depend on whether it is acknowledged that the economy is in some kind of ‘special state.’ Many liberal economist argue the economy is in such a special state (called a liquidity trap or a balance sheet recession) while many conservative economist keep on applying what we will call ‘equilibrium’, or ‘full-employment’ economics to the present economy.

Underneath it all is of coarse the even more fundamental difference that conservative economists believe in the self-healing (or equilibrium restoring) power of markets, which would make any prolonged ‘special state’ economy impossible, while many liberal economists argue that markets can fail and a prolonged period of underemployment equilibrium is possible, and that there is a role for the state to prevent this or get us out. [Read on here]