With all that’s happened in the economy during the last four years, are economists reassessing some of their basic ideas about how the economy works? N.C. State University professor Mike Walden, who has taught economics for more than one-third of a century, weighs in:
We do go through — we being economists — periods of time where we do sort of question some of our core economic ideas. I … think in the last 100 years there have been three of these periods where we’ve questioned these ideas.
One, of course, was with the Great Depression in the 1930s. The second was the so-called stagflation, where we had both high inflation and high employment in the 1970s. And then right now, the Great Recession of the 2000s.
And in each case I think there was a … questioning and a rethinking and a reformulation of really how the macro-economy worked. For example, in the 1930s, that reflected upon the fact that up until that time, people thought — economists thought — the economy would be self-correcting: If we had a downturn, it would be eliminated very quickly. Obviously it didn’t happen.
In the 1970s when we had high inflation and high employment, that wasn’t supposed to happen. Our models said those two couldn’t co-exist.
And then today, of course, we’re questioning some of our market ideas — our basic capitalist ideas — how the basic financial section functions, et cetera. So, I think although this current economic time is challenging, I think it is going to result probably … down the road – 5, 10, 15 years – in perhaps some new ideas that will help us manage that macro-economy a little better.