short term economic policy management and long term management

Solution Preview

What economic and Structural elements do New Era economists add to current economic thinking?

And

Changes in the structure and processes of American industry and trade have been swift and sweeping, as the New Era economists have so well shown. Have these changes fundamentally altered the conditions of economic security and progress for either the individual businessman or the nation? The simple truth is that we do not know. New Era economists are honest and scientific enough to say so. American business should be sane and sensible enough to recognize it.
There is not a single new and important development in our economic life in recent years of which we can confidently calculate the consequences or judge the soundness and permanence. The structural elements are an amazing increase in man-hour production in industry since the war, but we do not know why it took place then, or whether it was merely a resumption of a rise, quite as rapid, that had been going on for fifty years before the war. We certainly do not know how long or rapidly it can continue, or, if it does, whether and how the problems of adjusting employment and consumer purchasing power to it will be met.
New Era economists have described new industries rise like rockets, and old ones grow tired and die. We do not know how soon the new ones will fizzle out, or what others will take their place.
The structural elements have included the machinery of distribution formed and reformed into new patterns changing every day before our eyes, but no one can say precisely where they leave the consumer and the independent enterpriser, or whether they will fundamentally alter the costs of distribution or mitigate the rigors of commercial competition.
The structural changes include security prices soar out of sight of earnings, brokers' loans swell till they absorb a third of the banking resources of the country, and the blind pools of ancient days return and multiply by endless crossing and pyramiding as the investment trusts of today. Banks merge and emerge in chains, trailing trusts and holding companies, while industrial corporations pay dividends not by producing goods but by buying each others' stocks and by borrowing and lending everybody's money in the market. But of all these things New Era economists cannot say with surety what they signify, whether they are safe and sound, or what they are leading to? We do not even know, or cannot agree, whether inflation exists, what it means, or how it shall be measured.
In face of the ignorance, uncertainty, and irrationality that surround every aspect of the "new era," it were wisdom for business to keep its feet firmly on the ground and assume for the present that the principles that prevailed through the long business past still govern the stability and success of business today.
During the 1960s when Keynesian economics came to truly dominant the economics profession, there was a large influx of these "new economists" into government. The disastrous results included the "keynesianisation" of the economy and what is best described as an economic depression lasted throughout the 1970s and into the early 1980s.
Like the 1920s and 1990s, the decade of the 1960s was a period of remarkable prosperity in the U.S. as measured by such statistics as GNP and the unemployment rate. While the 1950s included several periods of stagnation and recession, the following decade was a period of nearly unblemished prosperity. The economy grew at a brisk pace and employment and wages grew at good rates. America was able to fight the Cold War, the Vietnam War, the war against poverty, and win the space race, simultaneously. The only noticeable negative effect was a mild uptick in price inflation.
Credit for the expansion was given to two primary factors. The first factor was scientific management of the economy by the "new economists" who were brought to Washington to help fine-tune the economy with fiscal and monetary policy. The second factor was the new technology that was introduced into the economy, particularly computer technology, consumer electronics, and technological advances related to space exploration.
Academic economist Arthur Okun was a prominent member of President Johnson's Council of Economic Advisors. Right before the crash he described the economic expansion as "unparalleled, unprecedented, and uninterrupted." Okun believed that the economy was on a new "dramatic departure" from the past:
The persistence of prosperity has been the outstanding fact of American economic history of the 1960s. The absence of recession for nearly nine years marks a discrete and dramatic departure from the traditional performance of the American economy.
After declaring the business cycle dead, he went on to demonstrate that research on the business cycle was now a thing of the past and that a "new" approach to the economy had replaced it. In fact, he even took the dangerous step of ridiculing those who stubbornly stuck to the old economics, where business cycles were viewed as an inevitable feature of the market economy and that recession could even be placed in the positive role of correcting past excesses.
When recessions were a regular feature of the economic environment, they were often viewed as inevitable. Indeed, the Doctor Panglosses saw them as contributors to the health of our best of all possible economies, correcting for the excesses of the boom, purging the poisons out of our productive and financial ...