Stabilizing the Economy, or Not
  • Evan Osborne


As noted in the previous chapter, “the economy” is really, in the case of the U.S., just a description of the trading relations among our 310 million people at any given moment. As one might imagine, when there is a constant tide of private-sector economic experimentation, and information about prospects and outcomes of those experiments is costly and dispersed, this description is unavoidably vague. At any moment, some people may be doing better and some not so well, and the economy is constantly in flux. What is more, there is some reason to doubt how effectively people in Washington, D.C., can push the buttons they have in front of them to make “the economy” better when it seems to be going badly on balance at any moment. But people understandably dislike circumstances in which unemployment is high, and economic growth (growth in real per-capita GDP) low. In the modern era, in which it is assumed that government is primarily a vehicle to solve social problems (as opposed to, say, an organization designed to enable people to solve their own problems by setting up and enforcing contract and property rights and addressing market failures), when “the economy” is bad, many people, especially those suffering the most, will demand that government “do something.” Economists in the 20th century created a vast apparatus of theoretical tools to tell government officials what to do when it is time to “do something.” Because “the economy” is so complex, encompassing many different individuals with their own specific circumstances, I personally am somewhat skeptical of the ability of these tools to achieve their goals. However, many people much smarter than I developed these tools and believe in their use. This chapter therefore describes how much of the modern macroeconomic policy—that designed to stabilize the economy in particular—is said to work, and evaluates it.


Interest Rate Monetary Policy Fiscal Policy Federal Reserve Reserve Requirement 
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Copyright information

© Evan Osborne 2013

Authors and Affiliations

  • Evan Osborne
    • 1
  1. 1.OhUS

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