The Following Notice Appeared on a Full Page of the Wall

question 37

Essay

The following notice appeared on a full page of the Wall Street Journal on February 9, 2009:
"There is no disagreement that we need action by our government, a recovery plan that will help to jumpstart the economy." -President-Elect Barack Obama, January 9, 2009
With all due respect Mr. President, that is not true. Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the United States today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.
The statement was signed by over 200 economists, including 3 Nobel Laureates. a. Comment on the extent to which the disagreement between the President and the economists involves a disagreement about whether policy should be passive or active.
b. Identify the rationale(s) used to support the economists' position.

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Definitions:

Insurance

A financial product offering protection against the potential financial loss or liability resulting from specific events or circumstances, in exchange for a premium payment.

Adverse Selection

A situation in markets where buyers or sellers have information that other participants do not, leading to an unfair advantage or market inefficiency.

Risk Aversion

a preference for certain outcomes over uncertain ones, often characterized by the avoidance of risky situations.

Expected Value

A calculated average of all possible values for a random variable, taking into account their probabilities of occurrence.