saltwater and freshwater economists

Economic Coloring Books

by Elaine Schwartz    •    Dec 19, 2013    •    460 Views

To what extent are you a freshwater or saltwater economist? Several coloring books might help you decide.

But first, some background…

The original homes of the freshwater economists were the Universities of Chicago, Minnesota and Rochester while the saltwater economists lived closer to the Atlantic Ocean at MIT, Harvard and Princeton. The difference? Doing some huge oversimplifying, we can say, government.

While the freshwater group believes government policy is unable to affect the level of economic activity and laissez-faire is wiser, the saltwater group says the opposite. Also called rational expectations, freshwater economic philosophy tells us that the market’s participants neutralize government initiatives because their behavior is based on the policies they predict. As one New Yorker Magazine columnist explained, rational expectations theory says that “… changes in monetary policy on the part of the Fed that are anticipated by the public will have no impact at all. If the Fed printed more money to boost output and employment, workers and firms would revise wages upward in the expectation that inflation would rise; real (inflation-adjusted) wages would remain unchanged, and so would output and employment.” By contrast, the saltwater group–the New Keynesians–believes that monetary and fiscal stimulus spending can reverse a recession.

This takes us to the coloring books.

University of Missouri economist Stephanie Kelton has created a downloadable MMT (Modern Monetary Theory) coloring book. Asking us, “What Does the Owl Say?” she presents a series of propositions paired with pictures young children could enjoy coloring. Ranging from, “THE US GOVERNMENT IS NOT LIKE YOUR FAMILY” to “A BALANCED BUDGET IS NOT PRO-GROWTH,” the book’s captions are pure saltwater economics.

Concerned that the economic coloring book market had only one entry, University of Michigan econ professor Miles Kimball presented his version of the saltwater side. In his coloring book, an activist Federal Reserve is the focus of the pictures the kids can color. His cartoon characters include “the Wise Warlock” who represents Citigroup’s Chief Economist and “the Money Master,” Fed Chair Ben Bernanke.

May I suggest a freshwater economics coloring book? The pages would be blank. Using all available information on levels of economic activity, you just draw what you expect.

Sources and resources: Representing the continuing debate over the impact of the fiscal stimulus and quantitative easing, the freshwater and saltwater perspectives and the varying permutations that combine the two reflect the current (combative) state of economic philosophy. In his Conversable Economist blog, Timothy Taylor places their ideas into a 2013 context, this New Yorker column from 2010 talks about that year’s freshwater Nobel Prize winner, and this seekingalpha article compares freshwater and saltwater thinking. H/T to Quartz.

 

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