A cheat sheet for understanding the different schools of economics

1. A Cheat Sheetfor Understandingthe DifferentSchoolsof Economics June14
https://www.pragcap.com/a-cheat-sheet-for-understanding-the-different-schools-of-economics/
CullenRoche - 06/27/2014
The guys at ZeroHedge postedthisuseful summary of the variouseconomicschools. ButIfeltlike itdidn’t
go far enoughtoboth simplifyandsummarize the variousschoolsof economicssoIthoughtI’dtry to
recreate the cheatsheetas bestI couldbreakingdownwhatIthinkare the mostessential componentsof
each school. I hope youfindithelpful:
Austrian Economics
Overview– A “heterodox”school of economicsgroundedprimarilyinthe workof Mises,Hayek,Menger
and Rothbardthat advocatesthe purposeful economicdecisionsof the individual.
MissionStatement– The free marketcan solve mostof our problemsandthe more we reduce government
or eliminate governmentthe betteroff we will all be.
General viewofthe economy– The lessthe governmentisinvolvedinthe economythe betteritwill
perform.
How to fixthe economy– We can fix the economybyreducinggovernmentandcentral bankinvolvement
infree marketforces.
What theylove – AustrianBusinessCycle Theory,free markets,individual freedomsandunfettered
capitalism.
What theyhate – Paul Krugman,the Federal Reserve,“Keynesians”andanyone whoadvocatesfor
governmentinterventioninmarkets.
Notable Pundits– PeterSchiff, RobertMurphy&TomWoods.
Famous Dead Economist Associatedwith School – LudwigvonMises,FriedrichHayek,Carl
Menger& Murray Rothbard.
Political Associations – Libertarians,conservatives,extreme conservativesandjustaboutanyone who
dislikes the government.
Preferredformof communication – Generallyaggressive promotionof anti-governmentviewsthrough
blogcommentsandconservative media.
FurtherReading:
1 – What is AustrianEconomics? – Mises.org
2- Understanding“Austrian”Economics –Hazlitt
3 – AustrianBusinessCycle Theory,A Brief Explanation –Mahoney
4 – AustrianSchool of Economics– Boettke
Behavioral Economics
Overview– One of the newestandfastestgrowingschoolsof economics. Widelyperceivedasone of the
mostpositive recentdevelopmentsineconomics.
MissionStatement– The bestway to understandthe workingsof the economyisbyunderstandingthe
waythe humanmindreactsand adapts to marketsandthe economy.
General viewofthe economy – The economyiscomplex,dynamicanduncertainandisbeingnavigated
by imperfectparticipants. Because of thisitcouldbe appropriate forgovernmentinterventionattimes.

2. How to fixthe economy– Behavioralists don’tmake specificpolicyrecommendations,butgenerally
believethatwe can betterunderstandthe economyif we betterunderstandhumanpsychologyasit
pertainstomoney,marketsandthe economy.
What theylove – Prospecttheory,studyinghumanbiasesandhighlightingthe factthat we’re totallyill-
equippedtodeal withmoneyandmarkets.
What theyhate – That theirworkis oftenrejectedbymainstreameconomistsasbeingsomethingoutside
of the fieldof real economics.
Notable Pundits– RichardThaler,RobertShiller,DanAriely &Daniel Kahneman.
Famous Dead Economist Associatedwith School – George Katona& AmosTversky.
Political Associations– Nodirectpolitical associations.
Preferredformof communication – Well researchedpapersandbooksprimarily. Behavioralists,not
surprisingly,tendtobe open-mindedandwell behaved.
FurtherReading:
1- ProspectTheory:AnAnalysisof DecisionunderRisk – Kahneman&Tversky
2- Behavioral Economics –Thaler& Mullainathan
3 – PredictablyIrrational –Ariely
Classical Economics
Overview– The “original”school of economics basedonthe understandingsof the “classics”like Adam
Smith,DavidRicardo and JohnStuart Mill thatstressedeconomicgrowthandfreedomemphasizingfree
markets.
MissionStatement– The “invisiblehand”of the free marketsisall we needtoachieve equilibrium.
General viewofthe economy – Classical economistswere the emergingcapitalistsfromthe age of
feudalism. Theysawoutside interventioninthe markets(suchasregulationandgovernment) asa
disruptiontothe natural orderof markets.
How to fixthe economy– Letthe free marketsdotheirthing.
What theylove – Say’sLaw, the conceptof the “invisiblehand”,laissezfairre ideasandfree markets.
What theyhate – Outside interventioninmarketsand mercantilism.
Notable Pundits– None living.
Famous Dead Economist Associatedwith School – AdamSmith,DavidRicardo& John StuartMill.
Political Associations – Conservative.
Preferredformof communication – This school hasevolvedintothe modernneoclassical schools.
FurtherReading:
1 – The Wealthof Nations – Smith
2 – On Liberty – Mill
Market Monetarism
Overview– Largelyseenas a revival of traditional Monetarismutilizingthe foundationsof Milton
Friedman’swork andgrowingextremelypopularwiththe “freshwater”schools.
MissionStatement– The Central Bank can steerthe economyona glide pathto prosperitythrougha
laissezfairre approach if we implementNGDPtargeting.

3. General viewofthe economy – The economyisunlikelytoreachequilibriumwithoutapermanentNGDP
targetingrule inplace.
How to fixthe economy– Duh,NGDP targeting.
What theylove – NGDP targeting.
What theyhate – Anyone whorejectsNGDPtargeting. Andpeoplewhoconfuse theirthinkingwith
traditional Monetaristviewscenteredaroundmonetaryaggregates,monetaryvelocityandinterestrates.
Notable Pundits– Scott Sumner,DavidBeckworth &NickRowe.
Famous Dead Economist Associatedwith School – MiltonFriedman.
Political Associations – Libertarianandconservative.
Preferredformof communication – Scott Sumner’sblog.
FurtherReading:
1 – Scott Sumner’sMarketMonetarismFAQ
2 – Market Monetarism, The SecondMonetaristCounterRevolution –Christensen
Marxian Economics
Overview– A largelydefunctschool of thoughtbasedonthe economicsof Karl Marx.
MissionStatement– Capitalismisnotjustflawed,but likelytoscrew mostof usall if lefttoitsown devices.
General viewofthe economy – A capitalisteconomyisnotjustflawed,butnaturallyself destructiveand
therefore requiresoutside interventionandregulationtobe consistentwith prosperity. Inessence,the
capitalistclasswill obtainexceptionalpoweroverthe laborclassresultinginmassive inequalityandgeneral
hardship.
How to fixthe economy– Intervene preemptivelytomake sure the capitalistsdon’twreckit.
What theylove – The laborclass.
What theyhate – The capitalistclass.
Notable Pundits– Karl Marx, Karl Marx and some guynamedKarl Marx.
Famous Dead Economist Associatedwith School – Some guynamedKarl Marx.
Political Associations – Extremistliberals.
Preferredformof communication – The darkestcornersof the internetandslowlybecomingextinctinall
othercorners.
FurtherReading:
1 – Capital:A Critique of Political Economy –Marx
Modern Monetary Theory (MMT or Chartalism)
Overview– A heterodox school associatedwitha branchof the Post-Keynesianschool of economics(see
below) thathasbecome verypopularonthe internetinthe last10 years.
MissionStatement– There isno economicproblemthatfiscal policy can’tsolve.
General viewofthe economy – Capitalismisnaturallyflawedandcanonlyoperate atfull capacityif the
governmentisusedtopermanentlyfillanydemandshortagesthatexist.
How to fixthe economy– Fiscal policyinthe formof tax cuts and spendingincreasesinadditiontothe
implementationof agovernmentJobGuarantee toemployanyone whowantsajob.
What theylove – Job guaranteesandtellingyouhow little youknow abouteconomics.

4. What theyhate – That the mainstreamwon’t take themseriously.
Notable Pundits– Warren Mosler,Randall Wrayand WilliamMitchell.
Famous Dead Economist Associatedwith School – GF Knapp,AbbaLerner& AlfredMitchell-Innes.
Political Associations – Liberals,extremistliberalsandsocialists.
Preferredformof communication – Aggressive andveryactive commentingon anyblogcommentsection
usuallyremindingthe author thatthey “justdon’tunderstand MMT”orthe economy.
FurtherReading:
1 – Soft CurrencyEconomics – Mosler
2 – 7 DeadlyInnocentFrauds – Mosler
3 – Modern MoneyTheory – Wray
New Classical Economics
Overview– The NewClassical school isthe modernadaptationof the classical school (see above). Itis
basedon Walrasianassumptions,rational expectationsandarose outof the failuresof the OldKeynesian
schoolsduringthe failure of the PhillipsCurve andstagflationinthe 1970’s.
MissionStatement– Macroeconomicsrequiresnew classical microfoundationstobe properlyutilized.
General viewofthe economy – Rational agentsare alwaysmakingoptimal decisionsandfirmsare always
maximizingprofits,butthe economyisoftenshockedby“real”effectslike unanticipatedpolicychanges,
changesintechnologyorchangesinraw materials.
How to fixthe economy– NewClassical economistsare generallyassociatedwithalaissezfaire approach
to policy.
What theylove – The Lucas Critique,RicardianEquivalence,rational expectations&microfoundations.
What theyhate – The concept of “involuntaryunemployment”and policystabilization.
Notable Pundits– Edward Prescott, RobertLucas, ThomasSargentand RobertBarro.
Famous Dead Economist Associatedwith School – JohnMuth.
Political Associations – Generallyconservative,butattimesalsoappealingtonospecificpolitical party.
Preferredformof communication – Academicworkprimarily.
FurtherReading:
1 – NewClassicalsandKeynesians,orthe GoodGuysand the Bad Guys – Barro
2 – NewClassical Macroeconomics –Hoover
3 – RATIONALEXPECTATIONSANDTHE THEORY OFECONOMIC POLICY – Sargent& Wallace
New Keynesian Economics
Overview– The NewKeynesiansare the adaptationof the OldKeynesianswhorespondedtothe criticism
of the NewClassicalsinthe 1970s and80’s by creatinganupdatedmodel of the economytohelpexplain
some of the Keynesianfailuresof the 70’s. Most of the “economics”one learnstodayiscloselyrelatedto
or directlyrelatedtoNewKeynesianeconomics. Ithasbecome,bya wide margin,the dominantmodel
usedbypolicymakers. Althoughitadoptedthe term“Keynesian”initsname the school actuallypitchesa
fairlybroadtentusingsome neoclassical foundationsaswell asMonetaristperspectives.
MissionStatement– Althougheconomicagentsare rational we believe policymakerscanimprove
economicstabilityandhelp attainfullemploymentthroughvariousstabilizationpoliciesdesignedto
combat a varietyof marketfailures.

5. General viewofthe economy – Economicagentsare rational,butmarketsare imperfectdue to
phenomenasuchas“stickyprices”. Thiscan resultinbroad marketfailuresleadingtorecession.
How to fixthe economy– NewKeynesianswill generallydeviatetowardsthe use of MonetaryPolicy,but
will attimesalsorecommendfiscal policytohelpstablilize the economy. Theyhave become particularly
vocal duringthe recentrecessiondue tothe “zerolowerbound”and the ineffectivenessof monetarypolicy
therebyarguingfora fiscal approach.
What theylove – Stickyprices,rational expectations,the ZeroLowerBound,the natural rate of interest,
DSGE modeling.
What theyhate – Notmuch. Theyprettymuch dominate the populareconomicjournals,textbooksand
have the ears of policymakers. If anything,theyhate notbeingtaken evenmore seriouslythanpeople
alreadytake themandmostlyfightamongone anotherregardingtheirminordifferencesonpolicyand
politics.
Notable Pundits– On the liberal side:Paul Krugman,BradDelong&Joe Stiglitz.Onthe conservative
side: Greg Mankiw,DavidRomer& OlivierBlanchard.
Famous Dead Economist Associatedwith School – JMKeynes althoughitshouldbe notedthatNew
Keynesianeconomicshasactuallydeviated substantiallyfromthe original workof Keynesandhas
incorporatedagood deal of bothMonetaristand neoclassical conceptswhichKeyneswouldhave rejected.
Political Associations – Thistentisbroad withbothconservative andliberal economists.
Preferredformof communication – Academicresearchandseveral popularblogssuchas Paul Krugman’s
NY TimesblogandGreg Mankiw’sblog. These economistsalsodominate the textbookarena.
FurtherReading:
1 – What is NewKeynesianEconomics? – Gordon
2 – NewKeynesianEconomics –Mankiw
Post-Keynesian Economics
Overview– A branch of Keynesianeconomicsthatportendstogetback to whatthe “true Keynes”thought
aboutthe economyandhowto improve it.
MissionStatement– JMKeyneshaditall right all along. Involuntaryunemploymentisthe resultof
aggregate demandshortagesresultingprimarilyfromfailuresby firmstomaximize investment.
General viewofthe economy– Capitalismexistsonaninherentlyunstablefoundationandwillattimes
require some formsof governmentinterventiontoachieve prosperity.
How to fixthe economy– Counter-cyclical policieswithafocusonfiscal policy.
What theylove – Rejectinglarge swathsof mainstreameconomicsandcallingoutmodernKeynesiansfor
havingmisconstruedthe worksof Keynes.
What theyhate – Thinkingthatthe mainstreamthinksthey’reirrelevantcranks.
Notable Pundits– Paul Davidson,TomPalley andMarc Lavoie.
Famous Dead Economist Associatedwith School – Wynne Godley, JoanRobinson andNicholasKaldor.
Political Associations – Centristsandliberals.
Preferredformof communication – Virtuallynone. The school isalmostentirelyunrepresentedbya
prominentmainstreamvoice andislargelyshutoutof the prominentacademicjournals.
FurtherReading:
1 – Monetary Economics – Lavoie & Godley

6. 2 – The KeynesSolution –Davidson