Intesting Choices

Our hometown paper, The Washington Post, asked some well known policy experts to recommend a book to readers to help them understand the current economic scence.

One expert is current Congressional Budget Office Director, Peter Orszag. Orszag recommends Robert Shiller's The Subprime Solution because:

In this most recent book, [Shiller] brings his combination of rigorous
economic analysis and psychological insight to our current economic predicament,
not only analyzing its causes but also offering possible solutions that could
help to inhibit bubbles in the future. More important than the specific
suggestions is his willingness to move beyond the Panglossian constraints of
conventional economics. We need a bit less 'Economics 101' thinking in
public policy and much more 'Psychology 101,' and Bob Shiller shows us how
in this book.

A second expert in Greg Mankiw, a Harvard Econ professor who is a former chairman of the Council of Economics Advisors and the author of the world's leading econ 101 type college textbook. Mankiw recommends Milton Friedman's Capitalism and Freedom, a basic defense of free market economic principles. because:

I read this book first as a student at Princeton 30 years ago and again more
recently when I assigned it for a freshman seminar at Harvard. Friedman's
insights into how the economy works and his classically liberal perspective on
the role of government are timeless. In this difficult economic time, it is
important to keep first principles firmly in mind.

Here you have in a microcosm the debate between two schools of economists. One, represented by Shiller and Orszag (and Obama advisors such as Austin Gollsbee) critique traditional free market economics for not taking other considerations, such as the psychology of crowds, etc. into account. They tend to believe that there is a larger role for government to play than traditionally recognized by classical economics. The latter, characterized by Mankiw and many others (specifically those advising McCain) generally believe that free markets are very efficient, and that even if imperfect will provide better outcomes than government programs.

Note: the above is a gross oversimplification, but I think this debate between those who believe in sticking to "first principles" and those who urge us to "move beyond the Panglossian constraints of conventional economics" still represents a high level overview of the two basic ways that economists and the two political parties approach economics and government policy.