I'm a saltwater too, I believes in Keynesian approach in macroeconomic decision. As the matter of fact, Keynesian is the most relevant economic thought for macroeconomic intervention in my personal perspective.
So what is saltwater?
Saltwater economics colloquially refers to a school of thought which has a more Keynesian approach with overarching macroeconomic analysis, tends to scepticism about the efficiency of markets and has called for government spending to help the world pull out of recession. Many of the economists associated with it are based at the US’s coastal academic universities and institutions - Harvard, Princeton, Berkeley.
and who are the opposite of Saltwater Economic? A Freshwater!
Freshwater economics colloquially refers to a school of thought whose macroeconomic conclusions are more closely rooted in microeconomics, which places greater trust in markets and is sceptical of active fiscal policy. Economists whose work is in this tradition are often based at US universities close to the Great Lakes – Chicago, Minnesota, Carnegie-Mellon.
I'm here not to talk about freshwater.
In fiscal policy, a Saltwater economists often support the effectiveness of fiscal policy, Advent advocate the effectiveness of fiscal stimulus, following Keynesian economics.
Some freshwater economists arguing that business cycles are efficient and government cannot fiscal policy and/or monetary policy. This contrasts with saltwater Keynesian economists, who argue that "business cycles" represent market failures, and should be counteracted. In 2009 Paul Krugman commented that "since then [forty years ago] macroeconomics has divided into two great factions: “saltwater” economists (mainly in coastal U.S. universities), who have a more or less Keynesian vision of what recessions are all about; and “freshwater” economists (mainly at inland schools), who consider that vision nonsense". However, Krugman noted that the difference had become mainly theoretical during the The Great Moderation, but that the financial crisis cast the dichotomy in a new, harder light.
(sources from WikiPedia)
Eventually the different between a saltwater and freshwater are just the theory. These competing theories have set the terms for national and international debate over economic policy for decades. Freshwater economists point to the 1970s as an example of government intervention causing high unemployment and inflation which, they claim, otherwise wouldn’t have occurred. Saltwater economists view government regulation and discretionary fiscal policy as an important and necessary part of overseeing the economy. They do not view consumers in the marketplace as perfectly rational variables.
Government intervention is important, I personally believes that nobody can run everything on their own. There are only two saltwater theories which are the fiscal policy and and Keynesian economic. In economy, fiscal policy is the use of government expenditure and revenue collection to influence economy. Fiscal policy can be contrasted with the other main type of macroeconomic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and the money supply. The two main instruments of fiscal policy are government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact on the following variables in the economy e.g aggregate demand, pattern on resource allocation and the distribution of income.
Keynesian economic is is a macroeconomic theory based on the ideas of 20th century British economist John Maynard Keynes. Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.
While freshwaters argued their theories such as
- Bounded rationality
- Policy Ineffectiveness Proposition
- Rational expectations
- Real Business Cycle Theory
- Ricardian equivalence
- Say's Law
- Treasury view
- Efficient-market hypothesis
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