3. By focusing on applications as they appear in the media, students will as a natural by-product learn much about the institutional structure of our economy.
4. It is necessary to understand up-and-down economics to be able to evaluate media commentary on policy issues, the second dimension of media economics.
1.3 Policy Evaluation
The second variety of media economics is economic policy evaluation. The following examples illustrate ways in which it appears in the media:
What cannot be done, various reformers in the U.S. notwithstanding, is to impose on any government the obligation to balance its budget annually. Consider the consequences. If it did work, it would introduce a major destabilizing element.
The monetarists will allow you to go ahead and ruin people and countries, but when eventually in good and common sense you say, "Enough is enough," the monetarists say, "Well, you spoiled the experiment."
This is the reason why the fixed exchange rate system was scrapped in 1971. The U.S. had been pursuing an inflationary monetary policy to help pay for the Vietnam war and new social programs, and its trading partners did not all want to participate in it.
In contrast to up-and-down economics, media commentary on economic policy is of considerable interest to academic economists, primarily because most feel strongly that policy analysis is one of the main reasons for studying macroeconomics. This book emphasizes this dimension of media economics by providing literally hundreds of short two- or three-sentence news clips such as the preceding, asking readers for interpretation and evaluation.
Students are not asked, however, to interpret or evaluate these news clips using the technical curve-shifting art of the professional economist. With one significant exception, our presentation of media economics avoids using graphs.
1.4 A Picture Can be Worth a Thousand Words
The curve-shifting approach does have one advantage we would be foolish to throw away: sometimes a graph can greatly facilitate exposition and understanding. The aggregate-supply/aggregate-demand diagram and its alter ego, the Phillips curve, are so valuable in this respect that they are shamelessly exploited. All other diagrams most notably the supply/demand diagrams for money, labor, and the exchange rate are bypassed; for those interested, appendix A at the end of the book exposits these diagrams to provide perspective on the curve-shifting approach and a sense of what it is about the aggregate-supply/aggregate-demand diagram that makes it so useful.
