There are many areas of economics where respected economists may take up contrary opinions.
Role of Fiscal Policy
Classical economists argue fiscal policy is ineffective in increasing economic growth. They argue an increase in government spending will essentially crowd out the private sector meaning higher government borrowing only causes higher interest rates and lower private sector spending.
Monetarists essentially place greater emphasis on the role of Long run Aggregate Supply in determining economic growth. They argue the LRAS curve is inelastic.
However, Keynesians argue fiscal policy can be effective in boosting economic growth when the economy is in recession and in a liquidity trap. They argue, that expansionary fiscal policy does not cause crowding out because the government are utilising unused resources (savings). This is why in recessions, governments can increase borrowing without causing a rise in interest rates.
Free Trade vs Protectionism
Many economists believe free trade has many virtues. However, this support for free trade is not universal. Some economists will stress the importance of tariff protection in certain circumstances – such as if a developing economy needs to diversify and develop new industries to move away from primary product dependency.
Free Market vs Government Regulation.
Some economists argue that the free market generally provides the optimal format for resource allocation. They argue leaving decisions to free market will lead to best outcome. Therefore, these economists stress the role of privatisation, deregulation and removal of government regulation. However, others are more critical of free market arguing the free market can lead to boom and busts in asset markets. In other words, agents are not always rational and the market can fail to adequately price risk. The recent credit crisis is an example of how markets can fail.
Aim of Macro Economics
Traditionally macro economics has been concerned with increasing Real GDP. However, with increased concerns over environmental issues, many are concerned that rising GDP may not actually be increasing living standards. Some economists a much wider range of variables need to be considered for judging macro economic welfare.
Inflation vs Unemployment
Central Banks target inflation. However, there is debate about how rigidly to stick to inflation targets. For example, the ECB generally is stricter in keeping inflation low. The Bank of England has adopted a more flexible approach to the temporary inflation we have seen recently. Part of the reason is the concerns over unemployment.
