Fresh Water School

What is Fresh Water School?


1.

*noun*, term used in economics to refer to the New Classical economics. The fresh water school was lead by Robert E. Lucas, Thomas J. Sargent, and Robert Barro; its position was that fiscal policy and monetary policyare doomed to be ineffective, since they rely on "fooling the public."

Instead, they argued that even tax cuts had no stimulus effect (in contrast to " supply side economics"), and of course they were resolutely opposed to government spending. Instead, the fresh water school maintained that a recessionwas caused by markets adjusting to a technology shock to create a structurally different economic system. The best thing to do was to allow the markets to restructure industry on their own.

The fresh water school was known for their support of the " rational expectations hypothesis" (REH) and "real business cycle" (RBC) theory.

But lately, a ...school of skeptics who think the Government usually just gums things up is gaining attention and influence. The skeptics are known as the "fresh water school," less for the purity of their thought than for their origins at universities along the shores of the Great Lakes.

"'Fresh Water' Economists Gain," *New York Times*, 23 July 1988

See rational expectations hypothesis, fiscal policy, monetary policy


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