Vena Taylor- Moses
Blog #1

1. What is your understanding of the neoclassical perspective as presented by the authors? What are the assumptions about human economic behavior?

The neoclassical perspective as presented by the authors believe that a price must be set on carbon which is done through the use of carbon tax or cap and trade which is the only principle and sole policy response needed to address the issue of climate change. According to the authors, one of their primary principles when coming to the issue of climate change is that economic growth is achieved by maximizing allocative efficiency where society receives the greatest net benefit when the distribution of available resources results in a desired quantity of goods. Another neoclassical principle is their belief that supply normally meets demand where the economy is simply a large market of goods and services that is generally in equilibrium and usually best left to itself. Neoclassical also believe that individuals act in response to incentives to rationally maximize their own self-interest, and that the collective pursuit of individual self-interest will also maximize public interest.

The assumptions about human economic behavior is that the individuals act in response to incentives to rationally maximize their own self-interest, and that the collective pursuit of individual self-interest will also maximize public interest. According to the authors the individual who “ intends only his own gain” will, in the course of maximizing his needs, be “led by an invisible hand to promote the public interest, however new research in behavioral economics is showing an opposite to these views.

What is your understanding of neo-Kenynesian perspective? How does it differ from neoclassical perspective? What do neo-Keynesian economist view as the most important policies to address the challenges of climate change?

My understanding of the neo-Keynesian perspective is that economic growth is a result of business investment, government spending, and consumer spending because of the demand for goods and services it produces. This key principle shapes neo-Keynesian economic policies as they tend to focus on increasing government spending, with the belief that such investment will lead to increased aggregate consumer demand.
Neo-Keynesians also tend to focus on the demand led economic growth side will little or no focus on the supply side of economy or what the producers or manufacturers do. They see policies, such as costly regulations, that might negatively impact the supply-side have little effect on overall economic growth. For this reason, they are more willing to support direct government regulation of economic activity. They also see it as if companies think consumer demand is increasing, they will have an incentive to invest more; and contend that government can do little to directly spur more growth, other than ensure high levels of aggregate demand.

How does it differ from the neoclassical perspective?
The don’t see an equilibrium within the market where supply meets demand but more focus on just the demand side of the economy. For the neo-Keynesian economic growth is not achieved by maximizing allocative efficiency, but rather social welfare, which is as a more equitable distribution of wealth and the achievement of social policy objectives (such as a clean environment, small business growth, etc.)