Greg Mankiw Teaches Goldman Sachs Economics in His New Textbook

The world's greatest economic textbook salesman ever, Greg Mankiw, reports on the 8th edition of his Keynesian screed:

The biggest change in the book, however, is the addition of Chapter 20, “The Financial System: Opportunities and Dangers.” Over the past several years, in the aftermath of the financial crisis and economic downturn of 2008 and 2009, economists have developed a renewed appreciation of the crucial linkages between the financial system and the broader economy. Chapter 20 gives students a deeper look at this topic. It begins by discussing the functions of the financial system. It then discusses the causes and effects of financial crises, as well as the government policies that aim to deal with crises and to prevent future ones. 

Linkages between the financial system and the broader economy? This was the propaganda former-Treasury Secretary Hank Paulson (ex-Goldman Sachs CEO) and Goldman Sachs used to justify billions in bailout money.

Puhleeze. If Goldman Sachs, Morgan Stanley and other banksters would have been allowed to fail, it would have been the best thing for the economy. Instead, we have the banksters and the Fed continuing to play footsie to the detriment of the rest of the economy. The ultimate result will be a dramatic increase in price inflation.

Mankiw starts his financial systems chapter off by writing:

In 2008 and 2009, the U.S. economy experienced a historic crisis. As we discussed in previous chapters, a decline in housing prices led to problems in many financial institutions, which in turn led to the most severe economic downturn since the Great Depression of the 1930s. This event was a vivid reminder of the inexorable links between the fi nancial system and the broader economy. When Wall Street sneezes, Main Street catches a cold.

Notice, there is no mention of the Federal Reserve and its money printing causing the  housing boom-bust. Mankiw barely mentions the Fed in the chapter. He only does so at the end in what he calls a "case study", where he lists the Fed along with other 6 other possible causes of the housing crash. To Mankiw, it's as if the damn crisis fell out of the sky. Yup, don't blame the Fed. Mankiw concludes:

Finally, keep in mind that this financial crisis was not the first one in history. Such events, though fortunately rare, do occur from time to time. Rather than looking for a culprit to blame for this singular event, perhaps we should view speculative excess and its ramifications as an inherent feature of market economies.

But, suddenly when it is "rescue" time, Mankiw introduces the Fed as hero:

 As we have seen, financial crises raise unemployment and lower incomes because they lead to a contraction in the aggregate demand for goods and services. Policymakers can mitigate these effects by using the tools of monetary and fi scal policy to expand aggregate demand. The central bank can increase the money supply and lower interest rates. The government can increase government spending and cut taxes. That is, a financial crisis can be seen as a shock to the aggregate demand curve, which can, to some degree, be offset by appropriate monetary and fiscal policy.

Policymakers did precisely this during the financial crisis of 2008–2009. To expand aggregate demand, the Federal Reserve cut its target for the federal funds rate from 5.25 percent in September 2007 to aproximately zero in December 2008. It then stayed at that low level for the next three years. In February 2008. 

President Bush signed into law a $168 billion dollar stimulus package, which funded tax rebates of $300 to $1,200 for every taxpayer. In 2009 President Obama signed into law a $787 billion stimulus, which included some tax reductions but also significant increases in government spending. All of these moves were aimed at propping up aggregate demand.

There you have it, the financial crisis as college students around the country will learn it. Hardly anything about the Fed's role in causing the crisis, nothing at all about business cycle theory. These crises, you see, are, according to Mankiw, an "inherent feature of market economies." And the Fed is the big savior that reverses the crises. What nonsense, what bankster propaganda.