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No one can complain of a shortage of information about the Great Financial Meltdown.The biggest growth industry today is words:A whole new vocabulary has spread from board tables to kitchen tables.Superannuated whiz kids planting cabbages to offset their newly straitened means can blame their troubles on collateralized debt obligations，special investment vehicles，credit default swaps.Subprime mortgage holders find themselves censured for a new and virulent disease called toxic debt.

But what is in even shorter supply than credit is an economic theory to explain why this financial tsunami occurred，and what its consequences might be.Over the past 30 years，economists have devoted great intellectual energy to proving that such disasters cannot happen.The market system accurately prices all trades at each moment in time.Greed，ignorance，euphoria，panic，herd behavior，predation，financial skulduggery and politics—the forces that drive boom-bust cycles—only exist offstage in their models.

The Great Financial Meltdown would not have surprised the British economist John Maynard Keynes，who died in 1946，for he thought that this was exactly how unregulated markets would behave.The New Economics，as Keynesian economics was known in the United States until it beCome the Obsolete Economics，was designed to prevent such turbulence.It held that governments should vary taxes and spending to offset any tendency for inflation to rise or output to fall.

The New Economics generated its own problems，causing it to collapse into stagflation in the 1970s.But for most Americans and Europeans，the years from 1950 to 1975 were a golden age.The developed world grew at an average annual rate of 3.2 percent with very moderate inflation，and without the benefit of the huge rewards now deemed necessary to keep executives properly incentivized.Above all，growth was stable.The business cycle was severely dampened.

Keynes first beCome convinced of the instability of unregulated economies in the boom years of the“Roaring'20s.”In many ways，the 1920s were like the last 15 years in their technological dynamism，the extravagant lifestyles of the very rich and in their“irrational exuberance.”But they were especially like the recent past in their belief that prosperity would continue without interruption.

The magical formula for success was supposed to be the new“science”of monetary management.From the fact that depressions were associated with falling prices and booms with rising prices，the economist Irving Fisher concluded that economic cycles could be eliminated by keeping prices stable.Under his influence，the Federal Reserve Board set itself the goal of price stability.And the price level did stay remarkably stable for most of the 1920s.

Fisher's views were discredited by the stock market crash of 1929，but his doctrines were revived by Milton Friedman in the 1970s.Plagued by inflation，governments around the world took up Friedman's monetarism，which maintained that inflation was due to governments'printing too much money.Central banks were made independent(the Fed already was)and were given the single task of keeping prices stable.Moreover，financial innovation in increasingly deregulated markets was said to make investment less and less risky.The formula seemed to work.Not only did inflation stay low—not once did it exceed 4 percent between 1991 and 2006—with very little price volatility from the 1990s onward，but the U.S.economy showed strong，though not particularly steady，growth of 3.22 percent on average.Once again，perpetual prosperity beckoned.

What was wrong was the theory.The price level is not a leading，but a lagging，indicator.Asset bubbles can coexist with a stable price level，even while the rest of the economy is starting to slide into depression.And this，in essence，is what Keynes believed was happening in the late 1920s.Money，he argued，was being switched from production to speculation.The rich were getting very much richer，while the inComes of the rest were stagnating.“Profit inflation，”fueled by collateralized debt，went together with an“inCome deflation.”Share prices were being driven up to dizzying heights even as farmers were finding it harder to service agriCultural mortgages.Every financial crash is different in detail—today's started in the banking system，not the stock market—but the anatomy of all is surprisingly similar:A speculative frenzy，triggered by some technical innovation such as mortgage-backed securities，that collapses when reality—in the form of more sober valuations—kicks in.

No one has bettered Keynes in his understanding of the psychology of financial markets.“Most...of our decisions to do something positive...can only be taken as a result of animal spirits...If animal spirits are dimmed...enterprise will fade and die”is one famous remark.“Speculators may do no harm as bubbles on a steady stream of enterprise.But the position is serious when enterprise beComes the bubble on a whirlpool of speculation.When the capital development of a country beComes a by-product of the activities of a casino，the job is likely to be ill-done”is another.Professional investment，he wrote，is like“a game of Snap，of Old Maid，of Musical Chairs，”whose object is to pass on the Old Maid—the toxic debt—to one's neighbor before the music stops.What makes the game toxic is not greed，which is universal，but uncertainty masquerading as certainty.

“The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made，”Keynes wrote in his great book The General Theory of Employment，Interest，and Money in 1936.We disguise this uncertainty from ourselves by assuming that the future will be like the past，that existing opinion correctly sums up future prospects，and by copying what everyone else is doing.But any view of the future based on“so flimsy a foundation”is liable to“sudden and violent changes.The practice of calmness and immobility，of certainty and security suddenly breaks down.New fears and hopes will，without warning，take charge of human conduct...the market will be subject to waves of optimistic and pessimistic sentiment，which are unreasoning yet in a sense legitimate where no solid basis exists for a reasonable calculation.”Keynes accused economics of being itself“one of these pretty，polite techniques which tries to deal with the present by abstracting from the fact that we know very little about the future.”

One must bear in mind that Keynes's aphorisms，which seem so apposite today，were for years dismissed with a pitying smile as the product of a primitive state of economic thinking that had been rendered obsolete by powerful desktop computers and Ph.D.math unavailable to economists of Keynes's generation.

The second strand of Keynes's economics was formed by the depressed 1930s，rather than the booming'20s.His main insight was that a wounded economy would not simply bounce back but might take years to recover.In his language，it might remain a long time in a state of“underemployment equilibrium，”from which it could be rescued only by a massive external shock.As we know，this proved to be the case.It was not the New Deal that brought the U.S.economy back to full employment，but the huge increase in government spending caused by World War Ⅱ.

The long Japanese stagnation of the 1990s is another example of how long it can take for toxic debt to work itself off the balance sheet of banks，and how relatively powerless governments are to produce recovery in the face of flight into cash.This may or may not be our fate today.We all hope that the new Nobel laureate Paul Krugman is right that the rescue operations taken in the past couple of weeks may be enough to stem the financial crisis.But the wreckage may be with us for a long time to Come.

Of course the problem of what a government can or should do to prevent or mitigate these financial storms is not disposed of by pointing out that economies don't behave in the way economists claim that they do.Keynesians want to create financial corridors to limit“the flight of the butterfly，”in Paul Davidson's graphic phrase.Free-marketers argue that the cost of periodic crashes and massive rescue operations is worth paying to preserve freedom of capital movements and technological dynamism.Today，as the costs of the bailout mount up，this argument is heard much less.

We know now that we know very little.But Keynes's insights should not be tossed away as old garbage.At the very least we can say that we have no warrant for basing economics on assumptions that are so often discredited by events.Suitable perhaps for professors and students，such economics are likely to be especially toxic for policymakers.

Robert Skidelsky is the author of“John Maynard Keynes:Economist，Philosopher，Statesman.”

1.What purpose does it serve when the writer mentioned the biggest growth industry in the first paragraph?

2.“A speculative frenzy collapses when reality—in the form of more sober valuations—kicks in.”Discuss the meaning of this sentence.

3.What did Keynes say about inflation，speculation and animal spirits according to the article?

4.What“financial corridors”does Keynesians want to create to limit“the flight of the butterfly”?

5.What roles does the writer think Keynesian economics should play in today's context?

John Maynard Keynes:(1883-1946)British economist，known for his revolutionary theories on the causes of prolonged unemployment.The son of the distinguished economist John Neville Keynes(1852-1949)，he served in the British treasury during World War I and attended the Versailles Peace Conference.He resigned in protest over the Treaty of Versailles，denouncing its provisions in The Economic Consequences of the Peace(1919)，and he returned to teaching at the University of Cambridge.The international economic crisis of the 1920s and'1930s prompted him to write The General Theory of Employment，Interest and Money(1935-1936)，the most influential economic treatise of the 20th century.It refuted laissez-faire economic theories，arguing that the treatment for economic depression was either to enlarge private investment or to create public substitutes for private investment.Keynes argued that in mild economic downturns，monetary policy in the form of easier credit and lower interest rates might stimulate investment.More severe crises called for deliberate public deficits，either in the shape of public works or subsidies to the poor and unemployed.Keynes's theories were put into practice by many Western democracies，notably by the U.S.in the New Deal.Interested in the design of new international financial institutions at the end of World WarⅡ，Keynes was active at the Bretton Woods Conference in 1944.Keynes identified the economic importance of animal spirits.Making and losing fortunes in the financial markets led him to refer to the“casino capitalism”of the stock market.He also noted that“there is nothing so dangerous as the pursuit of a rational investment policy in an irrational world”.凯恩斯是现代西方经济学最有影响的经济学家之一。第一，突破了传统的就业均衡理论，建立了一种以存在失业为特点的经济均衡理论。第二，把国民收入作为宏观经济学研究的中心问题。第三，用总供给与总需求的均衡来分析国民收入的决定。第四，建立了以总需求为核心的宏观经济学体系。第五，对实物经济和货币进行分析的货币理论。第六，反对放任自流的经济政策，明确提出国家直接干预经济的主张。古典经济学家和新古典经济学家都赞同放任自流的经济政策，而凯恩斯却反对这些，提倡国家直接干预经济。他论证了国家直接干预经济的必要性，提出了比较具体的目标；他的这种以财政政策和货币政策为核心的思想后来成为整个宏观经济学的核心，甚至可以说后来的宏观经济学都是建立在凯恩斯的《通论》(The General Theory of Employment，Interest and Money)的基础之上的。

Animal spirits:The colorful name that Keynes gave to one of the essential ingredients of economic prosperity:confidence.According to Keynes，animal spirits are a particular sort of confidence，“naive optimism”.He meant this in the sense that，for entrepreneurs in particular，“the thought of ultimate loss which often overtakes pioneers，as experience undoubtedly tells us and them，is put aside as a healthy man puts aside the expectation of death”.Where these animal spirits Come from is something of a mystery.Certainly，attempts by politicians and others to talk up confidence by making optimistic noises about economic prospects have rarely done much good.

Whiz kid:A young person who is exceptionally intelligent，innovatively clever，or precociously successful.

Collateralized debt obligation or CDO，an investment-grade security backed by a pool of bonds，loans and other assets.CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds.Similar in structure to a collateralized mortgage obligation(CMO)or collateralized bond obligation(CBO)，CDOs are unique in that they represent different types of debt and credit risk.In the case of CDOs，these different types of debt are often referred to as“tranches”or“slices”.Each slice has a different maturity and risk associated with it.The higher the risk，the more the CDO pays.When such CDOs are backed by assets of dubious value，such as subprime mortgage loans，and lose market liquidity，the bonds and their derivatives are also referred to as toxic debt.Holding such“toxic”assets has led to the demise of several investment banks such as Lehman Brothers and other financial institutions during the subprime mortgage crisis of 2007-2009 and led the US Treasury to seek congressional appropriations to buy those assets in September 2008 to prevent a systemic crisis of the banks.

Roaring'20s:Roaring Twenties is a phrase used to describe the 1920s，principally in North America，that emphasizes the period's social，artistic，and Cultural dynamism.“Normalcy”returned to politics in the wake of World War I，jazz music blossomed，the flapper redefined modern womanhood，Art Deco peaked，and finally the Wall Street Crash of 1929 served to punctuate the end of the era，as The Great Depression set in.The era was further distinguished by several inventions and discoveries of far-reaching importance，unprecedented industrial growth and accelerated consumer demand and aspirations，and significant changes in lifestyle.

Milton Friedman:米尔顿·弗里德曼(1912年7月31日—2006年11月16日)，美国经济学家，货币主义大师，以研究宏观经济学、微观经济学、经济史、统计学及主张自由放任资本主义而闻名。1976年他取得诺贝尔经济学奖，以表扬他在消费分析、货币供应理论及历史和稳定政策复杂性等范畴的贡献。弗里德曼是《资本主义与自由》一书的作者，在1962年出版，提倡将政府的角色最小化让自由市场运作，以此维持政治和社会自由。他的政治哲学强调自由市场经济的优点，反对政府的干预。他的理论成了自由意志主义的主要经济根据之一，并且对20世纪80年代开始美国的里根以及许多其他国家的经济政策都有极大影响。U.S.economist.Friedman studied at Rutgers and Columbia before joining the faculty of the University of Chicago in 1946.There he beCome the leading U.S.advocate of monetarism.He oversaw the economic transition in Chile after the overthrow of Salvador Allende.In the 1980s his ideas were taken up by Preident.Ronald Reagan and Britain's Margaret Thatcher.His many books include A Theory of the Consumption Function(1957)and Capitalism and Freedom(1962)，both with his wife，Rose Friedman，and A Monetary History of the United States，1867-1960(1963)and Monetary Trends of the United States and the United Kingdom(1981)，with economist Anna Schwartz.He received the Nobel Prize in 1976.

Old Maid:Old maid，queen of spades，or chase the ace is a card game for two to eight players.It takes its name from the expression“old maid”，meaning a single，usually elderly，woman.The game most likely originated in China or India.A card game in which the player who holds a designated card at the end is the loser.

Musical Chair:A game in which players walk to music around a group of chairs containing one chair fewer than the number of players and rush to sit down when the music stops.The player left standing in each round is eliminated.

New Deal:美国总统罗斯福FDR当政时实施的“新政”U.S.domestic program of President Franklin Roosevelt to bring economic relief(1933-1939).The term was taken from Roosevelt's speech accepting the 1932 presidential nomination，in which he promised“a new deal for the American people.”New Deal legislation was enacted mainly in the first three months of 1933(Roosevelt's“hundred days”) and established such agencies as the Civil Works Administration and the Civilian Conservation Corps to alleviate unemployment，the National Recovery Administration to revive industrial production，the Federal Deposit Insurance Corp.and the Securities and Exchange Commission to regulate financial institutions，the AgriCultural Adjustment Administration to support farm production，and the Tennessee Valley Authority to provide public power and flood control.A second period of legislation(1935-1936)，often called the second New Deal，established the National Labor Relations Board，the Works Progress Administration，and the social security system.Some legislation was declared unconstitutional by the U.S.Supreme Court，and some programs did not accomplish their aims，but many reforms were continued by later administrations and permanently changed the role of government.

Balance sheet:Financial statement that describes the resources under a company's control on a specified date and indicates where they have Come from.It consists of three major sections:assets(valuable rights owned by the company)，liabilities(funds provided by outside lenders and other creditors)，and the owners'equity.On the balance sheet，total assets must always equal total liabilities plus total owners'equity.资产负债表，亦称财务状况表。资产负债表表示企业在一定日期(通常为各会计期末)的财务状况(即资产、负债和业主权益的状况)的主要会计报表。资产负债表利用会计平衡原则，将合乎会计原则的资产、负债、股东权益交易科目分为“资产”和“负债及股东权益”两大区块，在经过分录、转账、分类账、试算、调整等等会计程序后，以特定日期的静态企业情况为基准，浓缩成一张报表。其报表功用除了企业内部除错、经营方向、防止弊端外，也可让所有阅读者在最短时间里了解企业经营状况。资产负债表的基本结构:一般是按各种资产变化先后顺序逐一列在表的左方，反映单位所有的各项财产、物资、债权和权利；所有的负债和业主权益则逐一列在表的右方。负债一般列于右上方分别反映各种长期和短期负债的项目，业主权益列在右下方，反映业主的资本和盈余。左右两方的数额相等。

Paul Krugman:Paul Robin Krugman，born February 28，1953，is an American economist，columnist，intellectual，and author.He is a professor of economics and international affairs at Princeton University and an op-ed columnist for The New York Times.In 2008，Krugman won the Nobel Memorial Prize in Economics“for his analysis of trade patterns and location of economic activity.”Krugman is known in academia for his work in international economics，including trade theory，economic geography，and international finance.保罗·克鲁格曼(Paul R.Krugman，1953-)美国经济学家。保罗·克鲁格曼是自由经济学派的新生代，理论研究领域是贸易模式和区域经济活动。目前是普林斯顿大学经济系教授。1991年获克拉克经济学奖。2008年获诺贝尔经济学奖。

Paul Davidson:Paul Davidson(born in Smithtown，New York in 1971)is an American author who is best known for his Words for My Enjoyment Blog and his 2006 book The Lost Blogs.

Keynesian economics:Body of economic thought originated by the British economist and government adviser，John Maynard Keynes，whose landmark work，The General Theory of Employment，Interest and Money，was published in 1935.Writing during the Great Depression，Keynes took issue with the classical economists，like Adam Smith，who believed that the economy worked best when left alone.Keynes believed that active government intervention in the marketplace was the only method of ensuring economic growth and stability.He held essentially that insufficient demand causes unemployment and that excessive demand results in inflation；government should therefore manipulate the level of aggregate demand by adjusting levels of government expenditure and taxation.For example，to avoid depression Keynes advocated increased government spending and Easy Money，resulting in more investment，higher employment，and increased consumer spending.

Keynesian economics has had great influence on the public economic policies of industrial nations，including the United States.In the 1980s，however，after repeated recessions，slow growth，and high rates of inflation in the U.S.，a contrasting outlook，uniting monetarists and“supply siders，”blamed excessive government intervention for troubles in the economy.Keynesian economics stands as the most influential economic formulation of the 20th century.，though its ascendency was vigorously challenged by monetarism in the late 20th century.Keynes's ideas have appealed to both practical politicians and theoretical economists with equal force，perhaps because he attacked the real problems of national employment and inCome while still remaining faithful to the requirements of rigorous economic thought.Although he favored controlled investment and an active public sector，he never wavered in his faith in the capitalist market economy.In Keynesian theory，government action is designed to stimulate the market，not to eliminate it.

Monetary policy:Measures employed by governments to influence economic activity，specifically by manipulating the money supply and interest rates.Monetary and fiscal policy are two ways in which governments attempt to achieve or maintain high levels of employment，price stability，and economic growth.Monetary policy is directed by a nation's central bank.In the U.S.，monetary policy is the responsibility of the Federal Reserve System，which uses three main instruments: open-market operations，the discount rate，and reserve requirements.In the post-World WarⅡera，economists reached a consensus that，in the long run，inflation results when the money supply grows at too rapid a rate.

Fiscal policy:Federal taxation and spending policies designed to level out the business cycle and achieve full employment，price stability，and sustained growth in the economy.Fiscal policy basically follows the economic theory of the 20th-century English economist John Maynard Keynes that insufficient demand causes unemployment and excessive demand leads to inflation.It aims to stimulate demand and output in periods of business decline by increasing government purchases and cutting taxes，thereby releasing more disposable inCome into the spending stream，and to correct overexpansion by reversing the process.Working to balance these deliberate fiscal measures are the so-called built-instabilizers，suchastheprogressiveinCometaxand unemployment benefits，which automatically respond counter-cyclically.Fiscal policy is administered independently of Monetary Policy by which the Central Bank attempts to regulate economic activity by controlling the money supply.The goals of fiscal and monetary policy are the same，but Keynesians and Monetarists disagree as to which of the two approaches works best.At the basis of their differences are questions dealing with the velocity(turnover)of money and the effect of changes in the money supply on the equilibrium rate of interest(the rate at which money demand equals money supply).

When the economy is sluggish，the government may cut taxes，leaving taxpayers with extra cash to spend and thereby increasing levels of consumption.An increase in public-works spending may likewise pump cash into the economy，having an expansionary effect.Conversely，a decrease in government spending or an increase in taxes tends to cause the economy to contract.Fiscal policy is often used in tandem with monetary policy.Until the 1930s，fiscal policy aimed at maintaining a balanced budget；since then it has been used“countercyclically，”as recommended by John Maynard Keynes，to offset the cycle of expansion and contraction in the economy.Fiscal policy is more effective at stimulating a flagging economy than at cooling an inflationary one，partly because spending cuts and tax increases are unpopular and partly because of the work of economic stabilizers.

Monetarism:School of economic thought that maintains that the money supply is the chief determinant of economic activity.Milton Friedman and his followers promoted monetarism as an alternative to Keynesian economics；their economic theories beCome influential in the 1970s and early 1980s.Monetarism holds that a change in the money supply directly affects and determines production，employment，and price levels，though its influence is evident only over a long and often variable period of time.Fundamental to the monetarist approach is the rejection of fiscal policy in favour of“monetary rule.”Friedman and others asserted that fiscal measures such as tax-policy changes or increased government spending have little significant effect on the fluctuations of the business cycle.They argued that government intervention in the economy should be kept to a minimum and asserted that economic conditions would change before specific policy measures designed to address them could take effect.Steady，moderate growth of the money supply，in their view，offered the best hope of assuring a constant rate of economic growth with low inflation.U.S.economic performance in the 1980s cast doubts on monetarism，and the proliferation of new types of bank deposits made it difficult to calculate the money supply.

Classical economics:The dominant theory of economics from the 18th century to the 20th century，when it evolved into neo-classical economics.Classical economists，who included Adam Smith，David Ricardo and John Stuart Mill，believed that the pursuit of individual selfinterest produced the greatest possible economic benefits for society as a whole through the power of the Invisible Hand.They also believed that an economy is always in equilibrium or moving towards it.

Equilibrium was ensured in the labor market by movements in wages and in the capital market by changes in the rate of interest.The interest rate ensured that total savings in an economy were equal to total investment.

In disequilibrium，higher interest rates encouraged more saving and less investment，and lower rates meant less saving and more investment.When the demand for labor rose or fell，wages would also rise or fall to keep the workforce at full employment.

In the 1920s and 1930s，John Maynard Keynes attacked some of the main beliefs of classical and neo-classical economics，which beCome unfashionable.In particular，he argued that the rate of interest was determined or influenced by the speculative actions of investors in bonds and that wages were inflexible downwards，so that if demand for labor fell，the result would be higher unemployment rather than cheaper workers.

Neo-classical economics:The school of economics that developed the free-market ideas of classical economics into a full-scale model of how an economy works.The best-known neo-classical economist was Alfred Marshall，the father of marginal analysis.Neo-classical thinking，which mostly assumes that markets tend towards equilibrium，was attacked by Keynes and beCome unfashionable during the Keynesian-dominated decades after the second world war.But，thanks to economists such as Milton Friedman，many neo-classical ideas have since beCome widely accepted and uncontroversial.

新闻标题:新闻文体的主体结构是由标题(headline)、导语(lead)和正文(body)三部分组成。标题是新闻内容的集中概括，通常被视为新闻的文眼，它用简练的文字浓缩了新闻中最主要或最值得注意的事件，简明扼要地向读者揭示新闻的主要内容，使读者在最短的时间内获得尽可能多的信息。标题是新闻的“眼睛”，是新闻的概括，短短几个词便点出文章的主题或新闻中最具价值的内容，所以具画龙点睛之功能。从语言看，标题时而简洁，时而成一长句。不管长短，标题常引经据典，引用、借用、套用、改用典故、名言、谚语、习语等。同时，标题也常讲究押韵、双关等修辞手法。一般说来，硬新闻多用摘要式标题，文字平铺直叙。而特写、评述等往往在文字上比较看重修辞与语言技巧。在随后的选文中我们将具体介绍新闻标题的使用特色与注意事项。

Ⅰ.According to the article，determine which statements are true and which are false.

1.Current economic theories find it hard to explain why this financial tsunami happened.

2.Keynes thought unregulated markets would result in disasters like this financial meltdown.

3.New Economics，Keynesian Economics and Obsolete Economics are not the same thing in this article.

4.The Roaring'20s refers to the 1920s characterized by economic boom，technological renovation and expensive lifestyles.

5.Irving Fisher believed that economic cycles could go away by keeping prices stable.

1.The first paragraph_________.

A.explains how the Great Financial Meltdown Come into being

B.indicates that a lot of new expressions are being created to describe this financial tsunami

C.defines a disease called toxic debt

D.introduces the biggest growth industry

2.According to this article，the forces that drive economic cyclesinclude the following except_________.

A.herd behavior

B.temperament

C.politics

D.predatory actions

3.According to this article，Keynesian Economics_________.

A.maintained that governments should vary taxes and spending to prevent inflation from rising or output from falling

B.keenly observed both the boom years of the 1920s and the depressed 1930s

C.believed that most of our decisions were driven by animal spirits

D.all of the above

4.Milton Friedman's economic idea_________.

A.held that changing rates of inflation are often caused by increases or decreases in the money supply

B.contradicted Fisher's views

C.held that financial innovation in progressively deregulated markets made investment less risky

D.both A and C

5.Which of the following best describes the main idea of this article?

A.A Comparison is made between today's financial storms and the depressed 1930s.

B.A Comparison is made among Irving Fisher，Milton Friedman and John M.Keynes.

C.Major beliefs of Keynes were explained by extensive citation of his words.

D.Keynes's insights on economics are still applicable and valid in explaining events experienced by the market today.