Hoisted from the Archives: "How an Economy Can Live Beyond Its Means on Its Wits...": Confront economists' theories of depressions and what (if anything) the government should do about them and you find yourself immediately confronted with what look to be at least seven different theories...
The Business-Cycle History of the Past Thirty Years Through the Lens of Aggregate Demand: Four Components of Multiplier-Driving Spending: As Paul Krugman says at every opportunity, if you knew nothing of macro after 1975—if you were just armed with sticky-price IS-LM—you would have done an excellent job at understanding the U.S. economy since 2008. I want to point out that this holds true for more than the past ten years: this holds true for the past thirty years as well...
Economists' Models: Analysis Pumps or Filing Systems? And Do Countries with Reserve Currencies Need to Fear Solvency Crises?: As far as we economists are concerned, are our models analysis pumps, or are they merely filing systems to remind us of experiential wisdom? In other words: Are our models to be taken seriously when they lead us to a conclusion that the great and good believe is unserious?... I think I should, sometime over the past three years, have written a really good piece about these questions.... But I regret that I have not... 2018-11-09
Building Blocks and Cycles
The Federal Reserve Is Raising Interest Rates Again for Probably All The Wrong Reasons: Last Month Over at Equitable Growth: I could well be wrong. But I think it is more likely than not that 10 years from today, those on the Committee will wish that they would have cut interest rates this week rather than raise them... 2018-10-20
Hoisted from the Archives: “Unknown Unknowns”: High Public Debt Levels and Other Sources of Risk in Today’s Macroeconomic Environment: Next time I give a "general macro-finance" talk, I should give this one—updated, of course. But how much updating is needed? 2018-10-22
The unwinding of the bubble set the table for the financial panic, but it did not trigger it. The bubble had already been unwound before the panic. The triggers of the panic lay elsewhere: in the events in financial markets that produced a sudden, discontinuous boost in the demand for safe assets... 2018-10-02
Self-Fulfilling Financial Crises: No Longer Fresh at Project Syndicate: Many mistaken assumptions about the 2008 financial crisis remain in circulation. As long as policymakers believe the crisis was rooted in the housing bubble rather than human psychology, another crisis will be inevitable... 2018-10-22
Hoisted from the Archives (October 2008): The Wrong Financial Crisis: All of us from Lawrence Summers to John Taylor were expecting a very different financial crisis. We were expecting the ‘Balance of Financial Terror’ between Asia and America to collapse and produce chaos. We are not having that financial crisis. Instead we are having a very different financial crisis... 2018-10-22
Macroeconomics: The Future 2018-10-19
The Appalachian and Other Trails: An America penned behind the Appalachians would probably have seen its living standards and productivity levels not growing at 1% per year from 1760 to 1860 but shrinking. For the γ=3.0 benchmark case, living standards and productivity levels would have shrunk at a pace of -0.325% per year had population growth been the historical 3% per year... 2018-10-03
- Fall 2018 Econ 101b Exam: U.C. Berkeley_: We expect that this will take you 90 minutes—but we will not kick you out after that time span... Open book, open devices, open internet—everything except conversing interactively with another Turing-Class entity... Do your work in your bluebook... Be calm: from your performance in the course so far, we are confident that you have (largely) got this..
What Not to Do
Debt Derangement Syndrome: Fresh at Project Syndicate: Standard policy economics dictates that the public sector needs to fill the gap in aggregate demand when the private sector is not spending enough. After a decade of denial, the Global North may finally be returning to economic basics: For the past decade, politics in the Global North has been in a state of high madness owing to excessive fear of government debts and deficits. But two recent straws in the wind suggest that this may at long last be changing.... Ken Rogoff.... Brendan Greeley... reported... “a panicked email” from the Committee for a Responsible Federal Budget (CRFB)... Olivier Blanchard.... What Rogoff and Blanchard are saying today is standard policy economics. In fact, I always found it hard to believe–and still do–that anybody can take exception to it. Whenever the private sector stops spending enough to keep unemployment low and jobs easy to find, the public sector needs to fill the gap in aggregate demand... #macro #fiscalpolicy #economicsgoneright #economicsgonewrong 2019-02-07
Barro prefers to have no explanation at all for why production per capita was lower than it had been in 2007Q4, and yet maintain unshaken confidence that he has a deep and correct understanding of what determines the level of production. You can't do that—hold that you have the correct theory, and yet not explain how it applies to the world in which you live... #economicsgonewrong #publicsphere #moralresponsibility
Hoisted from Ten Years Ago: Fama's Fallacy: I was profoundly embarrassed by and ashamed of the Swedish Nobel Committee and of being an economist when they awarded the Nobel Prize to Eugene Fama.... But Fama and the others who claimed a decade ago that, while private decision to spend more boosted employment and production, public decisions to spend more—fiscal stimulus—not only would not, but could not possibly ever boost employment and production... they had no argument at all...
Two Differences Between a Clinton Administration and a Trump Administration...: The 100-odd economists from Barro through Taylor were not engaged in any intellectual discipline. When you are engaged in an intellectual discipline, it is very interesting when you get something wrong—it is a sign that you have something to learn. And so, in every intellectual discipline, you try to learn it: you study it, analyze it, debate about it, in the hope of making yourself smarter—if, that is, you see yourself as a thinker. There has been none of that. There has been silence. There has been silence because the absence of the promised 800 billion surge in investment in America this year continued through next year and beyond is not something anybody is surprised to see...
Monday Smackdown/Hoisted: John Cochrane's Claim in Late 2008 That a Recession Would Be a Good Thing Deserves Some Kind of Award...: To: @johnmlippert: If I may beg a small slice of your attention.... Do you by chance remember the larger context of Cochrane's "pounding nails" comment, and do you have any idea why he now claims that you took him out of context? Or what he thinks the proper context would have been?...
Hoisted from the Archives: Robert Skidelsky vs. Niall Ferguson: John Maynard Keynes Is Not Ke$ha (Also, the U.S. Is Not Greece, and 2013 Is Not 1923): Larry Summers and I would go considerably further than Skidelsky: in our view, those who think there are any long-run benefits from further steps toward austerity today simply have not done their arithmetic, which they could easily do by plugging current interest rates and the impact of austerity on human and physical capital on long-run economic potential into their formulae. And I, at least, would not say that Keynes cared "little" for the long run. You cannot read his "Economic Possibilities for Our Grandchildren" or, indeed, Skidelsky's Keynes biography without recognizing how desperately he wished to help make a world in which the progressive Edwardian civilization of pre-1914 could be restored and persist down the age... 2018-11-08
Hoisted from the Archives: Niall Ferguson Is Wrong to Say That He Is Doubly Stupid: Why Did Keynes Write "In the Long Run We Are All Dead"? Weblogging: In Keynes's extended discussion of how to use the quantity theory of money, the sentence "In the long run we are all dead" performs an important rhetorical role. It wakes up the reader, and gets him or her to reset an attention that may well be flagging. But it has absolutely nothing to do with attitudes toward the future, or with rates of time discount, or with a heedless pursuit of present pleasure. So why do people think it does? Note that we are speaking not just of Ferguson here, but of Mankiw and Hayek and Schumpeter and Himmelfarb and Peter Drucker and McCraw and even Heilbroner—along with many others... 2018-11-08
Was the Great Recession More Damaging Than the Great Depression?: Over at the Milken Review: The Great Recession has cast a very large shadow on America’s future prosperity. We are still haunted by it... 2018-11-05
Blame the Economists?: Fresh at Project Syndicate: Then came 2008, when everything changed. The goal of full employment dropped off Western leaders’ radar... 2018-11-05