Chapter 1: Ten Principles of Economics
Archived Posts
October 5
Medicare and Freedom
Medicare sometimes imposes price controls on markets. When people try to circumvent them, more restrictive rules are imposed.
Textbook References:
Pages 7-8 “People Respond to Incentives”
Pages 114-123 “Controls on Prices”
Pages 246-248 “The Fiscal Challenge Ahead”
August 21
We are all supply-siders now
David Leonhardt and Geraldine Fabrikant argue that in the three decades after WWII, high marginal tax rates reduced the pre-tax income of the rich.
Textbook References:
Pages 7-8 “Principle 4: People Respond To Incentives”
Pages 169-171 “The Laffer Curve and Supply-Side Economics”
Chapter 12 “The Design of the Tax System”
July 10
Miron on Bailouts
Jeff Miron suggests that the government should not have subsidized home ownership to begin with, and should not have bailed out banks after the crash.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Makin on Homeownership
John Makin argues that the housing bubble was the result of government policy, especially the mortgage interest tax deduction.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
July 9
Lazear on Fiscal Stimulus
Edward Lazear notes that very little of the stimulus package has actually been spent. He claims that it is primarily an excuse to expand the size of government.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
July 02
Old Speeches, New Policies
Blogger Mark Thoma uses a speech Mankiw gave six years ago to defend Obama’s deficit spending. But Mankiw’s speech emphasizes that a deficit caused by spending may have a different long-term effect than a deficit caused by tax cuts.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
Pages 842-843 “Dealing with Deficits”
June 25
Posner on Financial Reform
Richard Posner argues that the proposed financial reforms ignores the fact that existing regulators were asleep, so more regulators will not guarantee better performance.
Textbook References:
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
June 19
Kling on Financial Regulation
Arnold Kling points out that the tax deductibility of mortgage interest and government mortgage subsidies played a role in creating over-leveraged consumers.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
June 05
Government Motors
The Obama administration has said that the government will not interfere with GM’s business decisions. Yet Congressman Barney Frank has done just that.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
May 28
Blame the Board
Alan Blinder blames corporate boards for much of the financial crisis. They created incentives for executives to take on excessive risk.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Page 9 “Incentive Pay”
Page 486 “Corporate Management”
May 17
Accountability?
The actual unemployment rate in the past two months has been higher than the administration said it would be with the stimulus bill.
Textbook References:
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
May 15
The Personal Side of the Credit Crisis
An economics reporter for the New York Times explains how he became part of the mortgage crisis.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 654-655 “The Financial Crisis of 2008”
May 14
Limited Purpose Banking
Laurence Kotlikoff and John Goodman make the case for limiting banks to their role as financial intermediaries.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 578-580 “Financial Intermediaries”
Pages 649-658 “Banks and the Money Supply”
Page 821 “Bernanke’s Challenges”
May 7
The Auto Industry of the Future
George Will thinks that the government’s efforts to save GM and Chrysler amount to trying to extract sunbeams from cucumbers.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 208-209 “Technology Spillovers, Industrial Policy and Patent Protection”
May 6
Is the White House bullying hedge funds?
Cliff Asness argues that the Obama administration’s attack on hedge funds is “the big lie writ large,” and is politically motivated.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Page 237 “The Importance of Property Rights”
Pages 566-567 “Property Rights and Political Stability”
May 5
An Overview of the Credit Crisis
There is an article that summarizes how the current crisis started, how it spread and the actions taken to counteract it. There are also links to a large number of articles and videos on the same topics. This should be an especially valuable resource for instructors.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economics Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 26 “Saving, Investment, and the Financial System”
Pages 654-655 “The Financial Crisis of 2008”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
Apr. 30
The Rule of Law – Not!
Mankiw fears that recent government actions may erode property rights.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 237 “The Importance of Property Rights”
Pages 566-567 “Property Rights and Political Stability”
Apr. 29
Miron on the Financial Crisis
Jeff Miron argues the case for the government to do nothing in response to the financial crisis.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Apr. 21
Solow on Posner
Robert Solow reviews Richard Posner’s book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression. Along the way he provides insightful observations, as one would expect from a Nobel laureate.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 484-489 “Asymmetric Information”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 838-841 “Should the Government Balance Its Budget?”
Apr. 19
A Quick Quiz
Take a quiz made up of questions from past AP tests.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Page 614-619 “How is Unemployment Measured?”
Pages 649-653 “Banks and the Money Supply”
Pages 653-656 “The Fed’s Tools of Monetary Control”
Chapter 30 “Money Growth and Inflation”
Pages 742-744 “The Assumptions of Classical Economics”
Pages 749-751 “Why the Aggregate–Demand Curve Might Shift”
Pages 753-755 “Why the Long–Run Aggregate–Supply Curve Might Shift”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Apr. 07
More on the Treasury Plan
Ricardo Caballero believes the Treasury is on the correct track. Jeffrey Sachs thinks the Treasury’s plan will cost the taxpayers a bundle.
Textbook References:
Pages7-8 “Principle 4: People Respond to Incentives”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Apr. 06
The Four Pillars of Sound Policy
Edward Glaeser worries that the “Washington Consensus” (fiscal restraint, the rule of law, free trade and privitazation) may be coming to an end.
Textbook References:
Pages7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 3 “Interdependence and the Gains from Trade”
Pages 566-567 “Property Rights and Political Stability”
Pages 589-593 “Policy 3: Government Budget Deficits”
Apr. 04
Hoover Did It!
Lee Ohanian argues that higher wages, which were paid to prevent unions from organizing, was an important cause of the Great Depression.
Textbook References:
Pages7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 118-121 “How Price Floors Affect Market Outcomes”
Pages 421-422 “Above-Equilibrium Wages: Minimum-Wage Laws, Unions, and Efficiency Wages”
Pages 629-631 “Unions and Collective Bargaining”
Apr. 02
My Whereabouts
Phillip Swagel describes the actions taken by the U.S. Treasury as the financial crisis unfolded. He emphasizes the legal constraints faced by the Treasury.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Mar. 31
The Mess that is GM
David Brooks argues that GM has been “restructuring” for decades. It will take enormous political will to make it actually restructure.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 30-34 “The Economist As Policy Advisor”
Mar. 23
And I Did Not Even Get a Citation
The new Treasury plan to fix the financial system has some of the characteristics of what Mankiw suggested on his blog last October. But there are also important differences.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 576-580 “Financial Institutions in the U.S. Economy”
Pages 654-655 “The Financial Crisis of 2008”
Mar. 22
Sumner on Financial Regulation
Scott Sumner defends the efficient market hypothesis and denies that more regulation would’ve prevented the financial melt-down.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 606-609 “The Efficient Market Hypothesis”
Mar. 21
Interview with Gary Becker
Gary Becker defends market economics.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Mar. 20
The Direction of Policy
Alan Blinder argues that Obama is not a socialist. Gary Becker and Kevin Murphy think that Obama’s plan may kill capitalism.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Mar. 13
The Obama Program
Larry Summers describes the causes of the current crisis, the administration’s response and long-term implications.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economics Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Mar. 08
Soaking the Rich?
A Washington Post article presents the views of a variety of people on the redistributive effects of Obama’s plan.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-Offs”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Government Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation”
Chapter 12: “The Design of the Tax System”
Chapter 20 “Income Inequality and Poverty”
Mar. 6
How is the President Doing?
Michael Boskin thinks Obama is too radical. Paul Krugman thinks Obama is dithering. And the Economist thinks Obama has not explained how he is going to pay for everything.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-Offs”
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Government Can Sometimes Improve Market Outcomes”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Mar. 05
The Latest Mortgage Plan
John Geanakoplos and Susan Koniak argue that the plan to reduce interest payments for troubled mortgages won’t stop the foreclosures.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 654-655 “The Financial Crisis of 2008”
Mar. 04
Another Loss for Economic Freedom
The economic stimulus bill restricts the hiring of foreign workers.
Text References:
Page 8 “Principle 5: Trade Can Make Everyone Better Off”
Pages 8-10 “Principle 6: Markets Are Usually a Good Way to Organize Economic Activity”
Chapter 3 “Interdependence and the Gains from Trade”
Chapter 9 “Application: International Trade”
Mar. 03
The Case for Moderation
David Brooks argues that the Obama administration wants to fundamentally change government’s role in the economy and society.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 10-12 “Principle 7: Governments can Sometimes Improve Market Outcomes”
Pages 442-445 “The Political Philosophy of Redistributing Income”
Pages 489-493 “Political Economy”
Feb. 27
A Speech From the CEA Chair
CEA Chair Christina Romer Defends the Stimulus Bill.
Textbook References:
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”
Feb. 25
Gleaser on the Mortgage Interest Deduction
Ed Gleaser argues that the tax deduction on mortgage interest payments should be limited to loans up to $300,000.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Chapter 12 “The Design of the Tax System”
Pages 609-610 “Market Irrationality”
Pages 654-655 “The Financial Crisis of 2008”
Page 821 “Bernanke’s Challenges”
Leonhardt vs Obama
Obama says that families making less than $250,000 will not see a tax increase. David Leonhardt says that families making less than $250,000 will have to pay higher taxes.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-Offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”
Feb. 20
Loose Money and Politicized Mortgages
Phil Gramm argues that the financial crisis was caused by loose monetary policy and politicians interfering in the mortgage market.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economics Activity”
Pages 654-655 “The Financial Crisis of 2008”
Page 821 “Bernanke’s Challenges”
Feb. 17
An Increase in Marginal Tax Rates
David Henderson argues that the rebate included in the stimulus plan effectively raises marginal tax rates for the most productive people.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 252-253 “Marginal Tax Rates versus Average Tax Rates”
Bebchuk on Pay Caps
Harvard law professor Lucian Bebchuk argues against the rules on executive pay in the stimulus plan.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Page 9 “Incentive Pay”
Feb. 16
Nationalization, or Pre-Privatization?
Is the government nationalizing the financial system?
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 654-655 “The Financial Crisis of 2008”
Feb. 15
A Victory for Populism
Some worry that the restrictions on executive compensation may reduce the effectiveness of the stimulus package.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Page 9 “Incentive Pay”
Feb. 10
Tit for Tat
Canadian unions join the chorus for economic nationalism.
Textbook References:
Page 8 “Principle 5: Trade Can Make Everyone Better Off”
Chapter 3 “Interdependence and the Gains from Trade”
Chapter 9 “Application: International Trade”
Pages 728-730 “Trade Policy”
Becker and Murphy on Fiscal Stimulus
Gary Becker and Kevin Murphy suggest that the stimulus plan has many defects.
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Feb. 07
Stimulus for Libertarians
Jeff Miron presents a Libertarian’s view of what should be done.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Pages 444-445 “Libertarianism”
Feb. 05
Interview with Robert Barro
There is a link to an interview of Robert Barro by The Atlantic
Textbook References:
Pages 7-8 “People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Page 793 “How Fiscal Policy Might Affect Aggregate Supply”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Malkiel on “Buy American”
Burton Malkiel argues that the stimulus package should not include protectionist provisions.
Textbook References:
Page 8 “Principle 5: Trade Can Make Everyone Better Off”
Chapter 3 “Interdependence and the Gains from Trade”
Chapter 9 “Application: International Trade”
Pages 728-730 “Trade Policy”
Feb. 02
The Problem of Hasty Public Investment
A newspaper illustrates how wasteful government spending can be.
Textbook References:
Pages 8-10 “Principle 6: Markets are Usually a Good Way to Organize Economic Activity”
Page 11 “Adam Smith and the Invisible Hand”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Jan. 26
Listen to me Squawk
There is a link to a video of an interview with Mankiw about the current efforts to revive the economy.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Jan. 23
A Discussion Question
Does it matter if the fiscal stimulus is spent by banks to remodel the executive bathroom or loaned to someone else to do the same thing?
Textbook References:
Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Jan. 22
Barro on Fiscal Stimulus
Robert Barro argues that the proposed stimulus package ignores what have economists have learned since 1936. There is also a link to Paul Krugman’s blog where he chides Barro for misrepresenting Keynes.
Textbook References:
Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Pages 589-591 “Policy 3: Government Budget Deficits and Surpluses”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 791-792 “The Crowding-Out Effect”
Jan. 19
Advice for Tim Geithner
There is a link to commentary by Luigi Zingales, who has advice for the new Secretary of the Treasury.
Textbook References:
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 578-580 “Financial Intermediaries”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Page 821 “Bernanke’s Challenges”
Infrastructure Spending as Stimulus
There is a link to Gary Becker’s blog where he explains why the stimulus package will not work.
Textbook References:
Pages 589- 591 “Policy 3: Government Budget Deficits”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 589- 591 “Policy 3: Government Budget Deficits”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”
Jan. 16
More Spending Stimulus Skeptics
There is a link to a short article in the Chicago Tribune that quotes prominent economists who do not think the spending stimulus will work.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 589- 591 “Policy 3: Government Budget Deficits”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Jan. 13
Mankiw responds to a question about comparing the short-run benefits of fiscal stimulus to the long-term costs of higher taxes to pay for the stimulus.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”
There is a link to an NPR interview with Mankiw, who is skeptical about Obama’s stimulus package.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Jan. 12
There are links to a blog by Gary Becker and an editorial by Kevin Hasset. Both doubt the wisdom of the proposed stimulus plan.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”
Jan. 10
There is a link to Mankiw’s editorial in the New York Times. He points out some of the pitfalls of increased government spending as a way to end the crisis.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Dec. 27
The Seeds of the Current Crisis
The is a link to an editorial by Tyler Cowen that argues that the bailout in 1998 of Long-Term Capital Management sent the wrong signals.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”
Dec. 20
Another Stimulus Spending Skeptic
Mankiw posts a letter arguing that the government cannot efficiently increase its spending quickly.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”
Let the Rent Seeking Begin
Mankiw posts a link to a story illustrating how lobbyist will influence how any new government spending is allocated.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”
Dec. 18
Two Views of Housing Policy
There is a link to an editorial by Glenn Hubbard and Chris Mayer that argues in favor of more government action to reduce mortgage interest rates. There is also a link to an editorial by Ed Glaeser and Joe Gyourko that argues that such a policy is the cause of the current crisis.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Dec. 17
Crises and Government
Mankiw discusses how crises generally lead to permanently larger government.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 242-248 “A Financial Overview of the U.S. Government”
Dec. 13
Interview with Marty
There is a video of an interview with Martin Feldstein. Martin addresses the auto bailout, Fannie Mae and Freddy Mac, and real interest rates.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 298-300 “The Firm’s Long-Run Decision to Exit or Enter a Market”
Pages 348-351 “Competition with Differentiated Products”
Chapter 26 “Saving, Investment, and the Financial System”
Page 821 “Bernanke’s Challenges”
Dec. 10
Cooley on Mortgage Restructuring
There is a link to an editorial by Tom Cooley. Tom argues that the current mortgage restructuring methods have had little impact because they are badly designed.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Page 821 “Bernanke’s Challenges”
Dec. 6
Mortgage Forgiveness as a Tax Hike
There is a link to an editorial by Casey Mulligan that argues the current mortgage forgiveness plan creates perverse incentives.
Textbook Reference:
Pages 7-8 “Principle 4: People Respond to Incentives”
Dec. 5
Ed Gleaser on Subsidized Mortgages
There is a link to an editorial by Ed Gleaser that argues that government subsidies for mortgages raise the price of houses and led to the current crisis in the housing market.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 8 “Application: The Costs of Taxation” (Subsidies are not discussed in the chapter, but the model can be extended to subsidies.)
Dec. 3
Morning Reads
There is a link to an editorial by Oliver Hart and Luigi Zinglaes that argues that the government should not bail out failed firms.
Textbook References:
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 821 “Bernanke’s Challenges”
