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Chapter 29: The Monetary System

Recent Posts
(Note: Page numbers referenced in posts prior to June 1, 2011 refer to 5th edition)

 

July 14

Commodity Money

A three-minute video depicts a world where pizza is money.

Textbook References:

Pages 621-622 “The Kinds of Money”

November 23

The Fed's Exit

Mankiw discusses how difficult it is to know when the Fed should exit its strategy of near-zero interest rates and large purchases of assets. The economy, by some measures, is still in bad shape, but by others it is almost back to normal. The new chair of the Fed will not have it easy.

Textbook References:

Pages 638-639 “The Fed's Exit Strategy”

August 27

Macroprudential Regulation

John Cochrane worries that the Fed may soon micromanage the financial system in the name of "macroprudential regulation." Cochrane says that the "project is a hopeless quest, dripping with the unanticipated consequences of all grandiose planning schemes."

Textbook References:

Pages 625-627 “The Federal Reserve System”

July 10

The Fed's First 100 Years

The Federal Reserve System was created in 1913, so 2013 was its one hundredth anniversary. Mankiw provides links to papers from a conference at the National Bureau of Economic Research that reflect on the Fed's first century.

Textbook References:

Pages 625-627 “The Federal Reserve System”

June 24

Focus on Bank Liabilities, Not Bank Assets

Banking crises can occur because banks have short-term liquid liabilities and long-term illiquid assets. Mankiw suggests changing the financial system to better match assets and liabilities.

Textbook References:

Pages 631-632 “Bank Capital, Leverage, and the Financial Crisis of 2008-2009”

November 15

The Chemistry behind Commodity Money

A chemical engineer goes through the periodic table of the elements to explain why gold is the best choice for commodity money.

Textbook References:

Pages 621-622 “Kinds of Money”

May 17

Good News

An article discusses the appointment of Jeremy Stein and Jerome Powell to the Fed's Board of Governors. It illustrates how even though the Fed is largely insulated from politics, the appointments to it are not.

Textbook References:

Page 626 “The Fed's Organization”

May 12

Geanakoplos on the Leverage Cycle

In a 55-minute video, John Geanakoplos discusses the role of leverage in recent economic crises. He also suggests ways to reduce the problem in the future.

Textbook References:

Pages 631-632 “Bank Capital, Leverage, and the Financial Crisis of 2008-2009”
Pages 745-748 “The Recession of 2008-2009”

April 4

Inflation Risks

Martin Feldstein notes that bank excess reserves have increased dramatically over the past few years, but bank deposits have not. If banks decide to start lending those excess reserves, the money supply could grow rapidly.

Textbook References:

Page 15 “Principle 9: Prices Rise When Government Prints Too Much Money”
Pages 627-632 “Banks and the Money Supply”
Pages 632-639 “The Fed's Tools of Monetary Control”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

December 3

Death to Pennies

A short video explains why we should abolish the one-cent coin.

Textbook References:

Pages 620-625 “The Meaning of Money”

November 30

It's all Ben's fault!

A cartoon pokes fun at the Fed.

Textbook References:

Pages 625-627 “The Federal Reserve System”

October 29

My Lecture at Princeton

An hour-long video shows Mankiw's recent lecture at Princeton. In a wide-ranging presentation, he discusses the current state of macroeconomics. In the process he addresses the policy difficulties created by the current slump and the long-term debt crisis.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Page 561 “Financial Crises”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 631-632 “Bank Capital, Leverage, and the Financial Crisis of 2008-2009”
Pages 745-748 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”

October 29

More on a Nominal GDP Target

Christina Romer endorses the idea that the Fed should target Nominal GDP.

Textbook References:

Pages 625-627 “The Federal Reserve System”
Chapter 30 “Money Growth and Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand“
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?“

October 19

The Latest from Merle Hazard

Merle Hazard performs a song about "too-big-to-fail" banks.

Textbook References:

Pages 272-273 “Economies and Diseconomies of Scale”
Pages 631-632 “Bank Capital, Leverage, and the Financial Crisis of 2008-2009”
Pages 745-748 “The Recession of 2008-2009”

October 18

A Target Path for Nominal GDP

Economists at Goldman Sachs want the Fed to target Nominal GDP

Textbook References:

Pages 625-627 “The Federal Reserve System”
Chapter 30 “Money Growth and Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”

October 12

The Monetary System of the Future?

What would a monetary system without fiat money and without a central bank look like?

Textbook References:

Chapter 29 “The Monetary System”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

September 24

A Conversation with Robert Lucas

Robert Lucas talks about the effects of high marginal tax rates on growth, about the recent financial crisis, and about rational expectations.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Page 561 “Financial Crises”
Pages 631-632 “Bank Capital, Leverage, and the Financial Crisis of 2008-2009”
Pages 745-748 “The Recession of 2008-2009”
Pages 789-795 “Shifts in the Phillips Curve: The Role of Expectations”

September 23

Three from National Affairs.

Scott Sumner says the Fed should target Nominal GDP.

Textbook References:

Pages 625-627 “The Federal Reserve System”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

September 18

Taylor on the Fed's Mandate

John Taylor argues that the Fed's goal should be price stability, not maximum employment.

Textbook References:

Pages 625-627 “The Federal Reserve System”
Chapter 30 “Money Growth and Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”

August 4

Rogoff on the Great Contraction

Kenneth Rogoff argues that it is wrong to compare the recent recession to a typical recession. The real issue is that the world economy is badly overleveraged, and "and there is no quick escape without a scheme to transfer wealth from creditors to debtors, either through defaults, financial repression, or inflation."

Textbook References:

Page 561 “Financial Crises”
Pages 631-632 “Bank Capital, Leverage, and the Financial Crisis of 2008-2009”
Pages 745-748 “The Recession of 2008-2009”

July 3

A Good Exam Question

Dean Baker proposes that the Fed destroy the Treasury bonds it owns and increase reserve requirements. Mankiw considers the effects of such a policy.

Textbook References:

Pages 632-639 “The Fed's Tools of Monetary Control”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

June 26

How To Waste $600 Million

Congress spent $600 million to mint coins that nobody wants.

Textbook References:

Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 623-625 “Money in the U.S. Economy”

April 16

My Talk From Yesterday

A video shows Mankiw's talk at the University of Cincinnati. He provides a brief history of macroeconomics, discusses current monetary and fiscal policy, and discusses the long-run fiscal situation.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 539-541 “Real and Nominal Interest Rates”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 654-655 “The Financial Crisis of 2008”
Page 750 “The 2008 Fiscal Stimulus”
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 842-843 “Dealing with Deficits”

March 16

An Ec 10 Success Story

A Harvard undergraduate wrote her thesis on the meltdown of the market for CDOs. Michael Lewis calls it "more interesting than any single piece of Wall Street research on the subject."

Textbook References:

Pages 600-605 “Managing Risk”
Pages 606-610 “Asset Valuation”
Pages 654-655 “The Financial Crisis of 2008”

March 15

Shiller's Prognosis

Robert Shiller argues that economic crises are hard to predict because macroeconomic knowledge is so limited.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”

February 25

MIT Symposium

A 2-hour video presents a wide-ranging discussion of macroeconomic issues. Participants are Olivier Blanchard, Pedro Aspe, Robert Gordon, Paul Krugman, Greg Mankiw, and Christina Romer.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 654-655 “The Financial Crisis of 2008”
Chapter 32 “A Macroeconomic Theory of the Open Economy”
Page 750 “The 2008 Fiscal Stimulus”
Pages 778-787 “Monetary Policy Influences Aggregate Demand”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

February 19

Is the Fed Printing Money?

When one says that the Fed is "printing money," it is not likely to be literally true.

Textbook References:

Pages 645-647 “Money in the U.S. Economy”
Pages 653-656 “The Fed's Tools of Monetary Control”
Pages 656-657 “Problems in Controlling the Money Supply”

January 28

NPR reports...

National Public Radio reports on discussions held at M.I.T. about the financial crisis and what can be done now to help the economy. The participants were not optimistic about the near term.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 750 “The 2008 Fiscal Stimulus”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

December 11

The Daily Show: Printing Money

Jon Stewart discusses quantitative easing.

Textbook References:

Pages 653-656 “The Fed's Tools of Monetary Control”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

December 1

A Mono Mandate for the Fed?

John Taylor suggests that the Fed is abusing its discretionary power and should be given the single goal of long-run price stability. Mankiw is skeptical.

Textbook References:

Pages 648 “The Fed's Organization”
Pages 832-835 “Should Monetary Policy Be Made By Rule Rather Than By Discretion?”

November 27

How to Improve Frank-Dodd

Oliver Hart and Luigi Zingales comment on the Wall Street Reform and Consumer Protection Act. They argue that the Fed should clearly define what "systemically important" means.

Textbook References:

Pages 648-649 “The Federal Reserve System”
Pages 654-655 “The Financial Crisis of 2008”
Pages 821-822 “Bernanke's Challenges”

November 17

QE2

Mankiw argues that the Fed's second round of quantitative easing "is a modestly good idea." He does not expect its impact will be large, and trusts that the Fed will avoid its pitfalls.

Textbook References:

Pages 653-657 “The Fed's Tools of Monetary Control”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 821-822 “Bernanke's Challenges”

November 6

Laura Tyson and Me on NPR

Laura Tyson and Greg Mankiw discuss current fiscal policy on National Public Radio.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Page 560 “Saving and Investment”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 654-655 “The Financial Crisis of 2008”
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?”
Pages 842-843 “Dealing with Deficits”

November 3

Feldstein on QE2

Martin Feldstein argues that the anticipated second round of the Fed's quantitative easing will do little good and might do much damage. In particular, it may create asset bubbles and create volatility in the currency markets.

Textbook References:

Pages 653-657 “The Fed's Tools of Monetary Control”

Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

Pages 821-822 “Bernanke's Challenges”


October 31

Quantitative Easin'

A song about the Fed's quantitative easing.

Textbook References:

Pages 653-657 “The Fed's Tools of Monetary Control”


October 23

Goolsbee, Deconstructed

Keith Hennessey comments on Austin's Goolsbee's assertions about recent economic policy and performance.

Textbook References:

Pages 34-36 “Why Economists Disagree”

Pages 654-655 “The Financial Crisis of 2008”

Page 750 “The 2008 Fiscal Stimulus”


October 12

Woodford on Monetary Policy

Michael Woodford argues that the Fed "should allow a one-time-only inflation increase." He argues that such a move would boost current spending via its effect on expectations.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Pages 664-676 “The Classical Theory of Inflation”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 821-822 “Bernanke's Challenges”

October 5

Rogoff on Gold

Kenneth Rogoff discusses the recent increase in the price of gold.

Textbook References:

Pages 642-643 “The Functions of Money”

September 20

Krugman versus Rajan

Paul Krugman and Robin Wells review three books about the financial crisis, including Raghuram Rajan's book "Fault Lines." Rajan then responds to the criticisms made by Krugman and Wells.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

September 7

Bernanke on the Financial Crisis

Ben Bernanke discusses the causes of the recent financial crisis.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Pages 821-822 “Bernanke's Challenges”

August 18

What I Learned On My Summer Vacation

Mankiw shows that house prices have tumbled even on wealthy Nantucket Island.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

August 17

What I've Been Reading

Mankiw recommends "More Money Than God," Sebastian Mallaby's book about hedge funds.

Textbook References:

Pages 578-580 “Financial Intermediaries”
Pages 654-655 “The Financial Crisis of 2008”

July 10

The Root Cause of the Crisis

Raghuram Rajan suggests that government policy to mask stagnant real wages was the ultimate cause of the financial crisis.

Textbook References:

Pages 415-416 “The Increasing Value of Skills”
Page 417 “The Loss of Manufacturing Jobs”
Page 441 “What to Make of Rising Inequality”
Pages 654-655 “The Financial Crisis of 2008”


July 6

An Interview with Bob Hall

A wide-ranging interview with Robert Hall touches on a variety of topics.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 566-567 “Property Rights and Political Stability”
Pages 604-605 “The Trade-Off Between Risk and Return”
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 793-797 “Using Policy To Stabilize The Economy”

July 4

The Ubiquitous Ken Rogoff

Ken Rogoff makes the case for taxing carbon. There is also a profile of Rogoff and Carmen Reinhart and their book, "This Time It's Different."

Textbook References:

Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Pages 216-217 “The Case for Taxing Carbon”
Pages 654-655 “The Financial Crisis of 2008”

May 28

Fama on Financial Reform

There is a video of an interview with Eugene Fama. He discusses the recent financial crisis and suggested reforms.

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 606-610 “Asset Valuation”
Pages 654-655 “The Financial Crisis of 2008”
Pages 821-822 “Bernanke's Challenges”

May 27

The Next Financial Crisis

Jeremy Stein presents a fictionalized account of a financial crisis in the year 2025.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

Pages 821-822 “Bernanke's Challenges”


May 26

The World Economy in a Nutshell

A humorous video explains the current Euro crisis.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

Page 704 “The Euro”


May 24

Whither Fannie and Freddie?

Donald Marron and Phillip Swagel propose ways to improve Fannie Mae and Freddie Mac. Their objective is to reduce the risk to taxpayers while preserving liquidity for housing.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

Pages 821-822 “Bernanke's Challenges”


May 9

Ferguson on Posner

Niall Ferguson reviews Richard Posner's new book, The Crisis of Capitalist Democracy. Posner argues that Congress is trying to fix the financial system without fully understanding it. He also points out that by attacking bankers, politicians are distracting attention away from their own role in the current crisis.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

Page 750 “The 2008 Fiscal Stimulus”

Pages 830-832 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy”

Chapter 29: The Monetary System
Archived Posts

 

April 27

A Great Sentence

David Brooks writes that "The premise of the current financial regulatory reform is that the establishment missed the last bubble and, therefore, more power should be vested in the establishment to foresee and prevent the next one."

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”


April 26

Swagel on the Dodd Bill

Phillip Swagel argues that the current financial reform proposal will make future bailouts even more likely.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”


April 23

Contingent Convertible Bond Watch

Switzerland is considering requiring financial institutions to issue contingent convertible bonds. Such bonds convert to equity in the event of financial difficulties that call for recapitalization.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”


April 18

Kocherlakota on the Recovery

The President of the Minneapolis Fed discusses the prospects for the U.S. economy. He expects 3 percent growth for the next two years and thinks significant inflation is unlikely.

Textbook References:

Pages 648-649 “The Federal Reserve System”

Pages 653-656 “The Fed's Tools of Monetary Control”

Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


April 17

The Latest from the CEA Chair

CEA Chair Christina Romer reports on what has been done to fight the current recession and discusses what else can be done.

Textbook References:

Pages 30-33 “The Economist as Policy Advisor”

Pages 246-248 “The Fiscal Challenge Ahead”

Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”

Pages 654-655 “The Financial Crisis of 2008”

Page 750 “The 2008 Fiscal Stimulus”

Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”

Pages 830-832 “Monetary And Fiscal Policymakers Try To Stabilize The Economy”

Pages 842-843 “Dealing with Deficits”


April 11

Hear me Squawk

There is a six-and-a-half minute video of Mankiw discussing financial reform.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

April 2

Barro on the Great Depression

Robert Barro questions the Keynesian multiplier and suggests that Friedman and Schwartz had a better understanding of the Great Depression than Keynes.

Textbook References:

Page 657 “Bank Runs and the Money Supply”
Pages 767-766 “Two Big Shifts in Aggregate Demand: The Great Depression and World War II”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
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?”

March 19

Comments on Alan Greenspan's "The Crisis"

Mankiw comments on Alan Greenspan's new paper, "The Crisis." Mankiw agrees with most of it, but takes issue with Greenspan's contention that there are limits to our ability to reduce leverage.

Textbook References:

Pages 649-658 “Banks and the Money Supply”

March 16

An Ec 10 Success Story

A Harvard undergraduate wrote her thesis on the meltdown of the market for CDOs. Michael Lewis calls it "more interesting than any single piece of Wall Street research on the subject."

Textbook References:

Pages 600-605 “Managing Risk”
Pages 606-610 “Asset Valuation”
Pages 654-655 “The Financial Crisis of 2008”

March 15

Shiller's Prognosis

Robert Shiller argues that economic crises are hard to predict because macroeconomic knowledge is so limited.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”

March 3

Gorton on the Financial Crisis

Gary Gorton probes the root cause of the recent financial crisis.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”

February 5

Reflections on the Housing Market

Karl Case describes the housing bubble and crash in verse.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

January 26

Cooley on the Bank Tax

Thomas Cooley argues that the bank tax should not be sold as a politically charged punitive measure. He also says that it should be more akin to insurance than a tax.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”

January 20

Diamond and Kashyap on the Bank Tax

Douglas Diamond and Anil Kashyap offer a modified version of the bank tax where each bank would pay a tax proportionate to the size of its bailout.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”

January 16

The Inflation Monster

Mankiw considers the chances of significant inflation in the coming years.

Textbook References:

Pages 13-14 “Principle 9: Prices Rise When the Government Prints Too Much Money”
Pages 645-647 “Money in the U.S. Economy”
Chapter 30 “Money Growth and Inflation”

January 15

The Bank Tax

Mankiw makes a case for Obama's proposed tax on banks. The tax would compensate for the implicit government promise to bailout large banks.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”

December 28

The Monetary Base is Exploding. So What?

Mankiw argues that the recent increase in the monetary base need not lead to inflation.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Pages 664-676 “The Classical Theory of Inflation”

December 20

Readings on Financial Regulatory Reform

Mankiw provides a list of articles that discuss financial regulatory reform.

Textbook References:

Pages 576-580 “Financial Institutions in the U.S. Economy”
Chapter 27 “The Basic Tools of Finance”
Pages 654-655 “The Financial Crisis of 2008”

December 12

Fiscal Stimulus Revisited

Mankiw suggests that tax cuts would do more to stimulate the economy than government spending.

Textbook References:

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”

December 9

The Transactions Tax

Burton Malkiel and George Sauter argue against taxing financial transactions.

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 123-130 “Taxes”
Pages 654-655 “The Financial Crisis of 2008”

December 4

What Responsibilities Should the Fed Have?

Vincent Reinhart argues that the Fed may be asked to do too much.

Textbook References:

Pages Pages 54-57 “Comparative Advantage: The Driving Force of Specialization”
Pages 648-649 “Federal Reserve System”


December 3

Glaeser on Financial Regulation

Edward Glaeser suggests a way to extract better information from financial 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”
Pages 654-655 “The Financial Crisis of 2008”

November 27

A Reading for the Pigou Club

John Cassidy prevents an overview of Pigou's ideas.

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 210-212 “Market-Based Policy 1: Corrective Taxes”
Pages 654-655 “The Financial crisis of 2008”

October 28

Is the Efficient Markets Hypothesis Kaput?

Jeremy Siegal argues that the current financial crisis has not discredited the efficient market hypothesis.

Textbook References:

Pages 606-607 “The Efficient Market Hypothesis”
Pages 654-655 “The Financial Crisis of 2008”

October 22

From the CEA Chair

Christina Romer discusses the economic crisis, the policy response, and the outlook for the future.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”
Pages 664-676 “The Classical Theory of Inflation”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Chapter 35 “The Short-Run Trade-off between Inflation and Unemployment”
Chapter 36 “Five Debates over Macroeconomic Policy”


October 14

Maskin on the Financial Crisis

Nobel laureate Eric Maskin discusses the financial crisis. He contends that economists did anticipate the crisis but that policymakers did not listen. He also provides a reading list on the subject.

Textbook References:

Pages 484-485 “Hidden Actions: Principals, Agents, and Moral Hazard”
Pages 601-603 “The Markets for Insurance”
Pages 642-643 “The Functions of Money”
Pages 649-658 “Banks and the Money Supply”
Pages 779-781 “The Theory of Liquidity Preference”
Pages 783-785 “Changes in the Money Supply”


September 25

Back from the Brink

Christina Romer, chair of the President’s Council of Economic Advisors, discusses the parallels between the crises of 1929 and 2008. She argues that the policy response to the current crisis has been much better than the response in 1929.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Chapter 35 “The Short-Run Trade-off between Inflation and Unemployment”
Chapter 36 “Five Debates over Macroeconomic Policy”


September 15

Lehman and the Crisis

John Cochrane and Luigi Zingales blame Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke's TARP speeches for causing the current crisis. Assistant Secretary of the Treasury Phill Swagerl disagrees.

Textbook Reference:

Pages 654-655 “The Financial Crisis of 2008”


August 25

POTUS makes a wise choice

Mankiw congratulates President Obama on his choice to reappoint Ben Bernanke as chair of the Fed.

Textbook References:

Pages 648-649 “The Federal Reserve System”
Pages 654-655 “The Financial Crisis of 2008”
Page 821 “Bernanke’s Challenges”


August 19

Blanchard on the Outlook

Olivier Blanchard notes that in previous banking crises, output does not return to its previous growth path. It remains below it, though the average growth rate returns to what it was.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 550-554 “Economic Growth Around the World”
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”


August 7

The Recession in Nantucket

The amount of new construction in Nantucket has collapsed, as it has in most parts of the country.

Textbook Reference:

Pages 654-655 “The Financial Crisis of 2008”


August 2

The Case for More Inflation

Tyler Cowen reports on Scott Sumner’s proposal that the Fed commit to an inflation rate of 2 to 3 percent.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
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?


July 30

Buiter on the Next Fed Chair

Willem Buiter argues that by allowing the chair of the Fed to be reappointed, the Fed’s independence is compromised.

Textbook Reference:

Pages 648-649 “The Federal Reserve System”


July 27

The Latest from Merle Hazard

Merle Hazard presents a humorous song about the financial crisis.

Textbook Reference:

Pages 654-655 “The Financial Crisis of 2008”


July 21

The Fed’s Exit Strategy

Ben Bernanke explains how the Fed plans to prevent inflation when the recovery takes hold.

Textbook References:

Chapter 29 “The Monetary System”
Chapter 30 “Money Growth and Inflation”
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?


July 19

Anna Schwartz on the Bernanke Fed

Anna Schwartz thinks Bernanke has confused a crisis of confidence with a shortage of liquidity.

Textbook References:

Pages 576-580 “Financial Institutions in the U.S. Economy”
Pages 654-655 “The Financial Crisis of 2008”
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?


July 11

More Fiscal Stimulus?

Paul Krugman makes the case for another stimulus package. Phil Levy makes the case against another package.

Textbook References:

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 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 26

Was Keynes Really a Savvy Investor?

It’s easy to make money if one has unlimited funds.

Textbook References:

Pages 606-610 “Asset Valuation”
Pages 654-655 “The Financial Crisis of 2008”


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 23

Financial Crisis Timeline

The New York Fed presents domestic and international timelines for the financial crisis.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
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”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 589-593 “Policy 3: Government Budget Deficits”
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?”


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 08

Randy and Phill

There is a video of former Fed governor Randy Kroszner and former assistant Secretary of the Treasury Phill Swagel as they discuss the policy actions taken during the financial crisis.

Textbook Reference:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
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”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 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?”


May 30

Ferguson Takes on Krugman

Historian Niall Ferguson argues that the recent rise in interest rate on long-term Treasury bonds is evidence that Krugman is wrong that expansionary fiscal policy will not drive up interest rates.

Textbook Reference:

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 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?”


May 27

John Taylor is Worried

John Taylor is concerned that the U.S. federal debt is growing too large. Among other things, it jeopardizes the country’s credit rating.

Textbook References:

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?”


May 23

Crisis 101

Mankiw comments on how the current crisis will affect the introductory college economics course. He says that the fundamentals are still important, but that more attention will be given to the financial system, leverage, the limits of monetary policy and the difficulty of forecasting.

Textbook References:

Pages 576-580 “Financial Institutions in the U.S. Economy”
Pages 654-655 “The Financial Crisis of 2008”
Page 656 “Problems in Controlling the Money Supply”


May 18

The Fiscal Future

Robert Samuelson worries about the extraordinary amount of deficit spending.

Textbook References:

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”


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 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?”


May 4

Meltzer vs Krugman

Allan Meltzer is worried that the Fed’s easy money policy will lead to inflation. He is also worried that the Fed has lost its independence. Paul Krugman is worried about falling wages and the possibility of deflation.

Textbook References:

Pages 392-399 “The Demand for Labor”
Pages 399-400 “The Supply of Labor”
Pages 400-405 “Equilibrium in the Labor Market”
Pages 414-422 “Some Determinants of Equilibrium Wages”
Pages 648-649 “The Federal Reserve System”
Chapter 30 “Money Growth and Inflation”
Pages 778-787 “How Monetary 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 1

From the CEA Chair

Christina Romer discusses the causes of the current crisis, the policy actions taken to end the crisis, and the prospects for the future.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
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”
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. 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. 24

The Ideal Financial System

Laurence Kotlikoff and Edward Lerner propose an overhaul of the financial system. The proposal includes an end to fractional reserve banking.

Textbook References:

Pages 576-580 “Financial Institutions in the U.S. Economy”
Chapter 29 “The Monetary System”


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. 16

Meet the Cassandras

Salon lists the 14 biggest critics of Obama’s economic policy, along with a short synopsis of their criticisms.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
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”
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. 15

Yale Economists on the Financial Crisis

Robert Shiller, John Geanakoplos and Richard Levin discuss the financial crisis in a one-hour video. The roles of psychology and of leverage are emphasized.

Textbook References:

Pages 494-500 “Behavioral Economics”
Pages 498-499 “This Is Your Brain on Economics”
Pages 576-578 “Financial Markets”
Pages 608-609 “Neurofinance”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


Apr. 14

Hall and Woodward on Fed Policy

Robert Hall and Susan Woodward argue that the large increase in bank reserves need not lead to inflation if the Fed adjusts the interest rate paid on reserves properly.

Textbook References:

Chapter 29 “The Monetary System”
Chapter 30 “Money Growth and Inflation”


Apr. 7

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. 5

Bernanke’s Gamble

Simon Johnson and James Kwak argue that Ben Bernake has expanded the Fed’s role in the economy and has taken great risks.

Textbook References:

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”
Page 821 “Bernanke’s Challenges”

Cowen on Bailouts

Tyler Cowen argues that creditors have not shouldered their share of the burden in this crisis.

Textbook References:

Pages 576-580 “Financial Institutions in the U.S. Economy”
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. 3

Boskin on the Obama Budget

Michael Boskin argues that the Federal budget deficit will be much larger than the administration claims.

Textbook References:

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?”


Apr. 2

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”


Apr. 1

Stiglitz on the Geithner Plan

Joseph Stiglitz argues that the plan to rescue the financial system lacks transparency, is excessively complex, depends on too much leverage and has poor incentives.

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 649-653 “Banks and the Money Supply”
Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

Market-based Financial Regulation

Oliver Hart and Luigi Zingales argue that credit default swaps might be used as a market-based method to determine the health of large financial institutions.

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. 29

Forecasting as Futuristic Fiction

Robert Shiller reports on how paying attention to peoples’ mind-sets can be useful in forecasting economic performance.

Textbook References:

Pages 498-499 “This Is Your Brain on Economics”
Pages 608-609 “Neurofinance”
Pages 654-655 “The Financial Crisis of 2008”


Mar. 25

Sachs on the Geithner-Summers Plan

Jeffrey Sachs thinks the plan to rid the banking system of toxic assets is little more than a transfer program for banks.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Page 821 “Bernanke’s Challenges"


Mar. 24

Toxic Assets versus Toxic Liabilities

Jeremy Bulow and Paul Klemperer argue that the current plan to fix the banking system is flawed and offer an alternative.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Page 821 “Bernanke’s Challenges”


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. 20

Budget Deficits as a Fraction of GDP

The CBO projects the future of the budget deficit. There’s lots of red ink in our future.

Textbook References:

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?”

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. 19

Reloading the Weapons of Monetary Policy

A Harvard graduate student offers a way to break the zero interest rate floor.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

A Primer on Quantitative Easing

The Financial Times offers an explanation of Quantitative Easing.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


Mar. 14

Reading the Tea Leaves on the Budget

Mankiw comments on Obama’s budget proposal, He finds that Obama is serious about climate change but not concerned about budget deficits.

Textbook References:

Chapter 10 “Externalities”
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?”


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. 11

Did the Fed Cause the Crisis?

Alan Greenspan says no.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Page 821 “Bernanke’s Challenges”


Mar. 9

From the CEA Chair

CEA Chair Christina Romer discusses the lessons from the Great Depression that should guide policy today.

Textbook References:

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?


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. 5

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. 4

4. P(Depression) = .2

Robert Barro argues that there is a 20% chance of a depression.

Textbook References:

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?


Mar. 3

CBO on the Stimulus

The Congressional Budget Office estimates that the stimulus plan will have a positive short-run effect but not much long-run effect.

Textbook References:

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. 28

What is a Deficit Hawk to do?

Obama’s budget document is titled “A New Era of Responsibility.” Mankiw argues that the budget does not seem to live up to its name.

Textbook References:

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. 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. 26

Which Budget Deficit?

The CBO and the U.S.Treasury have different measures of the cost of TARP, and therefore different measures of the budget deficit.

Textbook References:

Pages 243-248 “The Federal Government”
Pages 654-655 “The Financial Crisis of 2008”
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”


Feb. 24

The Spending Stimulus Debate

Brad DeLong and Michele Boldrin are on opposite sides of the debate over the stimulus.

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?”

Banking Fixes

Ricardo Caballero and Jeffrey Sachs offer their views on fixing the banking crisis. Caballero wants the government to promise to buy bank shares five years from now at twice their current price. Sachs wants taxpayers to take over the bad assets in exchange for an amount of equity to be determined later.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Page 821 “Bernanke’s Challenges”


Feb. 23

Is Macro Policy Overreacting?

Jeffrey Sachs argues that the current macroeconomic policy is courting disaster in the long run.

Textbook References:

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. 22

Good Banks Inside of Bad Banks

Susan Woodward and Robert Hall argue that we should create good banks inside of bad banks.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Page 821 “Bernanke’s Challenges”


Feb. 21

Buiter’s Solution

Willem Buiter argues that we should capitalize new banks rather than help banks with toxic assets.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Page 821 “Bernanke’s Challenges”


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. 19

Banks vs Holding Companies

John Coates and David Scharfstein argue that TARP money should be sent to banks, not to their holding companies.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
Page 821 “Bernanke’s Challenges”


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. 13

Irving Fisher

There is a link to a story from The Economist about Irving Fisher. It suggests that Fisher’s ideas, especially about debt deflation, are relevant today.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

Pages 674-676 “The Fisher Effect”

Page 821 “Bernanke’s Challenges”


Feb. 9

The Causes of the Crisis

John Taylor explains how the government and the Fed caused the financial crisis.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Pages 657-658 “The Federal Funds Rate”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


Feb.8

Christy Romer on Face the Nation

There is a link to a video of Christy’s Romer’s appearance on Face the Nation. She discusses the stimulus plan.

Textbook References:

Pages 649-657 “Banks and the Money 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”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


Feb. 6

Out with the Old, In with the New

Paul Romer argues that we should create new banks with clean balance sheets.

Textbook References:

Pages 649-653 “Banks and the Money Supply”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”


Feb. 5

The GOP mortgage plan, Con and Pro

Ed Glaeser and John Cochrane discuss the possibility of the government providing low-interest mortgages.

Textbook References:

Pages 576-580 “Financial Institutions in the U.S. Economy”
Pages 654-655 “The Financial Crisis of 2008”


Feb. 3

Lessons from Past Crises

There is a link to an Op-ed for the Wall Street Journal written by Carmen Reinhart and Kenneth Rogoff. They compare the current crisis to previous ones around the world.

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”
Page 657 “Bank Runs and the Money Supply”
Pages 740-742 “Three Key Facts About Economic Fluctuations”


Jan. 26

Cochrane on Fiscal Stimulus

John Cochrane makes the case against fiscal stimulus. Brad DeLong accuses him of making a “freshman mistake.”

Textbook References:

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?

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. 21

Questions for Tim Geithner

There is a link to a New York Times story where seven prominent people ask questions for the nominee for Treasury Secretary.

Textbook References:

Chapter 12 “The Design of the Tax System”

Pages 648-649 “The Federal Reserve System”
Pages 654-655 “The Financial Crisis of 2008”


Jan. 15

A Defense of TARP

There is a link to an editorial by two former chairs of the Council of Economic Advisors. They respond to critics of how the first $350 billion have been spent.

Textbook References:

Page 656 “Problems in Controlling the Money Supply”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Page 821 “Bernanke’s Challenges”


Jan. 13

There is a link to a report by Glen Rudebusch about the unconventional monetary policy that the Fed has employed. It is necessary because the conventional method of cutting interest rates is no longer possible.

Textbook References:

Pages 653-656 “The Fed’s Tools of Monetary Control”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”


Jan. 8

There is a link to a blog by Eugene Fama and Ken French. Fama discusses the problem of how government injections of equity capital into troubled financial institutions can easily become nothing more than subsidies to debt holders.

Textbook References:

Pages 576-578 “Financial Markets”
Pages 601-603 “The Markets for Insurance”
Page 657 “Bank Runs and the Money Supply”
s Pages 778-785 “How Monetary Policy Influences Aggregate Demand”


Jan. 5

The Disappearing Money Multiplier

Mankiw presents a graph showing that the money multiplier has fallen below one. That reflects the huge increase in excess reserves that banks hold.

Textbook References:

Pages 651-653 “The Money Multiplier”
Page 656 “Problems in Controlling the Money Supply”
Pages 778-785 “How Monetary Policy Influences Aggregate Demand”


Dec. 31

Open Market Operations in Equities

Roger Farmer suggests that the Fed should buy some stock to stabilize the equities markets in a manner akin to its open market operations in the bond market.

Textbook References:

Pages 576-578 “Financial Markets”
Pages 653-658 “The Fed’s Tools of Monetary Control”
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. 31

Open Market Operations in Equities

Roger Farmer suggests that the Fed should buy some stock to stabilize the equities markets in a manner akin to its open market operations in the bond market.

Textbook References:

Pages 576-578 “Financial Markets”
Pages 653-658 “The Fed’s Tools of Monetary Control”
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. 23

A Primer on Quantitative Easing

There is a video that does an excellent job of explaining the Fed’s current strategy.

Textbook References:

Pages 649-658 “Banks and the Money Supply”
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?