Chapter 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand
Archived Posts
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 18
Fiscal Stimulus, One Year Later
David Leonhardt argues that the fiscal stimulus was a success. Phillip Levy says that Leonhardt's argument depends on "a straw man and twisted logic."
Textbook References:
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”
February 6
Austan Goolsbee on the Daily Show
Austan Goolsbee, a member of the President's Council of Economic Advisors, appears on the Daily Show.
Textbook References:
Pages 30-33 “The Economist as Policy Advisor”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
January 20
Feldstein on Obamanomics
Martin Feldstein argues that Congress poorly targeted the fiscal stimulus. As a result, its impact was smaller than it might have been.
Textbook References:
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Affects Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize The Economy?”
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”
November 30
How to Create Jobs
Nobel laureates Paul Krugman and Gary Becker offer different advice on how to create jobs.
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 400-405 “Equilibrium in the Labor Market”
Pages 614-623 “Identifying Unemployment”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
November 21
New Research on Fiscal Policy
Alberto Alesina and Silvia Ardagna argue that tax cuts are a better fiscal stimulus than spending increases.
Textbook References:
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
October 27
From the CEA Chair
Christina Romer discusses the effect of health-care reform on the projected budget deficit.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 797 “Automatic Stabilizers”
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 19
Is the Fiscal Stimulus Really Temporary?
Alex Brill and Amy Roden claim that 37 percent of the spending and tax components of the American Recovery and Reinvestment Act of 2009 are permanent.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
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”
October 5
A Victory for Mundell-Fleming
The size of the fiscal multiplier depends heavily on whether exchange rates are fixed or flexible.
Textbook References:
Chapter 32 “A Macroeconomic Theory of the Open Economy”
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?
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 24
Posner on Keynes
Richard Posner discusses why he became a Keynesian after reading The General Theory.
Textbook Reference:
Pages 609-610 “Market Irrationality”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 779-781 “The Theory of Liquidity Preferences”
Pages 794-795 “The Case for Active Stabilization Policy”
September 20
Book Review
Mankiw reviews Robert Skidelsky’s new book, “Keynes: the Return of the Master.”
Textbook Reference:
Pages 609-610 “Market Irrationality”
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 779-781 “The Theory of Liquidity Preferences”
Pages 794-795 “The Case for Active Stabilization Policy”
September 19
Levine on Macro
David Levine accuses Paul Krugman of ignoring advances in modern macroeconomics.
Textbook References:
Pages 494-500 “Behavioral Economics”
Pages 606-610 “Asset Valuation”
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 17
Kocherlakota on Macro
Narayana Kocherlakota makes ten claims about the state of modern macroeconomics.
Textbook References:
Pages 494-500 “Behavioral Economics”
Pages 606-610 “Asset Valuation”
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 14
Gordon on Macro
Robert Gordon argues that modern dynamic stochastic general equilibrium models are not relevant to the real world. He suggests a return to a Keynesian model, but one stripped of the short-run Phillips Curve.
Textbook References:
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 6
How Large is the Fiscal Policy Multiplier?
Volker Wieland argues that there are no multipliers if people are forward looking.
Textbook References:
Pages 751-761 “The Aggregate Supply Curve”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Unemployment Update
Unemployment is higher than the administration predicted.
Textbook References:
Pages 392-399 “The Demand for Labor”
Pages 399-400 “The Supply of Labor”
Pages 400-405 “Equilibrium in the Labor Market”
Chapter 28 “Unemployment”
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?
September 3
Krugman on Macro
Paul Krugman argues that most macroeconomists have preferred beauty to truth.
Textbook References:
Pages 494-500 “Behavioral Economics”
Pages 606-610 “Asset Valuation”
Pages 751-761 “The Aggregate Supply Curve”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Pages 817-818 “Rational Expectations and the Possibility of Costless Deflation”
Chapter 36 “Five Debates over Macroeconomic Policy”
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 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 12
Modern macro even Paul Krugman will love
In a new paper, Lawrence Christiano, Martin Eichenbaum, and Sergio Rebelo find large fiscal-policy multipliers. The results are at odds with many earlier papers.
Textbook References:
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 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
Unemployment Update
The administration predicted that, with its stimulus package, the unemployment rate would be much lower than it actually is.
Textbook References:
Chapter 28 “Unemployment”
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?”
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 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 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
The Yield Curve is Steep
The yield curve that shows the difference between the yields on two year and ten year Treasury bonds has a large positive slope. In the past, this has signaled an end to recessions.
Textbook Reference:
Pages 576-577 “The Bond Market”
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 26
More on Negative Interest Rates
Glen Rudebusch of the San Francisco Fed says that to be consistent with the Fed’s past policy, the interest rate would have to be negative five percent by the end of this year.
Textbook References:
Pages 539-541 “Real and Nominal Interest Rates”
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?
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 12
Measuring Jobs Created or Saved
Congress passed a bill that requires the Council of Economic Advisors to report on the number of jobs saved or created by the stimulus package. It is an impossible task.
Textbook References:
Pages 392-399 “The Demand for Labor”
Pages 399-400 “The Supply of Labor”
Pages 400-405 “Equilibrium in the Labor Market”
Chapter 28 “Unemployment”
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?
May 11
Negative Interest Rates
The city of Prien am Chiemsee in Bavaria, Germany, employs a local currency that implements one of Mankiw’s suggestions for creating negative interest rates.
Textbook References:
Pages 539-541 “Real and Nominal Interest Rates”
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?
May 7
More on Negative Interest Rates
Former central banker Willem Buiter endorses the idea of negative interest rates.
Textbook References:
Pages 539-541 “Real and Nominal Interest Rates”
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?
May 5
Inflation or Deflation?
There is a humorous video of a country song that describes the debate about whether we are in danger of deflation or hyperinflation.
Textbook References:
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?”
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. 28
Reis on Macro
There is an hour-long interview with Ricardo Reis. Reis argues that Keynesian models are still useful.
Textbook References:
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Fed Staff goes Negative
A Fed report says that the ideal interest rate now would be negative 5 percent.
Pages 539-541 “Real and Nominal Interest Rates”
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?
Apr. 27
Instantaneous Deflation as a Macro Solution
Robert Murphy responds to Mankiw’s argument that we need negative interest rates. He points out that Mankiw’s argument for future inflation is logically equivalent to an instantaneous collapse of prices. Mankiw points out that if prices are sticky, that can’t happen.
Textbook References:
Pages 539-541 “Real and Nominal Interest Rates”
Chapter 30 “Money Growth and Inflation”
Pages 755-760 “Why the Aggregate-Supply Curve Slopes Upward in the Short Run”
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?
Apr. 22
More on Negative Interest Rates
Mankiw continues the discussion he started on April 18 about the usefulness of negative interest rates.
Textbook References:
Pages 539-541 “Real and Nominal Interest Rates”
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?”
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
Observations on Negative Interest Rates
Mankiw responds to comments about his April 18 post in favor of negative interest rates.
Textbook References:
Pages 539-541 “Real and Nominal Interest Rates”
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?
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. 18
Going Negative
Mankiw argues that the Fed should consider negative interest rates, possibly by creating inflation.
Textbook References:
Pages 539-541 “Real and Nominal Interest Rates”
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?
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. 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. 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
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?
New Keynesian Multipliers
Some recent research suggests that the government spending multiplier is smaller than previously thought.
Textbook References:
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?
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
Are Fiscal Multipliers Now Big or Small?
Richard Clarida says the fiscal multipliers are small and Christina Romer says they are big.
Textbook References:
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget
Mar. 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. 24
Mixed Messages
The U.S. wants China to keep buying our treasury bonds, which has the effect of keeping the value of the dollar high against the Yuan. But the U.S. also wants China to raise the value of the Yuan against the dollar.
Textbook References:
Pages 692-702 “The International Flows of Goods and Capital”
Pages 724-733 “How Policies and Events Affect an Open Economy”
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?”
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. 13
Uncertainty and the MPC
Mankiw corrects a mistake made by a prominent journalist.
Textbook Reference:
Pages 788-790 “The Multiplier Effect”
Feb. 12
Labor Market Conditions
Mankiw presents a graph of initial and continued unemployment claims from January 1971 to January 2009.
Textbook References:
Chapter 28 “Unemployment”
Pages 740-742 “Three Key Facts About Economic Fluctuations”
Page 797 “Automatic Stabilizers”
The Budget Balance
Mankiw presents a chart showing the federal budget deficit or surplus as a fraction of GDP for the period since 1980. It shows that the projected budget deficit for this year is quite large.
Textbook References:
Pages 589-591 “Policy 3: Government Budget Deficits and Surpluses”
Pages 591-593 “The History of U.S. Government Debt”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”
Feb. 11
Ray Fair on Stimulus
Ray Fair reports that his macroeconomic model predicts that the stimulus bill will create short-run gains and long-run pain.
Textbook References:
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-591 “Policy 3: Government Budget Deficits and Surpluses”
Pages 591-593 “The History of U.S. Government Debt”
Pages 724-728 “Government Budget Deficits”
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. 10
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. 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
The Mature Keynesian Perspective II
Keynes would’ve approved a cut in the payroll tax now.
Textbook References:
Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
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”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
The Japanese Fiscal Experiment
There is a link to a New York Times article about the use of infrastructure spending in Japan as a fiscal stimulus.
Textbook References:
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?
4. 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
My preferred fiscal stimulus
Mankiw gives his own view of what should be done.
Textbook References:
Pages 210-212 “Market-Based Policy 1: Corrective Taxes and Subsidies”
Pages 216-217 “The Case for Taxing Carbon”
Chapter 12 “The Design of the Tax System”
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?
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?
Feb. 4
Feldstein on Fiscal Stimulus
There are links to two newspaper articles by Martin Feldstein. In the first he makes a case for a fiscal stimulus. In the second he argues that the current fiscal stimulus proposal is poorly put together and will not have the intended effect.
Textbook References:
Pages 32-33 “Why Economists’ Advice is not Always Followed”
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. 2
Rivlin on Stimulus
Alice Rivlin, former head of the CBO, suggests what a good stimulus plan would look like.
Textbook References:
Chapter 12 “The Design of the Tax System”
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?
White House Talking Points
Brad DeLong posted Congressional Republicans’ analysis of CEA chair Christina Romer’s ideas. Mankiw comments on the discussion.
Textbook References:
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. 1
Cole and Ohanian on the New Deal
There is a link to an article in the Wall Street Journal that argues that the New Deal did not help end the Great Depression.
Textbook References:
Pages 765-766 “Two Big Shifts in Aggregate Demand: The Great Depression and World War II”
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?
Jan. 30
Temporary, Timely and Targeted – Not!
David Brooks argues that Larry Summers has advocated a stimulus plan that is temporary, timely and targeted. Yet despite Summers becoming an economic advisor to Obama, the proposed fiscal stimulus contains large permanent, untimely and untargeted provisions.
Textbook References:
Pages 32-33 “Why Economists’ Advice is not Always Followed”
Pages 589-591 “Policy 3: Government Budget Deficits and Surpluses”
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?
Jan. 27
CBO on Fiscal Policy Lags
The CBO reports the time-path of government spending under the proposed stimulus plan.
Textbook References:
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Jan. 26
The Mature Keynesian Perspective
Mario Rizzo points out that even Keynes thought infrastructure spending might take too long.
Textbook References:
Page 770 “The Origins of Aggregate Demand and Aggregate Supply”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
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. 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”
Huizinga, Lucas and Murphy
There is a link to a University of Chicago panel discussion of the proposed fiscal stimulus.
Textbook References:
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?”
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. 21
Alesina and Zingales on Fiscal Stimulus
Two economists suggest that extending unemployment insurance and cutting taxes would be better than spending on public projects.
Textbook References:
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. 20
Mountford and Uhlig on Fiscal Policy
Mankiw posts a link to a paper he mentioned on December 1 that is now an NBER Working Paper. It argues that tax cuts work better than increased spending.
Textbook References:
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. 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. 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. 14
There is a link to Fama’s blog that suggests that the fiscal stimulus will only crowd out private investment.
Textbook References:
Pages 589-591 “Policy 3: Government Budget Deficits and Surpluses”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Mankiw presents a graph of the “Ted Spread,” which is the difference between interest rates on inter-bank loans and the rate on treasury bills. It is a measure of fear in the system.
Textbook Reference:
Chapter 26 “Saving, Investment, and the Financial System”
Pages 778-785 “How Monetary Policy Influences Aggregate Demand”
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 editorial by Ed Glaeser that argues that the stimulus should be focused on ordinary people. That implies that a cut in the payroll tax would be better than large construction projects that disproportionately help owners of big construction firms.
Textbook References:
Pages 254-255 “Vertical Equity”
Chapter 20 “Income Inequality and Poverty”
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”
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. 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?”
There is a link to an interview with Christina Romer. She discusses the objectives of Obama’s stimulus plan.
Textbook References:
Pages 30-34 “The Economist as Policy Adviser”
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”
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”
Mankiw reports that Obama’s economic team holds the orthodox position that the government spending multiplier is bigger that the tax multiplier. That runs counter to recent research by Christina Romer and David Romer.
Textbook References:
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. 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. 7
Varian on Stimulus
There is a link to an editorial by Hal Varian that suggests the fiscal stimulus should be transfers to state governments and subsidies for private investment.
Textbook References:
Pages 248-249 “State and Local Government”
Pages 512-515 “The Components of GDP”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
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”
Glaeser on Stimulus
There is a link to an editorial by Ed Glaeser that suggests the best use of the stimulus money is to cut the payroll tax and give money to local governments.
Textbook References:
Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 248-249 “State and Local Government”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy 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. 30
The IMF on Fiscal Policy
There is a link to a report from the IMF titled “Fiscal Policy for the Crisis.”
Textbook References:
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?
Dec. 27
Summers on the Obama Plan
There is a link to an editorial by Larry Summers that argues that stimulus spending should focus on investment rather than consumption.
Textbook Reference:
Chapter 25 “Production and Growth”
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?
Lindsey on Stimulus
Larry Lindsey prefers tax cuts to more government spending.
Textbook References:
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?”
Dec. 26
Mankiw posts a letter from David Backus that details the problems with stimulus spending.
Textbook References:
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?
Dec. 25
Merry Christmas
There is a humorous, Christmas-themed video of all the government’s efforts to fix the financial crisis.
Textbook References:
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?
Dec. 24
Feldstein on Defense Spending
There is a link to an editorial by Martin Feldstein that argues that a significant share of new government spending should be for defense.
Textbook References:
Pages 227-232 “Public Goods”
Pages 242-248 “A Financial Overview of the U.S. Government”
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?
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?
Robert Lucas on the Economy
There is a link to an editorial by Robert Lucas where he argues that monetary policy should be preferred to fiscal policy.
Textbook References:
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?
Dec. 18
Stimulus Policy Skeptics
Mankiw presents the case against a fiscal policy stimulus, mostly by links to his previous posts.
Textbook References:
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?”
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. 16
1. The Next Round of Ammunition
Mankiw discusses what else the Fed can do, given that interest rates are as low as they can go.
Textbook References:
Chapter 33 “Aggregate Demand and Aggregate Supply”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Page 821 “Bernanke’s Challenges”
Dec. 13
The Case for a Payroll Tax Cut
There are links to more complex analysis of the Bils-Klenow stimulus plan presented on December 2.
Textbook References:
Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”
Dec. 11
Spending and Tax Multipliers
There are links to 8 articles that examine the size of multipliers for government spending and for tax changes.
Textbook References:
Pages 788-790 “The Multiplier Effect”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”
Dec. 8
Discretionary Fiscal Policy
There are links to articles by Alan Blinder and John Taylor that discuss the pros and cons of discretionary fiscal policy.
Textbook References:
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?
Hail & Woodward on Stimulus Options
There is a link to an article by Bob Hail and Susan Woodward on various options for stimulating the economy.
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?
Dec. 5
Listen to me Squawk
There is a video of Mankiw discussing the current economic crisis.
Textbook References:
Pages 788-790 “The Multiplier Effect”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”
Dec. 3
AS, AD, and the New Deal
There is a link to a post by Paul Krugman that analyzes the New Deal in terms of the AS/AD model. Mankiw comments on the post.
Textbook References:
Chapter 33 “Aggregate Demand and Aggregate Supply”
Chapter 34 “The Influence of Monetary and Fiscal Policy on Aggregate Demand”
Dec. 2
Kudlow & Company
There is a link to a video that shows an interview with Greg Mankiw. He discusses the empirical work mentioned on Dec.1 that shows that a tax cut may have a bigger impact than government spending.
Textbook References:
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?”
The Bils-Klenow Stimulus Plan
Bils and Klenow argue that a cut in the payroll tax would be the best way to stimulate the economy.
Textbook References:
Page 127 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 243-245 “The Federal Government: Receipts”
Pages 253-256 “Taxes and Equity”
Pages 792-793 “Changes in Taxes”
Pages 793-796 “Using Policy to Stabilize the Economy”
Real Interest Rates Plunge!
Data from the U.S.Treasury suggest that the real interest fell two points in a few days. Mankiw says it’s a figment of how the data are constructed.
Textbook Reference:
Pages 539- 541 “Real and Nominal Interest Rates”
Dec. 1
Fiscal Policy Puzzles
Recent empirical work suggests that unexpected deficit-financed tax cuts have a bigger effect on the economy than an equivalent deficit-financed increase in government spending. This result runs counter to the standard Keynesian model.
Textbook References:
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?”
Passing the Buck
How much should we worry about the government’s debt? Should we prefer creative monetary policy to fiscal policy? There are links to non-academic articles by Dean Baker, Paul Krugman, and Greg Mankiw as well as a speech Ben Bernanke gave in 2002.
Text Book References:
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”
