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

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

 

September 23

Teaching Monetary Policy

Sylvester Eiffinger and Edin Mujagic argue that the zero lower bound will be with us for the foreseeable future. As a result, the textbook presentations of monetary policy should be changed.

Textbook References:

Pages 766 “The Zero Lower Bound”

September 19

I Talk with Larry Kudlow

Larry Kudlow interviews Mankiw about current Fed policy.

Textbook References:

Pages 758-767 “How Monetary policy Influences Aggregate Demand”

May 14

Christy Romer on Japan

Japan has long struggled against the Zero Lower Bound on interest rates. Christina Romer argues that the Japanese central bank at long last is trying something dramatically different.

Textbook References:

Page 766 “The Zero Lower Bound”

May 5

Fiscal consolidation: At what speed?

Public debt in many countries is too high and should be reduced. The problem is that the policy changes necessary to reduce debt (less spending and higher taxes) slow growth. Yet there is also reason to believe that high debt itself can slow growth. Olivier Blanchard and Daniel Leigh weigh the options.

Textbook References:

Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

November 2

The Fiscal Cliff: A Primer

A short video discusses the difficulty of reducing the federal budget deficit. To force itself to do so, Congress created a scenario where if it did not get the deficit under control, fiscal policy would automatically turn sharply contractionary.

Textbook References:

Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

August 24

What is the best way to reduce the government's budget deficit?

How can governments reduce their deficits without causing a serious recession? Research by Alberto Alesina, Carlo Favero, and Francesco Giavazzi suggests that spending cuts are less harmful than tax increases.

Textbook References:

Pages 773-778 “Using Policy to Stabilize the Economy”
Pages 826-827 “Dealing with Debt and Deficits”

August 6

I talk with NPR

In an interview with National Public Radio, Mankiw discusses policies that might help the economy. He stresses that economists should be humble because there is much they still do not know.

Textbook References:

Pages 773-776 “Using Policy to Stabilize the Economy”

June 5

Summers on Quantitative Easing

Lawrence Summers is skeptical that reducing already low interest rates will stimulate investment spending. He recommends that the government take advantage of low interest rates to accelerate public investment projects that have a positive real return to the economy.

Textbook References:

Page 766 “The Zero Lower Bound”

April 25

Ben and the Bound

Laurence Ball discusses why Ben Bernanke has reacted to the problem of the zero lower bound in the manner that he has.

Textbook References:

Page 766 “The Zero Lower Bound”

April 20

CBO looks at the president's budget

The CBO forecasts that, compared to current law, the president's proposed budget will increase output from 2013 to 2017, but will reduce it after that. It illustrates the short-run ability of fiscal policy to boost growth and the long-run crowding out of productive investment by government borrowing.

Textbook References:

Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

April 10

The Composition of Fiscal Austerity

Alberto Alesina and Francesco Giavazzi argue that when governments act to reduce their deficits, spending cuts are much better for the economy than tax increases.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Page 773 “Fiscal Policy Might Affect Aggregate Supply”

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”

March 23

On My To-Read Pile

Brad DeLong and Larry Summers discuss how, in a depressed economy, expansionary fiscal policy may be both necessary and self-financing.

Textbook References:

Page 766 “The Zero Lower Bound”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

March 15

A Profile of Ben Bernanke

Roger Lowenstein defends Bernanke's actions in the recent financial crisis.

Textbook References:

Pages 745-748 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”

March 13

The Limits of Monetary Policy

Brad DeLong argues that stabilization policy cannot always depend on monetary policy alone. Fiscal policy is also sometimes necessary.

Textbook References:

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”

February 22

MMT

The Washington Post discusses a school of thought called "Modern Monetary Theory." Its basic premise is that governments can never run out of money because they can print it. Moreover, governments should use that ability to increase spending.

Textbook References:

Page 15 “Principle 9: Prices Rise When Government Prints Too Much Money”
Chapter 30 “Money Growth and Inflation”
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”

January 11

The Liquidity Trap may soon be over

According to past research by Mankiw and recent data provided by Eddy Elfenbein, the appropriate Federal Funds rate may soon no longer be negative.

Textbook References:

Page 766 “The Zero Lower Bound”

January 3

The Reincarnation of Keynesian Economics

Is New Keynesian economics really Keynesian? Scott Summers thinks not.

Textbook References:

Page 751 “The Origins of the Model of Aggregate Demand and Aggregate Supply”
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”

December 31

A Half Dozen Short Takes

Six economists suggest ways to improve the economy in 2012.

Textbook References:

Pages 480-485 “Behavioral Economics”
Page 683 “The Euro”
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”

December 21

Lessons from 2011

Olivier Blanchard draws four economic lessons from the events of 2011. In so doing, he emphasizes the important role of expectations.

Textbook References:

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

December 2

The Draghi Deal

The head of the European Central Bank promises to have loose monetary policy if European governments enact contractionary fiscal policy. That will allow Europe to tackle its debt problems without causing a recession.

Textbook References:

Page 683 “The Euro”
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 Econo”

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 27

The Budget Deficit

In a 90 minute video, Peter Diamond, Jeff Leibman, Deborah Lucas, Greg Mankiw, and Robert Solow discuss the federal budget deficit. The discussion addresses both short-term and long-term concerns.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”
Pages 823-827 “Should the Government Balance Its Budget?”

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”

October 2

Optimal Stabilization Policy

Mankiw's new paper suggests that fiscal policy is not necessary to stabilize the economy unless the Fed hits the zero lower bound on nominal interest rates AND cannot commit to future monetary policy actions that would boost present demand. When fiscal policy is required, tax changes that boost investment might be preferred to increases in government purchases.

Textbook References:

Page 568 “Policy 2: Investment Incentives”
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”

September 28

Peter Diamond on Stimulus

Peter Diamond discusses the need for more economic stimulus in a 24- minute interview.

Textbook References:

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”

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 20

The Case for More Quantitative Easing

Joe Nocera argues that the problem with the economy is a lack of credit. He therefore argues for another round of quantitative easing.

Textbook References:

Pages 745-746 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 812-814 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”

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?”

September 14

Hayek and Keynes

An Excerpt from Silvia Nasar's book The Grand Pursuit: The Story of Economic Genius discusses Keynes and Hayek.

Textbook References:

Pages 10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Page 342 “Galbraith versus Hayek”
Page 751 “The Origin of the Model of Aggregate Demand and Aggregate Supply”
Pages 773-779 “Using Policy To Stabilize The Economy”

September 10

Fixing Our Sick Economy

Two essays, one by Mankiw and the other by Robert Barro, address the causes of the weak recovery, and suggest possible solutions.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 250-251 “Who Pays the Corporate Income Tax?”
Pages 250-251 “The Value-Added Tax”
Page 568 “Policy 2: Investment Incentives”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

September 4

Reflections of a Former Student

The British shadow chancellor discusses the real Keynes, not the caricature.

Textbook References:

Page 751 “The Origins of the Model of Aggregate Demand and Aggregate Supply”
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”

August 30

Glaeser on Mortgage Modification

A recent proposal would allow people with government-backed mortgages to refinance them at today's lower interest rates. Proponents claim it is a cost-free way to boost the economy. Edward Glaeser argues that it will not boost the economy and it will cost taxpayers a lot of money.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”

August 9

I Talk to Larry Kudlow

Mankiw discusses what the Fed might do to boost the weak recovery and avoid a double-dip recession.

Textbook References:

Pages 745-748 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

August 8

I Talk to Reuters

Mankiw discusses the current U.S. debt crisis and what the Fed can do to boost the weak recovery.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Page 561 “Financial Crises”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 745-748 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

August 6

Federal Nondefense Spending (as a % of GDP)

A chart from the Bureau of Economic Analysis shows how Federal nondefense spending as a share of GDP has risen sharply in the past few years.

Textbook References:

Pages 234-241 “A Financial Overview of the U.S. Government”
Pages 745-748 “The Recession of 2008-2009”
Pages 767-773 “How Fiscal Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”

August 6

Former Fed Officials Opine

A 27-minute video shows three former Fed officials discussing what the Fed can do to support the weak recovery.

Textbook References:

Pages 745-748 “The Recession of 2008-2009”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

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 12

A Look at QE2

John Cochrane argues that the quantitative easing by the Fed will not have much effect on the economy.

Textbook References:

Pages 540-552 “Economic Growth and Public Policy”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

June 9

Rajan on Monetary Policy

Raghuram Rajan discusses why extremely low interest rates have not boosted demand. He also notes that the Fed's policy punishes savers.

Textbook References:

Pages 7-9 “Principle 4: People Respond to Incentives”
Pages 644-656 “The Classical Theory of Inflation”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”

June 3

The Mistake of 1937

Gauti Eggertsson notes that policymakers in 1937 confused a rise in the relative prices of commodities for fundamental inflation. The result was bad policy decisions. He wonders if modern policymakers will make the same mistake.

Textbook References:

Pages 514-520 “The Consumer Price Index”
Pages 664-665 “Inflationary Threats”
Pages 758-767 “How Monetary Policy Influences Aggregate Demand”
Pages 773-779 “Using Policy To Stabilize The Economy”

June 2

Lucas on the Great Recession

Robert Lucas discusses the recent recession in an historical context. He worries that the government is now doing too much.

Textbook References:

Pages10-11 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 11-13 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 744-745 “Two Big Shifts in Aggregate Demand: The Great Depression and World War II”
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”

May 13

Evaluating the ARRA

Tom Conley and Bill Dupor argue that the recent fiscal stimulus (the American Recovery and Reinvestment Act) actually destroyed more jobs than it saved.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 560-572 “Economic Growth and Public Policy”
Page 750 “The 2008 Fiscal Stimulus”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

May 7

I Agree with Paul Krugman

To maximize economic stability, central banks should use a price index that gives substantial weight to the level of nominal wages.

Textbook References:

Chapter 24 “Measuring the Cost of Living”
Pages 778-787 “How Monetary Policy Influences Aggregate Demand”

April 28

Keynes vs. Hayek Round Two

The views of Keynes and Hayek are dramatized in a music video.

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 589-593 “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”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize The 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 19

Some Commentary

Scott Summers, Paul Krugman, and Greg Ip comment on the paper Mankiw posted on March 17.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
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”

March 17

Optimal Stabilization Policy

A research paper by Mankiw and Matthew Weinzierl look at optimal monetary and fiscal policy.

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
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”

March 16

The Chinese Currency Question

Paul Krugman argues that China is hurting the global economy by undervaluing its currency. Mankiw disagrees.

Textbook References:

Pages 703-706 “The Prices for International Transactions: Real and Nominal Exchange Rates”
Pages 747-748 “The Price Level and Net Exports: The Exchange-Rate Effect”
Page 778 “The Exchange Rate Effect”

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 12

Jobs, Jobs, Jobs

Should the government embrace anything that creates jobs, or should it consider the long-run value of its projects?

Textbook References:

Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 25-28 “Our Second Model: The Production Possibilities Frontier”
Page 742 “Fact 3: As Output Falls, Unemployment Rises”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

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 White House reads this blog

A White House press release included a portion of Mankiw's blog from December 7 about the tax deal reached between President Obama and Congressional Republicans. Mankiw had said that he was generally pleased with the deal.

Textbook References:

Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

Pages 793-797 “Using Policy To Stabilize The Economy”


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 9

Hear me Squawk

Mankiw discusses the tax deal reached between President Obama and Congressional Republicans. He argues that it is a good deal that will help stimulate the economy. Mankiw also endorses the Simpson-Bowles plan to reduce the long-run deficit.

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”


December 9

Simon Johnson and Me on NPR

Simon Johnson and Greg Mankiw discuss the tax deal reached between President Obama and Congressional Republicans. Johnson fears that the deal adds too much to the tax deal. Mankiw argues that it is positive for the short run, but that the administration needs to get serious about reducing the deficit in the long run.

Textbook References:

Pages 34-36 “Why Economists Disagree”

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”

Pages 842-843 “Dealing with Deficits”


December 7

The Tax Deal

Mankiw comments on the tax deal between President Obama and Congressional Republicans. He is generally pleased, but notes a peculiarity of the cut in the payroll tax.

Textbook References:

Page 127 “Can Congress Distribute The Burden Of A Payroll Tax?”
Pages 166-167 “The Deadweight Loss Debate”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

December 7

The Distribution of the Tax Deal

The Tax Policy Center looks at the numbers behind the tax deal between President Obama and Congressional Republicans. The numbers show that the deal is progressive when compared to current policy, but regressive when compared to what would happen if the Bush-era tax cuts were allowed to expire.

Textbook References:

Pages 254-255 “The Ability-to-Pay Principle”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

December 4

My Agnosticism about UI

Mankiw discusses the pros and cons of unemployment insurance. He also mentions that we do not know enough to determine the optimal length for unemployment insurance.

Textbook References:

Pages 625-626 “Unemployment Insurance”
Pages 626-627 “Unemployment Policy At Home and Abroad”
Page 797 “Automatic Stabilizers”


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 14

You Fix the Federal Budget

How would you reduce the federal deficit?

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 842-843 “Dealing with Deficits”

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 24

Christy's First Column

Christina Romer argues against calls to cut the federal deficit now. She says that while the deficit must eventually be reduced, the economy is too weak to do so now.

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”
Pages 842-843 “Dealing with Deficits”

October 18

Hear Me Squawk

Mankiw discusses a variety of issues including marginal tax rates, long-term deficits, and ways to stimulate the economy.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Page 399 “The Trade-off Between Work and Leisure”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 749-751 “Why the Aggregate-Demand Curve Might Shift”
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”

October 14

The Myth of Shovel Ready

President Obama recognizes the lag associated with fiscal policy.

Textbook References:

Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 830-832 “Should Monetary And Fiscal Policymakers Try To Stabilize The Economy?”

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 3

The Debate Over Fiscal Adjustment

The conventional wisdom is that a fiscal contraction will cause GDP to contract in the short run. Yet spending cuts that restore confidence that deficits are not out of control might not have an adverse effect on GDP.

Textbook References:

Pages 749-751 “Why the Aggregate-Demand Curve Might Shift”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

September 11

Miron on the Bush Tax Cuts

Jeffrey Miron argues in favor of making the Bush tax cuts permanent.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Page 560 “Saving and Investment”
Page 586 “Policy 1: Saving Incentives”
Pages 587-589 “Policy 2: Investment Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

September 7

A Small Step in the Right Direction

The Obama administration is proposing that, for tax purposes, investment expenditures be expensed as they occur as opposed to depreciated over time. That should have a small but positive impact on investment.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

September 4

Should the Bush Tax Cuts be Extended?

Most economists recommend that the Bush tax cuts be extended.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”

August 12

A Challenge to Extreme Keynesians

Casey Mulligan suggests that the rise in summer teenage employment, even in a deep recession, offers evidence contrary to the demand-constrained Keynesian story.

Textbook References:

Pages 80-81 “Example: A Change in Market Equilibrium Due to a Shift in Supply”
Pages 400-402 “Shifts in Labor Supply”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

July 21

Harvardians in the FT

Kenneth Rogoff argues against more fiscal stimulus. Lawrence Summers supports short-term stimulus combined with medium and long-term deficit reduction. Niall Ferguson argues that Keynesian policies are misguided.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Page 750 “The 2008 Fiscal Stimulus”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 842-843 “Dealing with Deficits”

July 14

The CEA's Impossible Job

The Council of Economic Advisors to the President is charged with counting the number of jobs created by the fiscal stimulus. It's an impossible task.

Textbook References:

Pages 30-33 “The Economist as Policy Advisor”

Page 750 “The 2008 Fiscal Stimulus”

Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”

Pages 793-797 “Using Policy To Stabilize The Economy”


July 10

The Trilemma

Mankiw suggests that some of the political friction on world trade issues stems from a failure to understand a trilemma: A country cannot have free flows of capital, a stable exchange rate, and the ability to use monetary policy to stabilize the economy. It must give one of them up.

Textbook References:

Pages 692-701 “The International Flows of Goods and Capital”

Pages 703-705 “The Prices for International Transactions: Real and Nominal Exchange Rates”

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

Pages 793-797 “Using Policy To Stabilize The Economy”


July 7

Are Stimulus Skeptics Logically Incoherent?

Paul Krugman wonders why private spending would create jobs but public spending won't. Mankiw replies.

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”
Pages 842-843 “Dealing with Deficits”

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”

June 27

Links

There are five links sent in by readers. Four of them are humorous, but one, "Ten Commandments for Fiscal Adjustment," is serious.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 560-572 “Economic Growth and Public Policy”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Page 750 “The 2008 Fiscal Stimulus”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-797 “Using Policy To Stabilize The Economy”
Pages 842-843 “Dealing with Deficits”

June 26

My Latest

Mankiw discusses the difficulties faced by the President's economic team in diagnosing and treating the economic crisis. He suggests that macroeconomists need to be humble.

Textbook References:

Pages 30-33 “The Economist as Policy Advisor”

Page 750 “The 2008 Fiscal Stimulus”

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?”


June 3

When Will the Fed Raise Rates?

The "Mankiw Rule" of monetary policy suggests that the Fed will not raise interest rates for some time.

Textbook References:

Pages 778-787 “How Monetary Policy Influences Aggregate Demand”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?”
Pages 832-835 “Should Monetary Policy Be Made By Rule Rather Than By Discretion?”

May 4

Obviously, he didn't take ec 10

A cartoon suggests that ignorance of economics abounds.

Textbook References:

Page 787 “Fiscal Policy”

April 14

A Guest Post From John Galt

Mankiw suggests that the marginal tax rates on income have a significant effect on behavior.

Textbook References:

Pages 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 169-171 “The Laffer Curve And Supply-Side Economics”
Page 795 “Keynesians in the White House”

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 16

The Chinese Currency Question

Paul Krugman argues that China is hurting the global economy by undervaluing its currency. Mankiw disagrees.

Textbook References:

Pages 703-706 “The Prices for International Transactions: Real and Nominal Exchange Rates”
Pages 747-748 “Price Level and Net Exports: The Exchange-Rate Effect”
Page 778 “The Exchange Rate Effect”

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?”