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Chapter 36: Five Debates over Macroeconomic Policy

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

 

February 1

Humility-based Libertarianism

Michael Heumer argues that we have a limited understanding of the complexity of society and do not have the ability to forecast the future. As a result, "the best advice for political actors is very often to simply stop trying to solve social problems, since interventions not based on precise understanding are likely to do more harm than good."

Textbook References:

Page 427 “Libertarianism”
Pages 812-814 “Should Monetary and Fiscal Policymakers Try to Stabilize the Economy?”

March 30

The Long-run Budget Path

How much debt can the federal government have before it is unsustainable? Mankiw argues that our debt-to-GDP ratio must be small enough to give us room to borrow more in future emergencies.

Textbook References:

Pages 823-825 “Should the Government Balance Its Budget?”

December 13

Interpreting the Fed

Larry Ball comments on the Fed's announcement that it will be more dovish on inflation in the future.

Textbook References:

Pages 816-819 “Should Monetary Policy Be Made by Rule Rather Than by Discretion?”

December 6

Deck the Halls

A humorous video presents a history of macroeconomic theory set to Christmas music.

Textbook References:

Chapter 36 “Six Debates over Macroeconomic Policy”

December 30

The Burden of the Debt

Paul Krugman argues that the Federal debt is not much of a problem. Laurence Ball and Greg Mankiw argue that the debt has distributional effects and that too much debt might trigger a collapse in demand for government bonds.

Textbook References:

Pages 238-240 “The Fiscal Challenge Ahead”
Pages 568-572 “Policy 3: Government Budget Deficits and Surpluses”
Pages 704-706 “Government Budget Deficits”
Pages 823-827 “Should the Government Balance Its Budget?”

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?”

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?”

July 21

The European Debt Crisis

Francesco Giavazzi and Anil Kashyap discuss the European debt crisis and what might be done about it.

Textbook References:

Page 683 “The Euro”
Pages 826-827 “Dealing with Debt and Deficits”

May 31

How to Fix the Long-Term Fiscal Problem

Six think tanks offer their solutions to the long-term fiscal crisis faced by the U.S.

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”
Pages 842-843 “Dealing with Deficits”

May 12

Our Negative Bequest to Our Children

John Cogan reports that the typical 66 year old couple will get $1 million in Social Security and Medicare benefits. That is double what they paid in taxes.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”

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”

April 13

The Ryan Plan

Paul Ryan offers his plan to reduce the federal debt, and he contrasts it to the Bowles-Simpson plan.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

April 13

Two Visions for Medicare

Mankiw is pleased that the long-run fiscal health of the nation is now taken seriously by both parties. Yet there are fundamental philosophical differences between the two sides.

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 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 28

Stiglitz on the Deficit

Joseph Stiglitz explains why he does not endorse the report produced by the bipartisan National Commission on Fiscal Responsibility and Reform.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 253-257 “Taxes and Equity”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 26

Our Children's Financial Crisis

Mankiw writes a speech for a future president that discusses the cost of not acting sooner to reduce the Federal debt.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 24

CEA Chairs on the Budget Deficit

Ten former chairs of the Council of Economic Advisers urge Congress to consider seriously the report produced by the bipartisan National Commission on Fiscal Responsibility and Reform.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

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”

January 1

Letter to the President

Mankiw offers advice to President Obama on how to work with Republicans.

Textbook References:

Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 442-445 “The Political Economy of Income Redistribution”
Pages 563-565 “Education”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

December 16

The Economics of Seinfeld

Clips from the TV show "Seinfeld" are used to illustrate a variety of economic concepts.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 5-6 “Principle 2: The Cost of Something is What You Give Up to Get It”
Page 6 “Principle 3: Rational People Think at the Margin”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Chapter 3 “Interdependence and the Gains from Trade”
Pages 67-72 “Demand”
Pages 73-76 “Supply”
Pages 144-153 “Controls on Prices”
Chapter 10 “Externalities”
Pages 226-227 “The Different Kinds of Goods”
Pages 227-232 “Public Goods”
Pages 230-232 “The Difficult Job of Cost-Benefit Analysis”
Pages 232-237 “Common Resources”
Pages 274-275 “Fixed and Variable Costs”
Page 281 “Economies and Diseconomies of Scale”
Pages 312-315 “Why Monopolies Arise”
Chapter 16 “Monopolistic Competition”
Pages 370-378 “The Economics of Cooperation”
Pages 399-400 “The Supply of Labor”
Page 414 “Compensating Differentials”
Page 442 “Utility”
Page 465 “Utility: An Alternative Way to Describe Preferences and Optimization”
Pages 484-489 “Asymmetric Information”
Pages 556-558 “Technological Knowledge”
Pages 578-580 “Financial Intermediaries”
Pages 598-600 “Present Value: Measuring the Time Value of Money”
Pages 603-604 “Diversification of Firm-Specific Risk”
Pages 606-609 “The Efficient Market Hypothesis”
Pages 630-631 “The Economics of Unions”
Pages 703-705 “The Prices for International Transactions: Real and Nominal Exchange Rates”
Pages 707-708 “The Basic Logic of Purchasing Power Parity”
Page 833 “Time Inconsistency”

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 1

A Mono Mandate for the Fed?

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

Textbook References:

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

November 16

Hubbard on the Bowles-Simpson Tax Plan

Glenn Hubbard likes the idea of broadening the tax base so as to reduce tax rates.

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”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

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 11

The Simpson-Bowles Social Security Plan

Charles Blahous examines the Simpson-Bowles plan for making Social Security financially sound.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-offs”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”

November 10

Good Signs from the Deficit Commission

The Bipartisan Deficit Commission was appointed to find ways to reduce the federal deficit. Mankiw approves of some of the options the Commission is considering.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

November 9

Raise the Early Retirement Age

Andrew Biggs argues that the early retirement age for Social Security should be raised from 62 to 65. Having workers in the labor force longer will increase GDP and tax revenue. Biggs also says that average retirement income would be higher.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
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”

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?”

August 7

How Is Medicare Doing?

Rick Foster, the chief actuary for Medicare, says that planned Medicare cost reductions are not likely to happen.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 838-841 “Should the Government Balance Its Budget?”

August 6

On Congressman Paul Ryan

Paul Krugman argues that Paul Ryan's plan to cut federal spending and taxes actually raises the deficit. This is contrary to Ryan's claim. Ted Gayer suggests that Krugman's reading of the evidence is flawed.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 838-841 “Should the Government Balance Its Budget?”

August 4

Rogoff on the Current Policy Challenge

Kenneth Rogoff worries that an excessive concern with short-run aggregate demand management may cause us to ignore long-run issues such as productivity growth and innovation.

Textbook References:

Pages 554-560 “Productivity: Its Role and Determinants”

Pages 560-572 “Economic Growth and Public Policy”

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

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


July 31

The Risk of a Fiscal Crisis

The CBO considers the possibility of a fiscal crisis in the U.S. brought on by excessive government debt. If it happens, there could be a sharp rise in interest rates and substantial crowding out.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

July 23

The Mid-Session Review

The administration's mid-session budget review assumes rapid growth and hopes the fiscal commission will fix the deficit problems.

Textbook References:

Pages 242-249 “A Financial Overview of The U.S. Government”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

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 20

Government Spending By Another Name

Martin Feldstein points out that a significant portion of government spending is in the form of special tax rules called tax expenditures. Deficit reduction should include reducing such expenditures.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

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 1

The Influence of Alberto Alesina

Alberto Alesina argues that governments should take large, credible steps to reduce their deficits. That would calm bond markets and increase confidence for investors and consumers.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 560-572 “Economic Growth and Public Policy”
Pages 576-577 “The Bond Market”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

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 7

CBO on Health Spending

The CBO argues that health-care spending "will put tremendous pressure on the federal budget during the next few decades and beyond."

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

June 7

A Bit More on the Soda Tax

Mankiw argues that savings from lower health-care costs associated with reductions in obesity are offset by additional health-care and pension costs due to longer life spans.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”

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 9

Ferguson on Posner

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

Textbook References:

Pages 654-655 “The Financial Crisis of 2008”

Page 750 “The 2008 Fiscal Stimulus”

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


April 17

The Latest from the CEA Chair

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

Textbook References:

Pages 30-33 “The Economist as Policy Advisor”

Pages 246-248 “The Fiscal Challenge Ahead”

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

Pages 654-655 “The Financial Crisis of 2008”

Page 750 “The 2008 Fiscal Stimulus”

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

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

Pages 842-843 “Dealing with Deficits”

Chapter 36: Five Debates over Macroeconomic Policy
Archived Posts

 

April 10

The Enormity of the Fiscal Gap

The Tax Policy Center argues that income taxes must rise by 40 per cent just to reduce the deficit to 3 per cent of GDP.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 160-164 “The Deadweight Loss of Taxation”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”

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 24

A Fiscal Train Wreck

In an "exceedingly rare" event, bonds issued by a private company (Warren Buffet's Berkshire Hathaway) paid a lower yield than bonds of a similar maturity issued by the U.S. Treasury. That is evidence that investors are getting nervous about the size of the U.S. deficit.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 576-577 “The Bond Market”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 604-605 “The Trade-off Between Risk and Return”
Pages 842-843 “Dealing with Deficits”

March 9

The Problem with Deficit Neutrality

A deficit neutral health-care plan does nothing to fix the problem of rising deficits.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 6

CBO on the President's Budget

The Congressional Budget Office estimates that under the proposed budget, federal debt held by the public will rise to 90 percent of GDP.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 5

Rogoff on Japan

Japan's economy has performed below its potential for 18 years. Kenneth Rogoff discusses the challenges it still faces.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

March 1

Life Expectancy at Retirement

People in developed countries are living much longer after retirement. They expect pensions and healthcare, which is putting great strain on public finances.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits and Surpluses”
Pages 842-843 “Dealing with Deficits”

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 1

President Obama's New Budget

Keith Hennessey says that "President Obama proposes spending be 12% higher as a share of the economy than it has averaged over the past three decades."

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”

January 25

Hayek vs Keynes Rap

There is a short video of a rap song that presents the differences between Keynes and Hayek.

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 358 “Galbraith versus Hayek”
Page 750 “The 2008 Fiscal Stimulus”
Page 770 “The Origins of 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?”

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 14

Why Keynesians Drive Scott Sumner Nuts

Scott Sumner explains why he doesn't like the way monetary policy is treated in Keynesian models.

Textbook References:

Chapter 36 “Five Debates Over Macroeconomic Policy”


November 4

Assuming a Can Opener

The CBO points out that for the numbers in the health-care reform bill to add up, Congress must follow through on its plans to cut physician Medicare reimbursement by 21 percent.

Textbook References:

Page 833 “Time Inconsistency of Policy”


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 9

A Cautionary Tale

The current discussion of a tax credit for job creation is reminiscent of a Carter-era tax credit.

Textbook References:

Page 7-8 “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 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


October 8

Feldstein on Healthcare Reform

Martin Feldstein offers his solution to the healthcare reform debate.

Textbook References:

Pages 4-5 “Principle 1: People Face trade-offs”
Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 246-248 “The Fiscal Challenge Ahead”
Pages 842-843 “Dealing with Deficits”


October 7

A Tax Credit for New Hiring?

Congress is considering a tax credit for firms that create new jobs. But the issue is not as simple as it appears.

Textbook References:

Page 7-8 “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 127-128 “Can Congress Distribute the Burden of a Payroll Tax?”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


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?


October 1

Barro on Multipliers Point of View

Robert Barro argues that there is no fiscal multiplier.

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?


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 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

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 26

How large is the fiscal hole?

The Concord Coalition projects that the federal debt will grow by $14 trillion over the next decade.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”


August 22

Preview of the Midsession Review

Federal debt is expected to increase by $9 trillion over the next decade.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”


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 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

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 20

The Fiscal Future, Again

A graph from the CBO shows how demographics and rising health-care costs will cause Social Security, Medicare and Medicaid to absorb a much larger share of GDP in 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 842-843 “Dealing with Deficits”


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

President Obama’s Fiscal Policy

A graph shows projected federal government revenues and spending.

Textbook References:

Pages 242-249 “A Financial Overview of the U.S. Government“
Pages 589-593 “Policy 3: Government Budget Deficits“
Pages 838-841 “Should the Government Balance Its Budget?“

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. 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?”


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. 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. 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. 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. 26

Which Budget Deficit?

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

Textbook References:

Pages 243-248 “The Federal Government”
Pages 654-655 “The Financial Crisis of 2008”
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 25

Leonhardt vs Obama

Obama says that families making less than $250,000 will not see a tax increase. David Leonhardt says that families making less than $250,000 will have to pay higher taxes.

Textbook References:

Pages 4-5 “Principle 1: People Face Trade-Offs”
Chapter 12 “The Design of the Tax System”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 24

The Spending Stimulus Debate

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

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 23

Is Macro Policy Overreacting?

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

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 654-655 “The Financial Crisis of 2008”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Page 821 “Bernanke’s Challenges”
Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 22

The Fiscal Gap

Alan Auerbach and Bill Gale argue that the long-term fiscal picture for the U.S. is very bleak.

Textbook References:

Pages 246-248 “The Fiscal Challenge Ahead”
Pages 581-582 “Some Important Identities”
Pages 589-593 “Policy 3: Government Budget Deficits”
Pages 838-841 “Should the Government Balance Its Budget?”


Feb. 12

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 Problem with Shovel Ready

Popular Mechanics explains why smart, bold infrastructure projects can’t be ready in 90 days.

Textbook Reference:

Pages 830-832 “Should Monetary and Fiscal Policymakers Try To Stabilize the Economy?


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?


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

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. 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

The Long Lags of Fiscal Policy

Mankiw posts an article from the AP reporting that the CBO thinks the infrastructure projects in the stimulus plan will not affect the economy for some time.

Textbook Reference:

Pages 830-832 “Con: Policymakers Should Not Try to Stabilize the Economy”

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

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. 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?”


Jan. 11

None


Jan. 12

There are links to a blog by Gary Becker and an editorial by Kevin Hasset. Both doubt the wisdom of the proposed stimulus plan.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 787-793 “How Fiscal Policy Influences Aggregate Demand”
Pages 793-796 “Using Policy to Stabilize the Economy”
Pages 838-841 “Should the Government Balance its Budget?”


Jan. 10

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?”


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

The Seeds of the Current Crisis

The is a link to an editorial by Tyler Cowen that argues that the bailout in 1998 of Long-Term Capital Management sent the wrong signals.

Textbook References:

Pages 7-8 “Principle 4: People Respond to Incentives”
Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”

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. 20

Another Stimulus Spending Skeptic

Mankiw posts a letter arguing that the government cannot efficiently increase its spending quickly.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”

Let the Rent Seeking Begin

Mankiw posts a link to a story illustrating how lobbyist will influence how any new government spending is allocated.

Textbook References:

Pages 8-10 “Principle 6: Markets Are Usually A Good Way To Organize Economic Activity”
Pages 10-12 “Principle 7: Governments Can Sometimes Improve Market Outcomes”
Pages 830-832 “Con: Policymakers Should Not Try To Stabilize the Economy”


Dec. 18

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. 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

Deflation Alert

Mankiw suggests that deflation has become more likely.

Textbook Reference:

Pages 682-683 “The Wizard of Oz and the Free-Silver Debate”
Pages 835-838 “Should the Central Bank Aim for Zero Inflation?”

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. 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?”


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?”