Arnold Kling  

A Textbook Perspective on Current Events

Rent Control and Material Thin... Changeling, Feminism, a...

James Kwak points to an online chapter by Charles Jones.

Like a decadent buffet at an expensive hotel, securitization involves lumping together large numbers of individual financial instruments such as mortgages and then slicing and dicing them into different pieces that appeal to different types of investors.

Like a mediocre paper in a freshman lit class, writing an economics textbook involves coming up with awkward metaphors that only frustrate and annoy the reader.


current monetary policy is quite expansionary, with the fed funds rate essentially at zero. This rate is even lower than what the Taylor Rule would suggest, and this has been true throughout the recession.

Then the recession is almost over, right? I put the Taylor Rule in the same category as the Don't Step on a Crack Rule.

Still later,

On the surface, Japan's slow growth in the 1990s might be taken as evidence of little payoff from its fiscal stimulus. On the other hand, Japan did not experience a depression in the 1990s despite enormous collapses in the stock market and the housing market. Perhaps the fiscal stimulus did its job in preventing the "lost decade" from becoming something worse.

One view of the Japanese stimulus (or multiple stimuli) is that it (they) failed because it was (they were) too small. Just as the reason that in World War I all British attacks prior to the Battle of the Somme failed was because they were too small.

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CATEGORIES: Macroeconomics

COMMENTS (7 to date)
Tyler Cowen writes:

Awesome post...!

Unit writes:

I hope you'll expand a bit, because I didn't really follow.

P Allen writes:

"...awkward metaphors that only frustrate and annoy the reader."

I don't know, when done right they can go a long way.

While not a true metaphor, I use the comparison in the decision processes to purchase a color TV in the '60s versus the relative no-brainer to buy plasma today (or at least a few years ago) with a fair degree of success. In each case, chances are the purchaser is replacing a perfectly good set for an arguably marginal increase in technology.

After all, the improvement in viewing has no effect on the quality of the programming. (Perhaps you could argue that viewing has improved because programming has gotten worse or vice versa)

Digressing, I think it goes a long way in correctly ascribing the change in consumer attitudes over generations.

For sake of full disclosure, I still use a 13'' black & white my brother bought in college in the early 80s. Looking to get my hands on a converter box!

Caliban Darklock writes:

Okay, we get it. Japanese people are short. Ha, ha. Racist. ;)

Jacob Miller writes:

Despite its weaknesses, I believe the Taylor Rule has its uses. Primarily, it takes the political fighting out of money supply decisions. Second, it's not a terrible monetary policy that will bankrupt a currency or destroy an economy. How many countries' currencies have imploded because of a politicized central bank? (That is not a rhetorical question, I just don't know the answer. I can think of a couple off the top of my head though.)

However, I readily admit that a developed country with an independent bank could outperform the Taylor Rule. Then again, there are supposedly mutual fund managers that can consistently outperform the market. :)

Lance writes:

Wouldn't the Taylor Rule currently require a negative nominal fed funds rate? If this is so, how is the current rate lower than what the Taylor Rule would recommend?

Tim Meyer writes:

The current situation is like waking up with a bad zit on your forehead.

Everyone can agree the blemish is a bad thing; what to do with it is another story.

What you should do is examine the cause of the problem; poor diet, poor hygiene, stress, etc...

Instead, most of us (me included), cannot resist the urge to pop that sucker all over the mirror.

Usually the end result is a bloody mess...

How's that for an awkward metaphor?

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