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Macroeconomics
A Category Archive (358 entries)
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November 20, 2009
Economic History
Arnold Kling
Will Wilkinson writes, Ygesias says, "I believe that absent the [TARP] bailout, we'd be looking at even higher unemployment today." I think this is a plausible claim. But I don't know of a satisfactory way to evaluate it. It's plausible... MORE
November 19, 2009
Finance: stocks, options, etc.
Arnold Kling
Paul DeGrauwe writes, My contention is that the rational expectations models are the intellectual heirs of these central planning models. Not in the sense that individuals in these rational expectations models aim at planning the whole, but in the sense... MORE
November 16, 2009
Macroeconomics
Arnold Kling
WSJ Real Time Economics reports on a speech by the Fed's Don Kohn, Our abilities to discern the 'correct' values of assets is quite limited. At present, however, the prices of assets in U.S. financial markets do not appear to... MORE
Labor Market
Arnold Kling
As always, there are conflicting views on the economic outlook. Daniel Gross is optimistic. In the third quarter, productivity--econospeak for companies doing more work with the same amount of labor--rose at a 9.5 percent annual rate... But just as hamsters... MORE
November 13, 2009
Macroeconomics
David Henderson
Mankiw's Text Hints at Yes, But The Answer is No One of the standard claims made about the 1970s is that a major contributor to inflation and low growth was OPEC. In his excellent textbook, Macroeconomics, 6th ed., for example,... MORE
November 9, 2009
Macroeconomics
Arnold Kling
He writes, I think that one thing that separates me from other macroeconomists is that I see short run changes in NGDP as being powerfully impacted by changes in future expected NGDP. Thus if the expected level of NGDP one,... MORE
November 8, 2009
Macroeconomics
Arnold Kling
Scott Sumner brings up some difficulties for anyone who would argue that monetary policy is not a sufficient tool for fighting the recession. He is not arguing from his yet-to-be-articulated new paradigm. He is stating traditional macro.... MORE
November 7, 2009
Labor Market
Arnold Kling
If all goes well this link will take you to an article (with cool charts!) where I make an empirical case for telling the Recalculation story rather than pretending that we have the same economy that existed in the 1930's... MORE
November 5, 2009
Macroeconomics
Arnold Kling
Tyler Cowen repeats a tweet, and I will too. It comes from Masonomist Garett Jones. Workers mostly build organizational capital, not final output. This explains high productivity per 'worker' during recessions. This is yet another difference between the labor force... MORE
Labor Market
Arnold Kling
Alex Tabarrok highlights a post by David Beckworth on the sharp decline in nominal spending in 2008-2009. Alex writes, We could use some inflation to get back on track. Nominal wages are simply not flexible enough to get the job... MORE
November 4, 2009
Macroeconomics
Arnold Kling
Scott Sumner's latest deserves comment. Before I do that, however, I want to say that yesterday I was trying to teach the consequences of paying interest on reserves to my bright high school students. They got, correctly, that paying interest... MORE
November 2, 2009
Finance: stocks, options, etc.
Arnold Kling
Paul McCulley writes, a bull flattening bias of the Treasury curve, with longer-dated rates falling toward the near-zero Fed policy rate, can be viewed as a consensus view that the level of the output/unemployment gap plumbed during the recession is... MORE
Macroeconomics
Arnold Kling
1. David Warsh offers a suggestion for the most prestigious female economist. The answer is probably Carmen Reinhart, of the University of Maryland, when measured by citation counts, the yardstick commonly used to gauge professional fame. Reminder that you can... MORE
October 28, 2009
Macroeconomics
Bryan Caplan
A common complaint about Sumner is that he ignores important real shocks, such as the "Recalculation Problems" that Arnold keeps pushing. I'm still not convinced that recalculation is a big deal, though this graph that Arnold's promoting is the kind... MORE
October 24, 2009
Fiscal Policy
Arnold Kling
John Taylor cuts through the BS. the latest Department of Commerce estimates of ... the improvement in GDP growth from the first to second quarter. Growth improved by 5.7 percent (from -6.4 percent to -0.7 percent). Private investment was by... MORE
October 22, 2009
Macroeconomics
Arnold Kling
From David Altig, via Mark Thoma. This statistic, the percentage of job losses that are permanent, is a useful way to distinguish Keynesian recessions from Recalculations. In a Keynesian recession, you are temporarily laid off because of excess inventories and... MORE
October 21, 2009
Macroeconomics
Arnold Kling
Brad Cornell writes (don't expect the link to work smoothly) The recession is due primarily to a widespread mismatch between current conditions and previous plans, relationships, and contracts. As a result, consumer desires, resources, and production technology are also misaligned.... MORE
Macroeconomics
Arnold Kling
He finds, the forecast of the model for the average inflation rate between 2009:Q4 and 2011:Q4 is -0.5%. ...If for further evidence on inflationary expectations you looked at the gap in yields between nominal Treasuries and TIPS, you'd say inflation... MORE
October 19, 2009
Macroeconomics
Arnold Kling
Mort Zuckerman writes, the US lost 44m jobs in the last two decades of the 20th century, but simultaneously created 73m private sector jobs. A stunning 55 per cent of the total workforce was in new jobs by the turn... MORE
October 13, 2009
Macroeconomics
Bryan Caplan
Russ Roberts points out that only a small fraction of the $787B fiscal stimulus has been spent. I've long scoffed at government inefficiency, but it never occurred to me that a full pork barrel could be so slow to empty. ... MORE
October 12, 2009
Macroeconomics
Arnold Kling
Steven Randy Waldman writes, A housing boom, any kind of boom, is attended by an increase in certainty. Information is stimulus, confusion is contraction. A bust occurs when the market is unsure of everything, when market participants perceive better risk-adjusted... MORE
Finance: stocks, options, etc.
Arnold Kling
In a comment on this post, Bryan asked whether I should not be betting on treasury-indexed securities. I'll answer that one below the fold. What I have been thinking about is this. 1. In general, I do not think that... MORE
October 11, 2009
Macroeconomics
Arnold Kling
Gap-based theories of inflation were badly discredited in the 1970s. That is James Bullard. Pointer from WSJ real time economics. To the Krugmans and DeLongs of the world, it is intuitively obvious that with unemployment approaching 10 percent we... MORE
October 9, 2009
Macroeconomics
Arnold Kling
Here. after July 2008 there were many other indicators that money was far too tight. About this time the dollar began rising sharply against the euro; and commodity prices began a sharp decline. Real interest rates rose from less than... MORE
October 8, 2009
Macroeconomics
Bryan Caplan
Many people compare today's recession to the last big one in 1980-82. But Scott Sumner keeps insisting that this one is different. At risk of re-inventing the wheel, I decided to take a look at the nominal GDP (NGDP) data... MORE
October 7, 2009
Macroeconomics
Arnold Kling
James Hamilton writes, I'd like to add a paper I published in 1988. There I presented a model in which unemployment arises from a drop in the demand for the output of a particular sector. The unemployed workers could consider... MORE
Finance: stocks, options, etc.
Arnold Kling
1.Paul Krugman ask another question. why does it have to be a return to shadow banking? The banks don't need to sell securitized debt to make loans -- they could start lending out of all those excess reserves they currently... MORE
Monetary Policy
Arnold Kling
From his own blog I have a very unconventional way of thinking about the monetary transmission mechanism. A monetary shock is essentially a change in the future path of the money supply relative to velocity, in other words, a change... MORE
October 5, 2009
Macroeconomics
Arnold Kling
He argues that the Recalculation story falls apart when you ask why, say, a housing boom -- which requires shifting resources into housing -- doesn't produce the same kind of unemployment as a housing bust that shifts resources out of... MORE
October 4, 2009
Fiscal Policy
Arnold Kling
Tyler Cowen finds and responds to some criticisms of the Recalculation story. Avent and Yglesias suggest that Kling is making up his own macro but the innovation is simply to call the adjustment process "recalculation," to give it a more... MORE
October 3, 2009
How does monetary policy work? Think of it this way: Fiscal policy adds or subtracts government liabilities. Monetary policy swaps government liabilities.... MORE
October 1, 2009
Fiscal Policy
Arnold Kling
Most of these are links in posts by Mark Thoma. Richard Robb says that letting Lehman fail really did cause big problems. However, he concedes, There is plenty of room to debate the larger counterfactual: if the government had never... MORE
September 30, 2009
Macroeconomics
Arnold Kling
A commenter asks how I reconcile my assertion that money is a store of vaue with my view that macroeconomics should not emphasize the role of money as a store of value. It is only the second view--that money is... MORE
September 29, 2009
Macroeconomics
Arnold Kling
Josh Hendrickson and a reader raise interesting questions.... MORE
Macroeconomics
Arnold Kling
Thanks to Mark Thoma for keeping the debate going. In a defense of what Paul Krugman would call Dark Age Macroeconomics, David Beckworth unleashes that most medieval of weapons, the dreaded Vector Autoregression. More on that below the fold. Also... MORE
September 27, 2009
Macroeconomics
Arnold Kling
I have been making the following claims about macro.... MORE
September 25, 2009
Macroeconomics
Arnold Kling
Read the whole thing. He likes the Recalculation story, which he points out he articulated last December. But he doesn't really buy my bizarre monetary theory. He writes, "I see the Fed as controlling nominal gdp but not always real... MORE
September 24, 2009
Macroeconomics
Arnold Kling
Bill Woolsey writes, it is not difficult to see that a large shift in the composition of demand would result in larger shifts in resource utilization, higher structural unemployment, and slower growth in the productive capacity of the economy. For... MORE
September 23, 2009
Macroeconomics
Arnold Kling
Bryan asks, Could the central bank hit a 20,000% nominal growth target, plus or minus 1000%? No. Certainly not next quarter. Maybe it come close if it aimed for such a target in 2014. Consider two thought-experiments, one involving elves... MORE
September 22, 2009
Macroeconomics
Arnold Kling
Before I respond to Bryan's comments, let me first recommend the two Scott Sumner papers that he mentions. This paper develops a theory that cultural values drive economic policy, which in turn drives economic outcomes. It is an interesting complement... MORE
Macroeconomics
Bryan Caplan
I'd like to think that I'm misunderstanding Arnold's views on monetary econ. But in his latest post, he states his position quite clearly. He begins with the uncontroversial:The Federal Reserve can manipulate some market interest rates by printing money and... MORE
September 21, 2009
Macroeconomics
Arnold Kling
Jeffrey Rogers Hummel writes, Orthodox monetarists attributed such shocks to declines in the rate of monetary growth, whereas traditional Keynesians blamed declining autonomous expenditures. Both of these sources are captured in the well known equation of exchange: MV = Py,... MORE
September 20, 2009
Macroeconomics
Arnold Kling
Gilles Saint-Paul writes, any macroeconomic theory that, in the midst of the housing bubble, would have predicted a financial crisis two years ahead with certainty would have triggered, by virtue of speculation, an immediate stock market crash and a spiral... MORE
September 18, 2009
Macroeconomics
Arnold Kling
Let me tell my story using the following table, which shows the primary causes of economic fluctuations according to different economists.: Animal Spirits,Liquidity PreferenceMonetary ShocksProductivity ShocksRecalculationKeynes, Akerlof-Shiller, KrugmanLucas, Dornbusch, Fischer, BlanchardPrescottClower, Leijonhufvud, Hayek, Kling Macro practitioners (the people who report... MORE
September 17, 2009
Macroeconomics
Arnold Kling
He writes, The appealing idea that macroeconomics should develop naturally from standard microeconomic foundations must be recognised as a distraction. In its place, we must accept, in the language of systems theory that macroeconomic phenomena are emergent, arising from complex... MORE
September 14, 2009
Macroeconomics
Arnold Kling
Will WIlkinson notifies me of Scott Sumner's essay at Cato Unbound. Self-recommending, with interesting commentators lined up. On a related note, David Laidler writes, The point of [Keynes'] liquidity preference theory was that money, whose use as a means of... MORE
September 13, 2009
Macroeconomics
Arnold Kling
I am definitely going to be a subscriber to this new blog. Thanks to Will Wilkinson for the pointer. Several of the initial posts are pushback at Paul Krugman's piece on what economists got wrong. Nobel Laureate Vernon Smith chimes... MORE
September 6, 2009
Macroeconomics
Arnold Kling
First, I note that Paul Krugman is sounding Austrian. In a follow-up to his longer piece, he writes, the economy is a complex system of interacting individuals -- and these individuals themselves are complex systems. Neoclassical economics radically oversimplifies both... MORE
September 3, 2009
Macroeconomics
Arnold Kling
Paul Krugman writes, contra Olivier Blanchard, that The state of macro, in short, is not good. I agree with his diagnosis. But his prescription, to return to some sort of old-time Keynesian religion, is too vague. It would be precise... MORE
August 30, 2009
Books: Reviews and Suggested Readings
Arnold Kling
Ed Leamer's new book is called Macroeconomic Patterns and Stories: A Guide for MBA's. I do not know why he positioned it as a guide for MBA's. It is clearly a treatise, aimed at the economics profession, to try to... MORE
Macroeconomics
Arnold Kling
I came up with this while thinking of a way to explain the Keynesian model to my high school class. But scroll to the end to see comments related to the recalculation model.... MORE
August 28, 2009
Macroeconomics
Bryan Caplan
Several people in both Sweden and the U.S. have asked me if the bail-outs of 2008 saved us from "financial Armageddon" or "financial Götterdämmerung." My question: What does Armageddon look like? Suppose there had been no bail-outs, and everything that's... MORE
August 25, 2009
Economic Methods
Arnold Kling
Mark Thoma writes, even though earthquakes cannot be predicted, at least not yet, it would be wrong to conclude that science has nothing to offer. First, understanding how earthquakes occur can help us design buildings and make other changes to... MORE
Macroeconomics
David Henderson
I sat in on Jeff Hummel's graduate course in Monetary Theory at San Jose State University last night. In the first part of the lecture, Jeff gave a quick tour through macroeconomics: the various schools of thought plus what various... MORE
August 22, 2009
Macroeconomics
Arnold Kling
In a comment on an earlier post, Hal Varian writes, The recalculation model is appealing, but is there any empirical evidence for it? I don't think that the 1930s would provide useful evidence since the production patterns after the Great... MORE
Macroeconomics
David Henderson
On May 18, in discussing Paul Krugman's analogy between a baby-sitting coop and the general economy, I wrote, quoting my Reason review of Krugman's The Return of Depression Economics: But nowhere does Krugman mention that another way to solve a... MORE
August 20, 2009
Macroeconomics
Arnold Kling
The New York Times reports, While the private sector has shed 6.9 million jobs since the beginning of the recession, state and local governments have expanded their payrolls and added 110,000 jobs For some reason, Tyler buys into the Paul... MORE
Macroeconomics
Arnold Kling
Two links to discuss in this post. First, David Altig discusses the "output gap," which I put in scare quotes because it is a concept that I am about to attack. Pointer from the indispensable Mark Thoma, who also provided... MORE
August 11, 2009
Macroeconomics
Arnold Kling
Two helpful critiques of my post on non-hydraulic macro. I will address both of them in more detail below, but let me start by questioning the label "real business cycle model." Back before I tuned out of academic macro, Franco... MORE
August 10, 2009
Macroeconomics
Arnold Kling
It is here. This is a very difficult thing for me to do, because economic forecasting is done under the hydraulic paradigm that I think we should try to abandon. Anyway, a sample: Traditionally, fiscal stimulus would increase the demand... MORE
Macroeconomics
Arnold Kling
Mainstream macroeconomics is "hydraulic." There is something called "aggregate demand" which you adjust by pumping in fiscal and monetary expansion. I wish to reject this whole concept of macroeconomics. Instead, I want to get economists to think about unemployment in... MORE
August 2, 2009
Macroeconomics
Arnold Kling
Tyler Cowen writes, Professor Sumner's views differ from the monetarism of Milton Friedman by emphasizing expectations rather than any particular measure of the money supply. Allow me to expand on the history of monetary thought embedded in that statement.... MORE
July 29, 2009
Macroeconomics
David Henderson
I'll be talking about the economy on KQED-FM, 88.5 in San Francisco at 9:05 a.m. You can listen live. Update: BTW, this is PDT. Goes to 10:00 a.m. PDT. Can call in at 866-733-6786.... MORE
July 23, 2009
Macroeconomics
Arnold Kling
Friends of mine have asked me lately how badly President Obama's economic policies are working. My reply is that it is way too soon to tell. I would expect that by now, the effect of Obama Administration policies on unemployment... MORE
July 17, 2009
Labor Market
Bryan Caplan
I recently pointed out that back in the good old days, Krugman would have graciously granted that a payroll tax hike is an especially bad idea when unemployment is high. In response, Kevin Drum notes that the tax hike doesn't... MORE
July 16, 2009
Macroeconomics
Arnold Kling
Relative to what a consensus forecast might have predicted last October, it appears that: --Banks are doing somewhat better than expected --GDP has fallen about as far as expected --employment has fallen more than expected If this is a fair... MORE
July 14, 2009
Macroeconomics
David Henderson
In one of his posts today, Bryan asks us to consider Scott Sumner's thoughts in response to an earlier post by Bryan. (BTW, like many of the other bloggers, I'm now hooked on reading Sumner's thoughts. He has that perfect... MORE
Monetary Policy
Arnold Kling
Bryan points to a Scott Sumner's monetarist credo. Think of it as a simplification of the Taylor rule. The Sumner Rule is, if the consensus forecast of nominal GDP growth is below 5 percent, then loosen up. Presumably, if the... MORE
July 13, 2009
Macroeconomics
Bryan Caplan
Every economist alive should read Scott Sumner's FAQ on macroeconomics. You give him ten minutes; he'll give you a fresh, incisive perspective on the world. Highlights:6. Isn't the real problem . . . ?No, the real problem right now is... MORE
Growth: Causal Factors
Arnold Kling
He sounds like Richard Florida. New York has bright, creative people, yada-yada. I think that most of the cyclical movement in the economy comes in businesses that are not all that creative--manufacturing, construction, and strip-mall businesses. Folks in Washington have... MORE
July 8, 2009
Economics of Health Care
Arnold Kling
David Leonhardt talks about the real issue in health care spending (it's not administrative costs). Tyler Cowen calls the column "superb." I would give it no more than a B, because the question is posed in terms of which centralized... MORE
June 17, 2009
Macroeconomics
Arnold Kling
In 2002, he passed along a joke that the economy needed a housing bubble. Krugman is controversial, so the post generated comments on this blog and elsewhere, some of which are overly "gotcha" in character. Some points I would make:... MORE
June 16, 2009
Macroeconomics
Arnold Kling
Paul Krugman, writing in August of 2002: To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan... MORE
Macroeconomics
Bryan Caplan
I could devote a dozen posts to Scott Sumner's latest essay-length entry. But I'll limit myself to the highlights:Stop worrying about inflation....Laffer is too good an economist to say anything blatantly false, but the entire tone of his WSJ piece... MORE
Macroeconomics
Arnold Kling
Why is a FICA cut better than a federally-funded sales tax holiday? The latter: - affects everyone, not just workers - is progressive - encourages consumption without delaying deleveraging The big advantage of a sales tax holiday is that,... MORE
June 15, 2009
Macroeconomics
Arnold Kling
Feel free to put constructive questions in the comments. Here are two questions that I recently received, one on health care and one on Keynesian economics. On health care, actually two questions: You asked thequestion why is health care something... MORE
June 9, 2009
Finance: stocks, options, etc.
Arnold Kling
Some more thoughts on Fischer Black's model of business cycles, following up on my earlier post on Tyler Cowen's piece. 1. Black thinks of us as living in a CAPM world. There is no reward for idiosyncratic risk (risk that... MORE
June 7, 2009
Macroeconomics
Arnold Kling
Tyler Cowen writes, "Dormant inflation" will spring to life, at some point quite rapidly, and the Fed will choose to tighten. Five to six percent inflation for a while would be OK but we will be faced with the prospect... MORE
June 5, 2009
Macroeconomics
David Henderson
Arnold has posted below on Matt Ygelesias's criticism of the view that macroeconomics requires a microeconomic foundation. There's more to say. First, check out comment #21 by one, Matt Rognlie, on Yglesias's site. It's quite good. I was surprised when... MORE
Macroeconomics
Arnold Kling
He writes, the decision has been made to somewhat arbitrarily impose the view that macro models must be grounded in micro foundations. Readers of this blog know that I would be the last person to defend economic methods in macro... MORE
June 4, 2009
Macroeconomics
Arnold Kling
This lecture will describe inflation as a fiscal phenomenon. You have heard that inflation is, anywhere and everywhere, a monetary phenomenon. This lecture will take a more nuanced view. The conventional wisdom would say that we can run large deficits... MORE
Macroeconomics
Bryan Caplan
One non-Obama-loving economist I know nevertheless gave him credit for "restoring confidence." I agree that confidence is coming back. But does Obama deserve the credit? The obvious alternative is that panic, like grief, normally fades away a few months after... MORE
Fiscal Policy
Arnold Kling
Keith Hennessey has another must-read post. I believe the Administration made an enormous mistake in its legislative implementation of the stimulus. As a result, the boost to GDP will come six to nine months later than it needed to (maybe... MORE
May 29, 2009
Macroeconomics
Arnold Kling
This lecture is on the household's "make or buy" decision. The more we outsource production, the more economic activity there is. In a recession, we cut back on outsourcing.... MORE
May 23, 2009
Macroeconomics
Arnold Kling
Doug Elmendorf writes, the difference between the economy's actual and potential output will average 7 percent of GDP (which is equivalent to about a trillion dollars) this year and next, and that gap in output will not close until 2013.... MORE
May 18, 2009
Macroeconomics
David Henderson
This is another in an open-ended series on strengths and weaknesses in Paul Krugman's writing. In a 1999 review of Krugman's The Return of Depression Economics, I wrote: One of Krugman's strengths is his talent for analogies that help readers... MORE
May 14, 2009
Macroeconomics
Bryan Caplan
The prize goes to Scott Sumner for:[I]f you are going to use research by a brilliant Nobel-Prize winning new Keynesian economist in order to attack discredited ideas, then makes sure the discredited ideas being attacked are not... your own.Still, if... MORE
May 13, 2009
Monetary Policy
Bryan Caplan
I just read Bernanke's 2004 piece on "The Great Moderation." It's written by the wise Bernanke I remember, not the embarassment he's become. In hindsight it's tempting to treat Bernanke's analysis as pure delusion. But in the end, I bet... MORE
May 11, 2009
Macroeconomics
Bryan Caplan
"When the facts change, I change my mind." The crash of 2008 has brought Keynes' famous line back into popular use. But should it have done so? Here's my claim:Nothing that happened in the last two years should have significantly... MORE
May 9, 2009
Macroeconomics
Bryan Caplan
Once I finish refinancing my 30-year fixed-rate mortgage at a ridiculously low nominal rate, a giant inflationary surprise would probably be in my best interest. But Scott Sumner says I shouldn't get my hopes up. The first and foremost of... MORE
May 7, 2009
Macroeconomics
David Henderson
My fellow blogger Bryan has done an admirable job of laying out the problems with Paul Krugman's recent piece on wage inflexibility. I have three things to add. First, Bryan points out that "Krugman forgets that wage rigidity is the... MORE
Macroeconomics
Bryan Caplan
Krugman's repeating his argument that wage cuts are individually rational, but collectively irrational:[M]any workers are accepting pay cuts in order to save jobs. What's wrong with that?The answer lies in one of those paradoxes that plague our economy right now.... MORE
May 4, 2009
Macroeconomics
Arnold Kling
He is one of the most interesting economic thinkers out there, and Russ Roberts does a nice job interviewing him. The podcast covers the lack of knowledge that we have about macroeconomics, the fact that so many business cycles seem... MORE
Macroeconomics
Arnold Kling
Tyler and Alex have new textbooks on micro and macro. Both begin with the same anecdote. In 1787, the British government had hired sea captains to ship convicted felons to Australia...On one voyage, more than a third of the males... MORE
April 29, 2009
Macroeconomics
Bryan Caplan
Yesterday I quoted Scott Sumner: "I believe that the depression was caused by events that took place in September and October, when the markets actually crashed," and replied:I'm strongly tempted to second Scott. My main proviso: He's got to let... MORE
April 28, 2009
Finance: stocks, options, etc.
Arnold Kling
Bryan likes what Scott says here. Read Scott's whole post yourself, so that you do not necessarily take my reading of it. Anyway, he comes close to saying that you either have to believe in efficient markets or you ought... MORE
Macroeconomics
Bryan Caplan
I can't believe how much excellent material Scott Sumner hides "below the fold." A prime example: Whenever I read opinion pieces by almost any macroeconomist-- Keynesian, monetarist, new Classical, Austrian, etc, there is almost invariably a point where alarm bells go... MORE
Macroeconomics
Bryan Caplan
My co-author Scott Beaulier shares a funny but informative dialogue with his lawyer here. Excerpt:LAWYER: So you're an economist at Mercer?ME: Yep.LAWYER: What do you think of this crisis?ME: Well, I'm really concerned about the long-run effects it will have. ... MORE
April 27, 2009
Finance: stocks, options, etc.
Arnold Kling
Ravi Balakrishnan and others write, Evidence from past systemic banking crises in advanced economies (the US in the 1980s and Japan in the 1990s) shows that the decline in capital flows to emerging economies tends to be sizeable. Since then,... MORE
April 26, 2009
Macroeconomics
Arnold Kling
on bloggingheads. We both express some humility about what macroeconomics can do. The New York Times decided to extract the section on bank bailouts.... MORE
April 18, 2009
Macroeconomics
Arnold Kling
Robert J. Barbera's new book is called The Cost of Capitalism. On p. 182-183, he writes, For Minsky, government activism, to thwart the deflationary effects of banking crises, is the cost of capitalism, In the preface, he writes, Minsky's thesis... MORE
April 16, 2009
Macroeconomics
Arnold Kling
Menzie Chinn makes the case. How can one incorporate the idea of the importance of the banking system (separate from its importance to the money creation process)? One very simple static model is provided by a twenty year old paper... MORE
April 13, 2009
Macroeconomics
Arnold Kling
Scott Sumner has an excellent post on his concerns with IS-LM theory. I endorse most of it, but I want to point out where I disagree. He writes, Michael Woodford and I agree on one thing; changes in the expected... MORE
Finance: stocks, options, etc.
Arnold Kling
David Warsh points to this lecture. variation in leverage has a huge impact on the price of assets, contributing to economic bubbles and busts. This is because for many assets there is a class of buyer for whom the asset... MORE
April 10, 2009
Macroeconomics
Bryan Caplan
Remember the Fable of the Banana Subsidy? Government subsidizes bananas. People buy a ton of bananas and store them on their roofs. The bananas weigh so much that their roofs collapse. Then people say, "It's the government's fault!" - which... MORE
April 8, 2009
Macroeconomics
Arnold Kling
Seeing two posts today on macro, I am ready to share Nassim Taleb's despair.... MORE
April 7, 2009
Macroeconomics
Arnold Kling
Tyler Cowen is everywhere. Here he gives what I call (borrowing the term from Steve Roach) the tallest pygmy theory of America in the world economy. The major Austrian banks, for instance, have loans to eastern Europe equal to as... MORE
April 3, 2009
Economic Methods
Arnold Kling
A while back, I mentioned this essay by Jesús Fernández-Villaverde, which at the time was not on line. Now it is there. I think it gives a useful history and perspective on macroeconometrics. Note in particular his discussion of the... MORE
Energy, Environment, Resources
Arnold Kling
Highly Recommended. Back in September, when Congress was getting to ready to vote on TARP, I was in a Congresswoman's office arguing futilely against it. One of my lines was that I thought that most people were more adversely affected... MORE
March 23, 2009
Macroeconomics
Arnold Kling
He has a new book, which sounds very interesting (but expensive). I've been re-reading his 2007 paper. My comments follow.... MORE
March 19, 2009
Macroeconomics
Bryan Caplan
I'm not sure if James Hamilton would call himself a "Keynesian," but this is exactly what sensible Keynesians should say:I emphasize that I am decidedly not suggesting that either fiscal or monetary policy stimulus are capable of solving all of... MORE
March 17, 2009
Growth: Causal Factors
David Henderson
Stanford University economists Peter Blair Henry and Conrad Miller recently published an interesting NBER Working Paper in which they compare economic policy and economic performance between Jamaica and Barbados. Henry and Miller point out that in Jamaica, the People's National... MORE
March 15, 2009
Macroeconomics
David Henderson
On February 25, I posted some lines from an Arjo Klamer interview with Bob Lucas and promised to post some of my other favorites. The interview with Bob Solow of MIT has a lot of my favorites. All of these... MORE
March 14, 2009
Macroeconomics
Bryan Caplan
Alas, none of my words made the final Stossel clip on the bailout, but my colleague Pete Leeson and GMU alumna Lydia Ortega get good lines in. Next time, maybe I'll get a haircut and see if that helps. :-)P.S.... MORE
March 13, 2009
Finance: stocks, options, etc.
Arnold Kling
Read the whole thing. I am proud that he claims to have been inspired by my Future of Macroeconomics post, but he obviously has been thinking about this stuff for quite some time.... MORE
March 12, 2009
Macroeconomics
David Henderson
Both Arnold and Bryan have weighed in on the paradox of thrift. Arnold's response was to my mention of Bob Murphy's refutation of Steve Fazzari. Jeff Hummel read Arnold, Bryan, and Bob Murphy and wrote me the following: The essence... MORE
Macroeconomics
Arnold Kling
Three predictions: 1. There will be much less emphasis on monetary policy, and much more emphasis on financial institutions and financial regulatory policy. 2. There will be much less emphasis on fiscal policy, and much more emphasis on sectoral reallocation... MORE
March 10, 2009
Macroeconomics
Arnold Kling
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... MORE
Macroeconomics
Arnold Kling
She writes, though the current recession is unquestionably severe, it pales in comparison with what our parents and grandparents experienced in the 1930s. Last Friday's employment report showed that unemployment in the United States has reached 8.1%--a terrible number that... MORE
Macroeconomics
Bryan Caplan
Writing in the Washington Times, my former student Ben Powell advocates change I can believe in: America's move to act swiftly and boldly misses the point. Bank bailouts and fiscal stimulus bills don't work because they strive to maintain the... MORE
Finance: stocks, options, etc.
Arnold Kling
Ben Bernanke on the future of bank regulation. there is some evidence that capital standards, accounting rules, and other regulations have made the financial sector excessively procyclical--that is, they lead financial institutions to ease credit in booms and tighten credit... MORE
March 9, 2009
Finance: stocks, options, etc.
Arnold Kling
Russ Roberts and I discuss current events. I felt awkward, and so I didn't feel particularly good about it afterward. The bloggingheads folks think that the best clip is here. Constructive suggestions welcome.... MORE
March 8, 2009
Fiscal Policy
Arnold Kling
Ken Rogoff writes, As debt mounts and the recession lingers, we are surely going to see a number of governments trying to lighten their load through financial repression, higher inflation, partial default, or a combination of all three. Read the... MORE
March 6, 2009
Fiscal Policy
Arnold Kling
Gregory Clark moderates. There is almost no enlightenment, but plenty of rhetorical metaphors. For example, about 38 minutes in, Boldrin says, "If the guy has a broken nose, you don't put a band-aid on his butt." I stopped listening shortly... MORE
March 5, 2009
Macroeconomics
David Henderson
In yesterday's Wall Street Journal, Bob Barro points out that the stock market crash could portend another depression. I had never been able to answer students who asked me what distinguishes a depression from a recession except that it's more... MORE
March 4, 2009
Macroeconomics
Arnold Kling
That is how I read Michael Bryan and Brent Meyer. the sharp drop in the flexible component of the core CPI is another clear indication of the strong disinflationary pressure on retail prices in recent months. Over the past four... MORE
Macroeconomics
Bryan Caplan
Arnold continues to surprise me. In reply to Scott Sumner, my co-blogger asks: "[I]f you suddenly found yourself with twice as much cash in your wallet, would you double your spending?"This is a good question, but it has a standard... MORE
March 3, 2009
Macroeconomics
Arnold Kling
In a comment on this post, Scott Sumner writes, If the Fed doubled the money supply would you suddenly change your preferences and want to hold twice as much cash in your wallet? To which I retort: if you suddenly... MORE
Economic Methods
Arnold Kling
He writes, The purpose of this picture is to show that deeper-than-average recessions are followed by faster-than-average recoveries. (Similar evidence was compiled in the 2005 Economic Report of the President, Chapter 2.) This evidence might be taken as evidence in... MORE
Macroeconomics
Bryan Caplan
Jim Rogers, investment biker and co-founder with Soros of the Quantum Fund, says we should let AIG fail:"Suppose AIG goes bankrupt, it is better that AIG goes bankrupt and we have a horrible two or three years than that the... MORE
Macroeconomics
Bryan Caplan
Arnold writes:I think it really is possible to have fluctuations in employment. Bryan's thinking applies in a frictionless economy that is always at full employment, but I don't think it applies in reality.Frankly, this is a straw man. I believe... MORE
March 2, 2009
Macroeconomics
David Henderson
Fellow blogger Arnold Kling has weighed in on the paradox of thrift. Arnold states: Robert P. Murphy and Bryan seem to me to be confusing things. Murphy starts with an illustration of the paradox of thrift from Keynesian economist Steve... MORE
Macroeconomics
Arnold Kling
Robert P. Murphy and Bryan seem to me to be confusing things.... MORE
Macroeconomics
Bryan Caplan
Brad DeLong pleads perplexity:I simply do not understand their arguments that government spending cannot boost the economy. As far as I can tell, they are simply burying their heads in the sand.At the start of 1996, the US unemployment rate... MORE
Macroeconomics
Bryan Caplan
All ideology aside: If the government had followed a laissez-faire policy for the last six months, and output, employment, housing, and financial markets stood exactly where they stand today, what fraction of people would conclude that "Events decisively prove that... MORE
Monetary Policy
Arnold Kling
Goodness knows, I don't want to. I still think he owes me a correction--and in fact an apology--in his column for putting in quotation marks an inaccurate, misleading, and distorted version of something I said. But here is Tyler Cowen... MORE
March 1, 2009
Macroeconomics
Arnold Kling
He wants the Fed to do whatever it can to try to get prices headed up rather than down. His best argument: What do we have to lose?: We can get rid of interest on bank reserves (and consider a... MORE
Macroeconomics
Arnold Kling
At the Kauffman forum that I attended in Kansas City the other day, I thought that the most interesting comments, neither of which I agreed with, were offered by Amity Shlaes and Michael Mandel, who blog here and here, respectively.... MORE
February 27, 2009
Macroeconomics
Bryan Caplan
I've already faulted Fama for misuse of the macroeconomic identity GDP=C+I+G+NX. Now TheMoneyIllusion takes the War On Misleading Tautology to a new level:When I discuss the effect of monetary stimulus on aggregate demand with other economists, I notice that they... MORE
February 25, 2009
Macroeconomics
David Henderson
The first book review I did for Fortune, in 1984, was of Arjo Klamer's Conversations with Economists. In future posts, I'll quote some of my favorite quotes from Bob Solow and from others. Here's my favorite passage from the interview... MORE
February 24, 2009
Fiscal Policy
Arnold Kling
From Brad DeLong, Michele Boldrin, Clive Crook, and David Brooks. Thanks to Greg Mankiw for the first two pointers. Comments below.... MORE
February 23, 2009
Fiscal Policy
Arnold Kling
I write, If you follow the news media, you may think that the economics profession is divided into two camps: the majority, who favor the stimulus bill; and a minority, who are against any stimulus. In fact, there are many... MORE
February 18, 2009
Finance: stocks, options, etc.
Arnold Kling
Consider the following list of candidates for government assistance, via financial bailout or stimulus: a) banks and other financial institutions b) the nonfinancial business sector c) underwater homebuyers d) other consumers e) state and local governments In my view, (b)... MORE
February 17, 2009
Growth: Causal Factors
Arnold Kling
In the Wall Street Journal, he writes, The depressions and panics of the 19th century ended without any fiscal stimulus to speak of, as did the gloom that followed the stock-market crash of 1987. Countercyclical fiscal policy may or may... MORE
February 16, 2009
Macroeconomics
Bryan Caplan
Tim Kane wisely notes that we could have had a one-year payroll tax holiday for the cost of Obama's fiscal stimulus program:What's amazing is that much of the rest of the bill's stimulus does not actually enter the economy until... MORE
February 14, 2009
Fiscal Policy
Arnold Kling
Tyler Cowen writes, In my opinion the sophisticated Keynesian view is still that the stimulus won't work. Great, great sentence. Has Jeff Frankel joined the ranks of the deranged? What he writes strikes me as not terribly different from what... MORE
February 13, 2009
Macroeconomics
Bryan Caplan
Media Matters reports that almost none of the economic "experts" pontificating on Obama's economic plan are actually economists:Media Matters purposefully used a broad definition of "economist" to be inclusive, coding as an economist any guest who has a master's degree... MORE
Fiscal Policy
Arnold Kling
[UPDATE Feb. 13 2:40 PM eastern time: Andrew Sullivan of The Atlantic has done the gentlemanly thing and withdrawn the racism charge. Adam Serwer of The American Prospect has apologized for not taking into account the full context. ] I... MORE
February 12, 2009
Macroeconomics
Bryan Caplan
Arnold wants me to explain why "two-thirds of the American people think they could do a better job on the economy than Congress." My take is that a lot of Americans want an even more populist approach to the crisis. ... MORE
Economic History
Arnold Kling
The Washington Post reports on how economists are still debating the 1930's. We are, but I bet I could get a pretty broad swath of economists, left and right, to agree to the following: 1. The steps that Roosevelt took... MORE
February 10, 2009
Macroeconomics
Arnold Kling
Clive Crook writes, Mr Krugman gives liberals the economics they want. Mr Barro gives conservatives the same service. They narrow or deny the common ground. Why does this matter? Because the views of readers inclined to one side or the... MORE
February 9, 2009
Economic Methods
Arnold Kling
A first version is here. I was thinking of submitting something like this to the AEA's new Journal Macroeconomics. Suggestions for improvement are welcome.... MORE
Fiscal Policy
Arnold Kling
I wrote this for Cato. The present scenario analysis highlights two black swans. The first one is Depression Averted, under which a stimulus keeps the economy from falling in a downward spiral of layoffs and shutdowns. The other black swan... MORE
February 8, 2009
Finance: stocks, options, etc.
Arnold Kling
James Hamilton writes, I have in my research instead stressed technological frictions. For example, when spending on cars abruptly falls, there is a physical, technological challenge with getting the specialized labor and capital formerly employed in manufacturing cars into some... MORE
February 6, 2009
Macroeconomics
Bryan Caplan
My wise colleague Garett Jones has the office next to mine, so I can question him just by shouting. (We've got thin walls in Carow Hall). But now that Garett's writing for CNN Money, it's getting much easier for people... MORE
Fiscal Policy
Arnold Kling
John Maynard Keynes writes, So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a... MORE
Fiscal Policy
Arnold Kling
Greg Mankiw writes I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I think if you put leading economists into a room to negotiate on... MORE
February 5, 2009
Finance: stocks, options, etc.
Arnold Kling
Ed Glaeser does not like the Republican mortgage plan any more than I do. I am not sure that plan is still alive. It may have been superceded by another ill-conceived idea, a tax break for home buyers. See Tyler... MORE
Economic Methods
Arnold Kling
Menzie Chinn writes, A key reason for the academic disenchantment with these types of models included the view that the identification schemes used were untenable (e.g., why is income in the consumption function but not in the investment?). Another source... MORE
February 4, 2009
Fiscal Policy
Arnold Kling
Doug Elmendorf writes CBO estimates that the Senate legislation would raise output by between 1.4 percent and 4.1 percent by the fourth quarter of 2009; by between 1.2 percent and 3.6 percent by the fourth quarter of 2010; and by... MORE
Behavioral Economics and Rationality
Arnold Kling
George A. Akerlof and Robert J. Shiller do not come to praise mainstream macroeconomics. Keynes' followers rooted out almost all of the animal spirits...that lay at the heart of his explanation for the Great Depression...They...minimized the intellectual distance between The... MORE
Finance: stocks, options, etc.
Arnold Kling
Three things to be angry about this morning. 1. The Obama Administration's plans to save banks. I outsource my comments to Yves Smith. Thanks to Mark Thoma for the pointer. 2. Alan Blinder and David Leonhardt confusing stimulus with class... MORE
February 3, 2009
Finance: stocks, options, etc.
Arnold Kling
Compare this: Officials said the GOP was coalescing behind a proposal designed to give banks an incentive to make loans at rates currently estimated at 4 percent to 4.5 percent. Fannie Mae and Freddie Mac, which were seized by the... MORE
February 2, 2009
Fiscal Policy
Arnold Kling
Tyler Cowen weighs in on an issue that has been bouncing around the blogosphere. Overall the Keynesian effects can mean either the permanent or the temporary spending boost has a bigger effect and there are also a number of ways... MORE
February 1, 2009
Fiscal Policy
Arnold Kling
For my talk at the anti-stimulus conference. Still a work in progress.... MORE
Fiscal Policy
Arnold Kling
Hall and Woodward write, One problem with the employment stimulus is that the funds go in the first instance to the owners of businesses and not to consumers generally. This criticism applies to my preferred stimulus, which is to take... MORE
January 30, 2009
Fiscal Policy
David Henderson
I was interviewed this afternoon by ABC-TV for Good Morning America. It will play tomorrow (Saturday) morning. Check your local listings. The issue was the "stimulus" package. I found the questions unusually good. We'll see what gets used.... MORE
Fiscal Policy
Arnold Kling
Ever wondered what Russ Roberts would do as President? He writes, I am recommending the elimination of the payroll tax... --Eliminating all corporate welfare. Corporate welfare rewards those corporations that excel at lobbying rather than serving their customers. Eliminating it... MORE
Macroeconomics
Arnold Kling
He writes a long post that agrees with some of what I write and disagrees with some of my views.... MORE
January 29, 2009
Upcoming Events
Arnold Kling
See the invitation below. My theme will be "what certified macroeconomists think about the stimulus bill."... MORE
Fiscal Policy
Arnold Kling
Justin Wolfers writes, there are about three papers written on monetary policy for each paper mentioning fiscal policy. And there are only a few dozen papers written on the multiplier each year. He has more data. Jerry Muller writes, a... MORE
Macroeconomics
David Henderson
Floccina writes: David Henderson, Arnold Kling & Bryan Caplan, I would love to read your take on Jim Powell's article about the 1920-1921 depression. Is Jim Powell showing huge bias? Can we learn anything that would be helpful in the... MORE
January 28, 2009
Fiscal Policy
Arnold Kling
Cato's Caleb Brown recently recorded me in two podcasts. My thoughts on multipliers and stimulus are here (this link may be more reliable). You will also find a link to my recent podcast on co-ordinated health care (I linked to... MORE
Fiscal Policy
David Henderson
Posted from San Francisco airport while I'm en route to San Antonio. Today's New York Times carries a full page ad, paid for by the Cato Institute, with a strong statement against President Obama's stimulus package. It quotes his statement:... MORE
Macroeconomics
Arnold Kling
as explained by yours truly.... MORE
January 27, 2009
Macroeconomics
Arnold Kling
I'm feeling somewhat lonely these days. My understanding of macroeconomics is closer to that of Paul Krugman, Mark Thoma, and Brad DeLong than it is to that of Robert Barro, John Cochrane, or Eugene Fama. And yet I am a... MORE
January 26, 2009
Fiscal Policy
Arnold Kling
Douglas Elmendorf, the head of the Congressional Budget Office, writes, CBO estimates that enacting the bill would increase federal budget deficits by $169 billion over the remaining months of fiscal year 2009, by $356 billion in 2010, by $174 billion... MORE
Fiscal Policy
Arnold Kling
$100 of Government SpendingMurphy's EstimatesDeLong's EstimatesKeynes Effect$50$150Housework Effect-$25-$30Galbraith Effect-$25$0Feldstein Effect-$80-$33The Bottom Line-$80$87 I explain here. [UPDATE: I made two errors in the initial numbers. I believe it is correct as of Jan. 27, 1:40 PM EST]... MORE
Macroeconomics
Arnold Kling
John Cochrane has posted an essay on his take on the economy, stimulus, and so on. I think he gets muddled in several places.... MORE
Upcoming Events
David Henderson
Here's an announcement from the Naval Postgraduate School, where I teach. Bottom line: it live streams this afternoon. The times are PDT. It will go in the order below; I will be last. Each of us will present for 15... MORE
Monetary Policy
David Henderson
Monetary economist Jeff Hummel has posted today a detailed exposition of recent Fed policy. The two most interesting things to me are: (1) The money supply is increasing. This fact undercuts one part of the "monetary policy is impotent" view... MORE
January 24, 2009
Fiscal Policy
Arnold Kling
Will Wilkinson writes When I see Delong more or less indiscriminately trashing everyone at Chicago, or Krugman trashing Barro, etc., what doesn't arise in my mind is a sense that some of these guys really know what they're talking about... MORE
January 23, 2009
Fiscal Policy
Arnold Kling
Tyler Cowen does not like the tone of the stimulus debate. A highly respected anti-stimulus economist puts up some anti-stimulus evidence in a highly imperfect test (in Barro's defense, he did cover more than just WWII). The anti-stimulus economist is... MORE
January 22, 2009
Fiscal Policy
Arnold Kling
1. A panel at The University of Chicago, featuring John Huizinga (my former classmate at MIT), Kevin Murphy, and Robert Lucas. Huizinga makes three points. First, we are hearing a lot of Keynesian macro being tossed around now, and it's... MORE
Finance: stocks, options, etc.
Arnold Kling
The Wall Street Journal reports on how TARP funds went to politically-connected banks. Barney Frank does a cameo. Andy Harless might agree with what I wrote here (but he might not). Pointer from Mark Thoma. Robert Barro draws an apt... MORE
January 21, 2009
Fiscal Policy
Arnold Kling
For Seattle public radio, 10:20 AM Pacific Time today. I will add a link to a recording, probably within the next 24 hours. My main theme is that we should have a small, temporary stimulus, not a permanent shift of... MORE
Fiscal Policy
Arnold Kling
I am going to endorse the idea that Bryan Caplan called smart stimulus. if you cut employers' share of the payroll tax, this puts money in employers' hands, not workers'. But the indirect effect is to reduce the labor surplus;... MORE
January 16, 2009
Macroeconomics
Bryan Caplan
"When the facts change, I change my mind," say Keynes. But how do you explain people who change their minds when faced by facts they should have known all along? Gary Becker wants to know:As Posner and others have indicated,... MORE
January 15, 2009
Macroeconomics
Arnold Kling
Readers of this blog know that I am against the Paulson/TARP bailout thingy and against a big stimulus. Some of you may also have read that distinguished (some would say Nobel caliber) financial economist Eugene Fama has a new blog,... MORE
January 14, 2009
Fiscal Policy
David Henderson
On Saturday, January 12, the Obama Presidency-Elect (I can't think of a less clunky term) sent out, "The Job Impact of the American Recovery and Reinvestment Plan," by Christina Romer and Jared Bernstein. It would qualify for Arnold Harberger's term... MORE
January 13, 2009
Macroeconomics
David Henderson
At a Carnegie-Rochester conference I attended over 30 years ago, when I was an assistant professor at the University of Rochester B-school, Arnold Harberger criticized a pile of economists' papers on Latin American development. One of his criticisms still stands... MORE
January 12, 2009
Macroeconomics
Bryan Caplan
If you go to an old-fashioned Keynesian macro text, it will explain that raising taxes and spending by equal amounts increases total spending. How is this possible? Well, if the Marginal Propensity to Consume=a, then the gross positive effect on... MORE
Macroeconomics
Arnold Kling
I have collected my series of fourteen macro lectures, previously delivered as blogs posts, in one place, called Lectures on Macroeconomics. Also, you can listen to Steve Fazzari and Russ Roberts explain Keynesian economics.... MORE
January 11, 2009
Macroeconomics
Arnold Kling
This lecture looks at a recession as an information problem. It is a synthesis of a number of the ideas mentioned in previous lectures.... MORE
Fiscal Policy
Arnold Kling
Tyler Cowen gives eight reasons, and then concludes First, a large fiscal stimulus addresses factor #8 but fares poorly in alleviating the other problems. Of course it may give a band-aid for #5 or #6 and you can tell other... MORE
January 9, 2009
Macroeconomics
Bryan Caplan
I'm surprised to learn that a payroll tax cut actually has some political traction. A few insiders are even highlighting its unique benefits:"Cutting the payroll tax is a great idea. It not only puts money back in people's pockets --... MORE
Fiscal Policy
Arnold Kling
Nick Schulz emailed me this paragraph from the Bureau of Labor Statistics: Eleven of the most populous metropolitan areas are composed of 34 metropolitan divisions, which are essentially separately identifiable employment centers. In November, Detroit-Livonia-Dearborn, Mich., again registered the highest... MORE
January 8, 2009
Macroeconomics
Bryan Caplan
Here's another clever stimulus idea. The source is Andrew Healy, who explained it to me over pizza right the day before Christmas. I'm not sure if he actually advocates it, but here it is:The federal government temporarily picks up the... MORE
Fiscal Policy
Arnold Kling
Mark Thoma gives us Joseph Stiglitz and Martin Feldstein being interviewed by Charlie Rose. I listened to it last night, and I found it so chilling that it adversely affected my sleep. Two issues stand out. 1. Both of them... MORE
January 7, 2009
Fiscal Policy
David Henderson
Forbes.com just published my article, "Will the Real Christina Romer Please Stand Up?" I'm not thrilled with the title because it seems to hint that Professor Romer has been hypocritical and, as far as I know, she hasn't been. But... MORE
Macroeconomics
Bryan Caplan
My colleague John Nye says "Japan's Phillips Curve Looks Like Japan" is the funniest paper ever published in economics. I think I prefer Alan Blinder's "The Economics of Brushing Teeth." But I'm enough of an egomaniac to present for your... MORE
Macroeconomics
Bryan Caplan
With flexible prices, many tax cuts are equivalent to each other. If wages instantly adjust, for example, it doesn't matter whether you cut the employers' share of the payroll tax, the employees' share, or the whole thing. The recipient of... MORE
Macroeconomics
Arnold Kling
Paul Krugman says that we need a big fiscal stimulus. He writes, Unemployment is currently about 7 percent, and heading much higher; Obama himself says that absent stimulus it could go into double digits. Suppose that we're looking at an... MORE
January 6, 2009
Fiscal Policy
Arnold Kling
Having reached the unlucky number of 13, it is fitting to talk about multipliers and model estimates.... MORE
January 1, 2009
Macroeconomics
Bryan Caplan
Robert Higgs, my favorite crisis prophet, has wisdom for the self-styled free-market economists who freaked out during the past few months:Back in my days as a professor, I always endeavored early in the course to teach my students the fundamental... MORE
Macroeconomics
Arnold Kling
This lecture speculates on some possible behavioral economics of booms and recessions. The idea is that herd behavior (buying at the top, selling at the bottom) is a form of procrastination.... MORE
December 28, 2008
Fiscal Policy
Arnold Kling
He sets out criteria for a stimulus package. Investments in an array of areas -- including energy, education, infrastructure and health care -- offer the potential of extraordinarily high social returns while allowing our country to address some long-standing national... MORE
December 26, 2008
Behavioral Economics and Rationality
Arnold Kling
Stephen Greenspan, a psychiatrist who lost money in the Bernard Madoff scam, writes, Gullibility is a sub-type of foolish action, which might be termed "induced-social." It is induced because it always occurs in the presence of pressure or deception by... MORE
December 24, 2008
Macroeconomics
Arnold Kling
This lecture discusses what I think of as the Leijonhufvud interpretation of macroeconomics as an attempt to characterize an economy that is far from classical equilibrium.... MORE
December 23, 2008
Finance: stocks, options, etc.
Arnold Kling
Carmen Reinhart and Ken Rogoff write, We find that banking crises almost invariably lead to sharp declines in tax revenues as well significant increases in government spending (a share of which is presumably dissipative). On average, government debt rises by... MORE
Macroeconomics
Arnold Kling
Josh Hendrickson writes, there are many so-called Keynesians who have been out there promoting policies that are quite the opposite. They have been promoting the re-capitalization of banks, forcing banks to lend, automotive bailouts, and a push toward developing "green"... MORE
Macroeconomics
Arnold Kling
Tyler Cowen writes, I think markets are failing to solve an economic calculation problem. The economy needs some new things to do but another bubble will not work, much of finance is frozen or contracting, and economic and political uncertainty... MORE
December 18, 2008
Finance: stocks, options, etc.
Arnold Kling
Michael Bordo writes, A well known tradition in monetary economics which goes back to the nineteenth century and in the twentieth century was fostered by Wesley Mitchell ( 1913), Irving Fisher (1933), Hyman Minsky( 1977), Charles Kindleberger and others. It... MORE
December 17, 2008
Macroeconomics
Arnold Kling
He writes, The only answer I can think of is for the U.S. to then become the world's largest private-equity fund: they lend us their money, and we then invest the money back in their economies--in industries and companies that... MORE
Macroeconomics
Arnold Kling
A long-standing controversy in monetary theory and macroeconomics involves the question, "Is it money, or is it credit?" In most of the macro theory of the past thirty years, the focus is on money. This is nice because you get... MORE
December 16, 2008
Finance: stocks, options, etc.
Arnold Kling
James Hamilton writes, Will [purchases of mortgage securities and other assets by the Fed] succeed if we just do it on a sufficiently large scale? I'm not at all convinced that it would. Our standard finance models treat interest rate... MORE
Finance: stocks, options, etc.
Arnold Kling
In an interview, William Janeway says, When I was a kid growing up in this business in the 1970s, we thought of illiquidity and insolvency as two fundamentally different conditions. You were illiquid if the expected net present value of... MORE
December 15, 2008
Finance: stocks, options, etc.
Arnold Kling
A reader emails, what is a sustainable level of US debt % to GDP? I usually think of our debt as government debt. But adding up total private and public debt, we have something like 350 percent for a debt-GDP... MORE
Finance: stocks, options, etc.
Arnold Kling
Felix Salmon writes, In times of turmoil, we start worrying less about not having enough money in 20 years, and more about not having enough money in 20 weeks. (What if I lose my job? What if my investments fall... MORE
December 14, 2008
Macroeconomics
Arnold Kling
He is a leading macroeconomist, and he is out with a serious paper, in which he blames the Fed for excessively low interest rates from 2002-2004. Pointer from James Hamilton, who does not agree. Hamilton writes, I feel he overstates... MORE
December 13, 2008
Macroeconomics
Arnold Kling
Mark Zandi says A payroll tax holiday and a permanent payroll tax credit would be effective tax cuts, particularly if designed to help harder-pressed lower- and middle-income households and smaller businesses. Tyler Cowen also favors payroll tax cuts. I like... MORE
December 11, 2008
Macroeconomics
Arnold Kling
I'm trying to sort through my thoughts on the economic outlook.... MORE
December 8, 2008
Finance: stocks, options, etc.
Arnold Kling
He writes, In normal times, our models predict, with the ability to diversify portfolios that exists today the risk discount on assets like corporate equities should be around 1% per year. It is more like 5% per year in normal... MORE
December 6, 2008
Macroeconomics
Arnold Kling
The nonfinancial sector wants to hold risk-free short-term assets and issue risky long-term liabilities. To accommodate this, the financial sector does the opposite. If the financial sector suddenly contracts, the nonfinancial sector gets stuck with an asset mix that is... MORE
December 5, 2008
Labor Market
Arnold Kling
Bloomberg reports, Factory payrolls fell 85,000 after decreasing 104,000 in October. The return of 27,000 striking machinists at Boeing Co. last month helped limit the drop, economists said... Payrolls at builders dropped 82,000 after decreasing 64,000. Financial firms decreased payrolls... MORE
December 2, 2008
Finance: stocks, options, etc.
Arnold Kling
Ken Rogoff writes, Price inflation forces creditors to accept repayment in debased currency. Yes, in principle, there should be a way to fix the ills of the financial system without resorting to inflation. Unfortunately, the closer one examines the alternatives,... MORE
Macroeconomics
Arnold Kling
Greg Mankiw writes, I am not sure how convinced I am by these findings. And even if they are correct, I am not sure what model I should use to explain them and to what extent that model would apply... MORE
December 1, 2008
Finance: stocks, options, etc.
Arnold Kling
Brad DeLong writes, In normal times, when one investor wants more liquidity or safety, another will be willing to take on duration and risk, and they will simply swap portfolios at current market prices. But in abnormal times, they cannot:... MORE
November 30, 2008
Finance: stocks, options, etc.
Arnold Kling
Greg Mankiw says that it is time to re-read Keynes, and Tyler Cowen is ready to take him up on it. One important Keynesian idea is liquidity preference. In textbooks, an increase in liquidity preference means that people want to... MORE
November 29, 2008
Finance: stocks, options, etc.
Arnold Kling
Did I fail to foresee the financial crisis? Absolutely. Brad DeLong gives some reasons that also go for me. I was "expecting," in the sense of anticipating that it was they were both likely enough and serious enough that public... MORE
November 23, 2008
This lecture looks at private monetary instruments and their relationship to government monetary instruments.... MORE
November 21, 2008
Economic History
Arnold Kling
In contrast to my militaristic account, we have Nick Szabo: Local but extremely valuable trade was, this essay argues, made possible among many cultures by the advent of collectibles, by the time of the Upper Paleolithic. Collectibles substituted for otherwise... MORE
Finance: stocks, options, etc.
Arnold Kling
negative interest rates; FDIC thoughts on the housing bubble in 2004; Cecilia Rouse over Austan Goolsbee?; Greg Mankiw's Macro Quiz... MORE
November 20, 2008
Monetary Policy
Arnold Kling
Suppose that the Federal Funds rate falls to zero. Does that mean that we are in the infamous liquidity trap, in which the Fed is powerless to use open market operations to affect the economy? I think not, and I'm... MORE
Macroeconomics
Arnold Kling
With this lecture, I start to look at the second great puzzle of macroeconomics. How does the financial sector affect the real economy? Before one can answer that question one needs to examine the fundamental role of money and credit.... MORE
November 13, 2008
Macroeconomics
Bryan Caplan
Here's James Hamilton at his most dismissive:Some of my colleagues still talk of the possibility of a liquidity trap, in which the central bank supposedly has no power even to cause inflation. Their theory is that interest rates fall so... MORE
November 12, 2008
Labor Market
Arnold Kling
The main theme of this lecture is economic policy and labor market adjustment. My conjecture is that in our post-industrial economy, conventional Keynesian policies do not operate as they do in an industrial economy. Another issue is that the natural... MORE
November 11, 2008
Finance: stocks, options, etc.
Arnold Kling
Megan McArdle writes Money is weird. Finance is weird. There is no other industry that is, first, so tightly coupled, and second, severely affects every other industry in the country. She Is trying to ward off cognitive dissonance over the... MORE
Macroeconomics
Arnold Kling
So far, I have focused on unemployment as a problem of adjustment. In this essay, I review the history of the Dotcom recession, and I focus on the index of aggregate hours worked as an indicator of macroeconomic performance. According... MORE
Labor Market
Arnold Kling
This lecture covers an important issue: why do firms adjust by cutting workers rather than by cutting wages?... MORE
November 10, 2008
Labor Market
Arnold Kling
In this lecture, I get to the punch line and offer my explanation of unemployment. Markets are constantly in adjustment, with the number of people in different occupations changing. Usually, the task of adjustment and adaptation goes remarkably smoothly. Occasionally,... MORE
November 9, 2008
Macroeconomics
Arnold Kling
I continue to focus on the issue of unemployment. In this lecture, I want to emphasize two things. One is the problems with popular intuition that jobs are scarce. The other is the wide variety of jobs, and hence labor... MORE
November 8, 2008
Macroeconomics
Arnold Kling
These lectures will cover macroeconomics as I think it should be taught, not the way it is normally taught. The focus is not on model-building. The focus is on the two most troubling questions in macro. 1.How is it that... MORE
November 3, 2008
Economic Education
Arnold Kling
Tyler Cowen writes, The consulting incomes of finance economists will fall and fewer talented people will go into finance. Speaking fees will fall since fewer economists will give talks at hedge funds. The relative status of macroeconomists will rise and... MORE
October 28, 2008
Macroeconomics
Bryan Caplan
A while back, I argued that we're not in a liquidity trap. But then Greg Mankiw pointed out that the two series on his webpage had different endpoints, leaving the matter again in doubt. Now Jeff Hummel says that excess... MORE
October 24, 2008
Macroeconomics
Bryan Caplan
Mankiw shows two diagrams that many will misinterpret as evidence that we're in a Keynesian liquidity trap. What's a liquidity trap? Roughly speaking, it's a situation where monetary policy has no effect on aggregate demand because interest rates are too... MORE
October 23, 2008
Macroeconomics
Arnold Kling
It comes from Olivier Blanchard. a largely shared vision both of fluctuations and of methodology has emerged. Not everything is fine. Like all revolutions, this one has come with the destruction of some knowledge, and suffers from extremism, herding, and... MORE
September 29, 2008
Macroeconomics
Arnold Kling
Ordinarily, I don't care much for the Journal of Economic Literature, the American Economic Association's periodical selection of survey articles and book reviews. But the September 2008 issue is excellent. If any diligent commenters can find links to any of... MORE
September 27, 2008
Macroeconomics
Arnold Kling
1. Tyler Cowen asks Will the commercial paper market dry up? The Fed had to deal with this in 1970, when the Penn Central Railroad went bankrupt. In this narrative, "the Fed's index finger started to bleed" from dialing up... MORE
Economic Education
Arnold Kling
What macroeconomic theory says that we run the risk of a Depression if we don't have a bailout? Try to come up with an argument that is either already in a textbook or that you would put in a textbook.... MORE
September 13, 2008
Macroeconomics
Arnold Kling
At lunch, Nick Schulz asked me what Robert Hall is known for. I said that Hall changed my view of macroeconomics. Even today, Hall's work influences how I think about global warming. So pull up a chair, grab a cup... MORE
August 24, 2008
Macroeconomics
Arnold Kling
Tyler Cowen writes, The fundamental problem in the American economy is that, for years, people treated rising asset prices as a substitute for personal savings. I think that there are a lot of macroeconomists who instinctively would prefer more U.S.... MORE
August 4, 2008
Macroeconomics
Arnold Kling
In a meandering interview, Russ Roberts and Robert Barro talk about disasters. Barro wonders why, given history, we would presume that the probability of an economic disaster is low. I guess short-term history for the United States, meaning the last... MORE
July 15, 2008
Macroeconomics
Arnold Kling
I have two essays out today. The first one is called The Depressive Realism Economy. It now appears that we were living in a dream world a few years ago, with oil prices unsustainably low and house price inflation unsustainably... MORE
July 7, 2008
Macroeconomics
Arnold Kling
He writes, governments are clawing to stretch out unsustainable booms, further pushing up commodity prices, and raising the risk of a once-in-a-lifetime economic and financial mess. All this need not end horribly, but policy makers in most regions have to... MORE
June 10, 2008
Macroeconomics
Bryan Caplan
You might think this passage would be from Econ Journal Watch's "Inspecting the Mechanism" column, but you'd be wrong:A recent experience says it all. I was asked to discuss three papers presented at a session of the American Economic Association... MORE
June 2, 2008
Macroeconomics
Bryan Caplan
When I was a strongly Austrian-influence undergraduate, I scoffed at people who downplayed inflation by saying, "Well, if you ignore food and fuel..." It seemed like a sleazy effort to cover up a government-created problem by refusing to count a... MORE
May 20, 2008
Economic Education
Arnold Kling
My earlier post suggesting a macro-less economics major drew some interesting comments. I agree with those who say that a student should choose courses on the basis of the professor rather than the topic--that was exactly the advice I gave... MORE
April 25, 2008
Macroeconomics
Arnold Kling
Robert Hall writes, One of the most important facts about the modern recession is at all sectors of the labor market slacken at the same time. . .Each of the seven major sectors—even including government—were recruiting to fill far fewer... MORE
April 21, 2008
Macroeconomics
Arnold Kling
On an earlier thread, a commenter wrote: 1) What happens to the value of the dollar when new forms of money, like credit cards, are introduced? I expect you'd say that the value of the dollar would fall, but this... MORE
April 17, 2008
Austrian Economics
Arnold Kling
A commenter on an earlier post points me to Steven Horwitz: As excess supplies of money work their way through the market, they cause differential effects on prices. Some go up by a lot, some only by a little. These... MORE
April 15, 2008
Macroeconomics
Arnold Kling
Without irony, Greg Mankiw points to both John Makin, arguing in the Wall Street Journal for loose money, and Martin Feldstein, arguing the next day for tight money. Meanwhile, today's Washington Post has a story with a typical headline: Economy's... MORE
March 26, 2008
Macroeconomics
Arnold Kling
Several days ago, Greg Mankiw linked to a list of top economists according to some objective criteria related to published work. I was familiar with most of the top 150, at least to the point of being able to identify... MORE
March 4, 2008
Macroeconomics
Bryan Caplan
James Hamilton is one of the few macroeconomists whose short-run forecasts never sound like quackery. His latest analysis is full of insight:Some analysts are saying that Fed Chair Ben Bernanke is walking a tightrope-- if he does not drop interest... MORE
January 24, 2008
Macroeconomics
Arnold Kling
I spell out my current thinking on macroeconomics. Over the past twenty years, Keynesian forecasters, such as Morgan Stanley's Stephen Roach, have predicted many phantom recessions--slumps that never took place. In order to remain attractive, the picture of Keynesian economics... MORE
January 23, 2008
Macroeconomics
Arnold Kling
Don Boudreaux writes, Government cannot create genuine spending power; the most it can do is to transfer it from Smith to Jones. If the Treasury sends a stimulus check to Jones, the money comes from taxes, from borrowing, or is... MORE
January 22, 2008
Macroeconomics
Arnold Kling
Peter Orszag does his job, offering the mainstream view on economic stimulus. When the constraint on short-term growth is aggregate demand, as appears to be the case today, both monetary and fiscal policy can help by boosting spending. i. On... MORE
January 16, 2008
Macroeconomics
Arnold Kling
Alex Tabarrok writes, Forget the talk of recession. The world is about to enter a new era in which miracle drugs will conquer cancer and other killer diseases and technological and scientific advances will trigger unprecedented economic growth and global... MORE
January 11, 2008
Macroeconomics
Bryan Caplan
Tax cuts are a popular cure for unemployment, but there are strong reasons to doubt that they are a good way to achieve this goal. As I explained a while back:Where does the money come from? If the central bank... MORE
January 2, 2008
Macroeconomics
Bryan Caplan
A lot, but Tyler's written a very fine postcard version:The Austrian story is that "the government distorted price signals to the market." Are those two accounts really so different? Do we need metaphysics to resolve that question? Take the classic... MORE
December 23, 2007
Macroeconomics
Arnold Kling
Tyler Cowen asks, when inflation comes, why doesn't the expectation of that inflation lead to proportional increases in nominal interest rates, thus keeping the real rate constant? The question seems ill-posed.... MORE
November 21, 2007
Macroeconomics
Arnold Kling
Probably. Politically, I'm in a different place, obviously, and I'm not heavily invested in macro as a subject. But how else would you label someone who believes the following: 1. Textbook macro is misguided. 2. The most useful insights in... MORE
October 16, 2007
Macroeconomics
Bryan Caplan
In Stumbling on Happiness, Daniel Gilbert skewers the belief that money buys happiness - then defends this error as a Noble Lie:If no one wants to be rich, then we have a significant economic problem, because flourishing economies require that... MORE
September 21, 2007
Macroeconomics
Arnold Kling
Olivier Blanchard and Jordi Gali write, Since the 1970s, and at least until recently, macroeconomists have viewed changes in the price of oil as as an important source of economic fluctuations, as well as a paradigm of a global shock,... MORE
September 2, 2007
Macroeconomics
Arnold Kling
At Econbrowser, James Hamilton has many interesting posts from the annual Fed conference at Jackson Hole, where the housing kerfluffle drew a lot of attention. In one post, he writes, But if it were the case that all these institutional... MORE
February 16, 2007
Macroeconomics
Bryan Caplan
Mankiw, Reis, and Wolfers have a neat empirical paper on beliefs -and disagreement - about inflation: In most standard macroeconomic models, people share a common information set and form expectations rationally. There is typically little room for people to disagree.... MORE
January 22, 2007
Macroeconomics
Bryan Caplan
I made a wager this weekend while I was at a Liberty Fund conference in Chicago. Fellow participant Jeremy Rabkin of Cornell made quite a few predictions about the non-future of the EU that struck me as overconfident. When he... MORE
January 19, 2007
Macroeconomics
Arnold Kling
While I was considering an offer to teach intermediate macro, I thought about how I would do it. I would teach it in history-of-thought terms, showing how ideas grew out of the context of their times. 1. 1920's Hyperinflations--the first... MORE
January 9, 2007
Macroeconomics
Bryan Caplan
I'm too young to remember, but my memory still instantly links Ford with his risible "Whip Inflation Now" (WIN) buttons. The same memory inspires James Hamilton to write an inspired account of the famed Burns-Nixon Political Business Cycle (PBC). I... MORE
January 5, 2007
Macroeconomics
Arnold Kling
Here is the complete list. The ever-creative Nobel Laureate George Akerlof writes, —a realistic norm regarding consumption behavior will make consumption directly dependent on current income, in violation of the neutrality of consumption given wealth; —a realistic norm will make... MORE
November 17, 2006
Macroeconomics
Bryan Caplan
Here's what my teacher Ben Bernanke told Milton Friedman on his 90th birthday: Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna:... MORE
October 9, 2006
Macroeconomics
Arnold Kling
I once joked that Edmund Phelps would have won the Nobel Prize if he were Scandinavian (I probably made that joke when Finn Kydland was annointed). Today, Phelps won it, anyway. Phelps was mentioned in econlog blog posts for his... MORE
August 7, 2006
Macroeconomics
Arnold Kling
Apparently, the echo chamber of left-wing macro pundits has pronounced a recession to be imminent. For example, Nouriel Roubini writes, Given the recent flow of dismal economic indicators, I now believe that the odds of a U.S. recession by year... MORE
August 2, 2006
Macroeconomics
Arnold Kling
Greg Mankiw talks about analysis by Ray Fair which says that Bush Administration economic policy kept the recession that he inherited from being much worse. Fair assesses the impact of monetary and fiscal policy during the recovery from the recent... MORE
June 20, 2006
Macroeconomics
Arnold Kling
Bryan writes, People adjust their borrowing to interest rates all the time. But cash balances? That's hard to believe. Who cares? In practice, the Fed has its famous three tools--the discount rate, the reserve requirement(s), and open market operations. In... MORE
Macroeconomics
Bryan Caplan
In our continuing dialogue, Arnold observes that: The Fed supplies bank reserves. Mechanically, it goes into the "repo" market, which is the market for loans collateralized by Treasury securities. When the Fed wants to expand the money supply, it goes... MORE
Macroeconomics
Arnold Kling
He's right that with zero interest elasticity, the Fed could still expand the money supply. Just think of the old helicopter drop. However, I do not think that Bryan's personal money demand function is the ultimate determinant of interest elasticity.... MORE
Macroeconomics
Bryan Caplan
Arnold writes: The textbook answer, which Bryan gave but rejected, is that interest rates go up, the demand for money falls, and the fall in the demand for money acts like an increase in the supply of money--nominal GDP goes... MORE
June 19, 2006
Macroeconomics
Arnold Kling
I can't believe what I've been seeing in the thread that Bryan started here and updated most recently here. So far, if this were a question on an intermediate macro test, nobody gets full credit.... MORE
Macroeconomics
Bryan Caplan
Two weeks ago I emailed Mankiw a question about fiscal policy, referencing one of my previous posts. Mankiw replied (June 7). Then Brad DeLong responded to Mankiw (on June 15, updated June 17). DeLong's post in turn apparently provoked a... MORE
June 7, 2006
Macroeconomics
Bryan Caplan
The noble Mankiw has a thoughtful reply to a question from me about the effect of fiscal and monetary policy on nominal GDP. (The question is based on one of my old posts): How far off is the vertical LM... MORE
May 16, 2006
Economic Methods
Arnold Kling
Greg Mankiw has written an outstanding new essay that reviews the history of thought in macroeconomics. I don't know where he is planning to give this paper, but I wish I could be a discussant. Here is a brief excerpt.... MORE
April 27, 2006
Macroeconomics
Arnold Kling
Greg Mankiw summarizes textbook macroeconomics in seven equations. I am not sure what I believe about macroeconomics these days. But let me Fisk the model from the perspective of what I believed when I was a Keynesian.... MORE
January 27, 2006
Macroeconomics
Arnold Kling
From my latest essay. In 1968, Milton Friedman was on the fringe of respectability. His Presidential Address to the American Economic Association in 1967 could not have been more defiant of the conventional wisdom. At that time, economists thought that... MORE
December 30, 2005
Macroeconomics
Bryan Caplan
Arnold's right that high labor productivity growth over the past five years is a big story. But this fact is even more impressive because labor productivity is normally procyclical. That means that during recessions, labor productivity typically falls (or at... MORE
November 23, 2005
Macroeconomics
Bryan Caplan
Schumpeter famously praised the "creative destruction" of the market: The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial... MORE
October 24, 2005
Macroeconomics
Bryan Caplan
My teacher Ben Bernanke has been nominated as Greenspan's replacement. While some libertarians think he's the Antichrist, in reality he's about the best that libertarians could reasonably hope for. As I wrote a few months back: I was a student... MORE
October 7, 2005
Macroeconomics
Arnold Kling
Tyler Cowen has some tough macroeconomics questions, including Which aspect of the macroeconomy does real business cycle theory find most difficult to explain? I would say that the apparent success of Keynesian stabilization policy in the United States since 1945... MORE
September 30, 2005
Macroeconomics
Bryan Caplan
How would you respond to someone who said the following? GDP by definition is consumption plus investment plus government spending - C+I+G. Therefore increasing government spending increases GDP. The right answer, of course, is that higher G only increases GDP... MORE
September 29, 2005
Macroeconomics
Bryan Caplan
When Tom Nugent of National Review Online tells us: Will private borrowers be crowded out [by increased government deficits]? Impossible. The causation is “loans create deposits,” as taught on day one of every traditional money and banking class. The act... MORE
August 28, 2005
Macroeconomics
Arnold Kling
At Jackson Hole, Alan Greenspan said, The rising prices of stocks, bonds and, more recently, of homes, have engendered a large increase in the market value of claims which, when converted to cash, are a source of purchasing power. Financial... MORE
June 27, 2005
Macroeconomics
Arnold Kling
Perhaps Jan Loeys and others at J.P. Morgan have the solution to some macroeconomics puzzles. The real driver of this saving glut in recent years has been the corporate sector. Between 2000 and 2004, the switch from corporate dis-saving to... MORE
June 23, 2005
Macroeconomics
Bryan Caplan
Since the 1970's, one of the main controversies in macroeconomics has been whether nominal variables affect real variables. A classic example: Does the inflation rate (a nominal variable) affect employment (a real variable)? The answer that emerged from this debate... MORE
June 10, 2005
Macroeconomics
Bryan Caplan
Where did Ludwig von Mises say the following? [T]he U.S. government has a technology, called a printing press... that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S.... MORE
June 1, 2005
Macroeconomics
Arnold Kling
Tyler Cowen writes, I will be teaching Ph.d. macro this fall. Here is a draft of my reading list. Comments are open and further suggestions are welcome I think that macro tends to get too buried in theory. I like... MORE
April 19, 2005
Macroeconomics
Arnold Kling
I was asked to do a WSJ Econoblog on the state of the economy. I do not have strongly-held views on macroeconomics, so there was not much disagreement between me and my "opponent," John Irons. Guess which one of us... MORE
March 20, 2005
Macroeconomics
Arnold Kling
Robert Hall writes Unemployment rises not because of a bulge of layoffs but because workers entering job search—from previous jobs, from school, and from home activities—experience unusual difficulty in finding jobs. Among other things, this means that stories on layoffs,... MORE
February 23, 2005
Macroeconomics
Arnold Kling
There are a lot of great economics blogs that are not on our blogroll. For example, there is David Altig's Macroblog, which I had not heard of until today, when Altig was paired with Alex Tabarrok (of Marginal Revolution in... MORE
January 3, 2005
Macroeconomics
Arnold Kling
Robert J. Samuelson writes, First, the economy is bound to lose the stimulus of rising consumer debt. ...Second, the benefits from defeating double-digit inflation are fading. His argument is that without the boost to consumer demand from increased borrowing and... MORE
October 11, 2004
Macroeconomics
Arnold Kling
This year's Nobel Prize in economics was awarded to Finn E. Kydland and Edward C. Prescott for their work on time inconsistency of economic policy and real business cycles. The press release describes these discoveries as If economic policymakers lack... MORE
August 10, 2004
Macroeconomics
Michael Munger
by Michael Munger Guest Blogger John Maynard Keynes observed, only partly tongue in cheek, that the solution to unemployment is jobs, any jobs: If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in... MORE
July 16, 2004
Monetary Policy
Arnold Kling
Brad DeLong argues, There is a 5m-worker gap between household-survey employment today and what it would be if the employment-to-population ratio were at its average level for 2000. This suggests that we are extraordinarily far from anything that could be... MORE
July 6, 2004
Macroeconomics
Arnold Kling
During an election year, a President is assumed to control the economy. For example, Paul Krugman writes, For three years many economists have argued that the most effective job-creating policies would be increased aid to state and local governments, extended... MORE
June 9, 2004
Supply-side Economics
Arnold Kling
I decided to put my thoughts into a longer essay. When Ronald Reagan defeated Carter's re-election bid, "incomes policies" were a proven failure. Notwithstanding Milton Friedman's comments quoted above, by 1980 it took a lot less courage to stand by... MORE
April 11, 2004
Macroeconomics
Arnold Kling
How many jobs can a President create? Former Clinton Administration economist Jeffrey Frankel says that "The answers don't fit into a stump speech." He writes, [The Democratic Presidential candidate's] proposals are good economics, and they come by their populist ring... MORE
April 2, 2004
Labor Market
Arnold Kling
In my favorite musical, The Music Man, there is climactic scene in which the mayor calls for Professor Harold Hill to be tarred and feathered. "Where's the band?" the mayor shouts rhetorically. "Where's the Band?" Whereupon the boys in the... MORE
March 24, 2004
Macroeconomics
Arnold Kling
A while back, Paul Krugman published a graph that appeared to show that the employment forecasts of the Bush Administration were implausible. Drawing the same graph, but using an earlier start date, James K. Galbraith refutes that analysis. As Galbraith... MORE
March 11, 2004
Macroeconomics
Arnold Kling
I argue that criticizing the Administration's employment forecasts is hypocritical. suppose you were to do a blindfold test. Give an economist the actual output growth of 7.8 percent over three years (roughly 2.5 percent per year) and ask the economist... MORE
March 7, 2004
Fiscal Policy
Arnold Kling
Noam Scheiber argues that the Bush tax cuts in fact were stimulative. Liberals in Congress and at places like the Economic Policy Institute complain that the Bushies should have targeted the bulk of their tax cuts toward the working poor... MORE
March 5, 2004
Macroeconomics
Arnold Kling
There is a silly controversy concerning when the recession began. The White House has argued revisions last year to economic data meant the fourth quarter of 2000 would be more accurate, a change that would shift the start of the... MORE
March 2, 2004
Macroeconomics
Arnold Kling
I turn out to be more Keynesian than Brad DeLong, at least in an old-fashioned sense. In a long and interesting post, Brad DeLong finds little difference between new Keynesians and monetarists. The former he describes as believing in five... MORE
January 28, 2004
Finance: stocks, options, etc.
Arnold Kling
Tyler Cowen recommends two articles by Perry Mehrling on the relationship between the theory of finance and monetary theory/macroeconomics. One of the articles is a nice summary of the work of Fischer Black. What Black did was to conceive of... MORE
January 17, 2004
Finance: stocks, options, etc.
Arnold Kling
Brad DeLong wonders why the bond market isn't punishing the Bush Administration harder for its fiscal sins. He lists a number of possible explanations, including 1. The people who matter in financial markets are expecting either (a) that there will... MORE
January 5, 2004
Macroeconomics
Arnold Kling
Edmund S. Phelps looks at one of my favorite topics: parallels between the current economy and the Great Depression. Each boom was caused by the advent of a new general-purpose technology -- commercially available electric power in the '20s, the... MORE
January 2, 2004
Finance: stocks, options, etc.
Arnold Kling
William Nordhaus reviews two books on the economy of the 1990's. One of the books, by Janet Yellen and Alan Blinder, apparently finds little evidence that economic policy was a major factor in the rapid economic growth of that era.... MORE
December 5, 2003
Macroeconomics
Arnold Kling
The Bureau of Labor Statistics uses two different surveys to measure job growth. The latest report shows that for the last two months, the household survey shows an increase of just over one million jobs. The payroll survey shows an... MORE
November 30, 2003
Macroeconomics
Arnold Kling
Today's New York Times has two opinion pieces on the labor market. Pessimist Steve Roach does not believe that the productivity growth that we are seeing is real or lasting. we are woefully underestimating the time actually spent on the... MORE
November 10, 2003
Macroeconomics
Arnold Kling
One of the more irritating tropes in economic journalism is the "knife-edge" metaphor. A reporter will write a news-analysis piece that breathlessly explains that the Federal Reserve is on a knife edge, with recession on one side and inflation on... MORE
November 7, 2003
Macroeconomics
Arnold Kling
W. Michael Cox and Richard Alm look at the data on gross flows in the labor market. New Bureau of Labor Statistics data covering the past decade show that job losses seem as common as sport utility vehicles on the... MORE
November 6, 2003
Macroeconomics
Arnold Kling
Federal Reserve Board Governor Ben S. Bernanke offers his views on current issues in macroeconomics. He points to research which suggests that the household survey of employment, which shows a stronger labor market than the payroll survey, may be misleading.... MORE
October 31, 2003
Macroeconomics
Arnold Kling
Is a real economic recovery underway? If so, do President Bush's tax cuts deserve credit? These questions have been raised by Paul Krugman and others. When I was a young economist working in the forecasting section of the Federal Reserve... MORE
October 14, 2003
Macroeconomics
Arnold Kling
In this essay, I summarize what I have been reading about the Great Depression and its implications for today. The Depression certainly was an era of displacement. In fact I have borrowed the very term "displacement" from the late economic... MORE
October 9, 2003
Macroeconomics
Arnold Kling
The Great Depression continues to be a fascinating period to study. As Thomas Sowell points out, the myth is well entrenched that the New Deal pulled the economy out of the Depression. Only now has a book been written in... MORE
September 26, 2003
Macroeconomics
Arnold Kling
In an earlier post, I asked, What is the likelihood that some of the weak job growth and strong productivity growth of the past two years is in part a statistical mirage? Allan Meltzer says that the likelihood is high.... MORE
September 18, 2003
Income Distribution
Arnold Kling
Marc Brazeau asks (see Steve Antler's site), Two common arguments against raising the minimum wage are possible inflationary effects and job loss. Why aren't these issues raised in relation to executive compensation? I think that the conventional wisdom is that... MORE
Macroeconomics
Arnold Kling
The U.S. Department of Labor uses two different surveys of the labor market. As Alan Reynolds put it, When government officials asked people if they had a job last month, 137.6 million said "yes." But when employers were asked, they... MORE
September 8, 2003
Macroeconomics
Arnold Kling
What grade should President Bush earn in macroeconomics? Brad DeLong writes, As a short-run employment- and demand-generating program, an objective grade would be a D if not an F. It was about cutting the taxes of the rich, improving incentives... MORE
September 7, 2003
Macroeconomics
Arnold Kling
The latest labor market data show that aggregate hours worked fell again in August. This means that LUCY, my indicator of labor capacity utilization, also dropped. The longer that this productivity-cushioned recession continues, the more of a puzzle it presents... MORE
September 3, 2003
Macroeconomics
Arnold Kling
I continue to think that the term jobless recovery should be replaced by productivity-cushioned recession. Meanwhile, Erica L. Groshen and Simon Potter have written more about the phenomenon. we look for evidence that structural change played a dominant role in... MORE
August 27, 2003
Macroeconomics
Arnold Kling
On the topic of the economic impact of the New Deal, Patrick Sullivan pointed to an interesting article by Cole and Ohanian. They make two points. One is that the recovery from the downturn of 1929-1933 was unusually weak. The... MORE
Macroeconomics
Arnold Kling
This group of economists with strong Democratic Party ties says that we needed fiscal policy that provided more stimulus in the short run and a lower deficit in the long run. Robert Solow says, There are three characteristics you want... MORE
August 25, 2003
Macroeconomics
Arnold Kling
Cato's Jim Powell makes the case against the New Deal. Among the material Powell cites: Richard K. Vedder and Lowell E. Gallaway, in their 1997 study Out of Work, estimated that by 1940 unemployment was eight points higher than it... MORE
August 17, 2003
Macroeconomics
Arnold Kling
Brad DeLong has influenced my thinking on the current state of the economy. In a recent post where he looks at data on output relative to hours worked, he writes, CEA Chair Greg Mankiw said last week that the 3.5%... MORE
August 7, 2003
Macroeconomics
Arnold Kling
I say that the recession continues, according to an indicator of capacity utilization in the labor market. From March of 2001 through November of 2001 -- the respective dates for the beginning and the end of the recession, according to... MORE
July 1, 2003
Monetary Policy
Arnold Kling
Graham Turner claims to offer magical monetary manipulations. A year and a half after the Japanese government introduced its first fiscal stimulus, the yield curve (10-year Japanese government bond yields minus the discount rate) had steepened by nearly 2 percentage... MORE
June 19, 2003
Macroeconomics
Arnold Kling
In this essay, I discuss two alleged bubbles and what they might imply for U.S. macroeconomics. Why do foreign investors invest so heavily in dollar-denominated assets and bear the risk of a decline in the dollar? Personally, I think it... MORE
June 17, 2003
Macroeconomics
Arnold Kling
Robert Solow favors common sense over exotic theory. On the concerns about deflation in the U.S., he writes, If you look at the hundreds of prices that are tracked by the Bureau of Labour Statistics as elements of the consumer... MORE
May 16, 2003
Fiscal Policy
Arnold Kling
Jacob Levy criticizes the Senate's proposed temporary tax cut on dividends. The arguments in favor of repealing the dividend tax have to do with removing distortions from the capital markets and from the incentives faced by corporations, and with improving... MORE
May 9, 2003
Macroeconomics
Arnold Kling
Continuing the discussion that began with the thread Liquidity Trapped?, we can add opinions from Richard Berner of Morgan Stanley and Victor Canto of the Cato Institute. Canto writes, The data make a compelling case that we are on the... MORE
May 7, 2003
Macroeconomics
Arnold Kling
The threat of deflation and/or a liquidity trap has been discussed in a number of places recently. Columnist Robert J. Samuelson writes, Global demand remains weak; surplus capacity discourages new investment; gluts depress prices. Deflation could be dangerous: Lower prices... MORE
May 6, 2003
Macroeconomics
Arnold Kling
In Would Keynes Change His Mind?, I suggest that some key elasticities in the economy have changed since Keynes wrote. Today, the economy is more elastic than it was in the 1930's. Today's recession is a far cry from the... MORE
April 9, 2003
Macroeconomics
Arnold Kling
The future of Iraq's economy is suddenly a topical issue. I wrote, The new government in Iraq should encourage the growth of a private sector, by keeping taxes and regulation on businesses to a minimum. However, for the next several... MORE
March 12, 2003
Macroeconomics
Arnold Kling
Israel is an example of a country where there is a need to confront government spending. The cooperation of the public sector is essential to the success of an economic plan to cut spending, said Treasury wage director Yuval Rachlevsky... MORE
March 7, 2003
Macroeconomics
Arnold Kling
Morgan Stanley's Steve Roach writes about the timidity of the European Central Bank. Incrementalism doesn’t work in combating deflation. That was one of the key lessons that the research staff of the Federal Reserve drew in a widely noted paper... MORE
March 6, 2003
Macroeconomics
Arnold Kling
Jim Glass cited an essay by Eugene Steuerle called Do We Really Need More Stimulus? The total decline in fiscal posture for 2003 alone comes to around $500 billion. Compare this to the size of the economic decline...the total decline... MORE
March 5, 2003
Macroeconomics
Arnold Kling
Martin Feldstein, writing in the Wall Street Journal (subscription required), makes the case for fiscal stimulus. The shift of the cyclically adjusted federal budget from a $108 billion surplus in 2001 to a $117 billion deficit in 2002 added $225... MORE
February 12, 2003
Macroeconomics
Arnold Kling
Columnist Robert J. Samuelson describes the Budget debate as each side trying to embarrass the other, without ever confronting the truly important budget issues What both sides are trying to avoid discussing, according to Samuelson, is the anomalous structure of... MORE
February 6, 2003
Macroeconomics
Arnold Kling
Kevin Hassett believes that the U.S. budget deficit is a matter more of politics than economics. On the issue of deficits and interest rates, he writes My own view is that there are many close substitutes for U.S. government bonds... MORE
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