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Macroeconomics
A Category Archive (745 entries)
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February 5, 2012
Economic History
Arnold Kling
John Cochrane writes, I ran across a fascinating article, "A Post-Mortem on Transition Predictions of National Product," in the 1946 Journal of Political Economy, by Lawrence Klein. Klein, who would go on to create the main macroeconomic forecasting models and... MORE
February 3, 2012
Macroeconomics
Arnold Kling
The Adam Smith Institute has just released a paper of mine on patterns of sustainable specialization and trade. An excerpt: The PSST approach drops the assumption that production technology is known. Instead, the Smithian division of labour and Ricardian comparative... MORE
February 2, 2012
Macroeconomics
Arnold Kling
in the WSJ European edition. Unfortunately, the patterns of specialization and trade that had emerged five years ago were not sustainable. Many jobs in home construction, durable-goods manufacturing and distribution, and mortgage finance were dependent on housing markets with ever-rising... MORE
January 27, 2012
Labor Market
Arnold Kling
Bryan focuses our disagreement: when 10% of the workers in an occupation lose their jobs, or 5% of firms in an industry go out of business, continuity isn't merely a convenient assumption. It's a hard fact. So now it boils... MORE
Labor Market
Bryan Caplan
Arnold writes:So, if the demand for mortgages collapses, all it takes to get back to 2006 levels is for mortgage underwriters to take a 20 percent pay cut? In a world with no discontinuities, we would not get crazy subprime... MORE
January 26, 2012
Macroeconomics
Arnold Kling
Bryan writes, (c) Workers continue to be employed at their old job for 5, 10, or 20% lower wages until an entrepreneur makes (b) happen. So, if the demand for mortgages collapses, all it takes to get back to 2006... MORE
Labor Market
Bryan Caplan
Arnold writes:Suppose that a bunch of mortgage underwriters get laid off. There are two possible full employment equilibria. (a) They can be instantly employed as dishwashers at 20 cents an hour. (b)They can be employed as health insurance claims processors... MORE
Macroeconomics
Bryan Caplan
Arnold tells us:The PSST story is equally consistent with a correlation between employment and nominal GDP. It just interprets the causality as running the other way. If a bunch of workers are laid off, for whatever reason, nominal GDP will... MORE
January 25, 2012
Macroeconomics
Arnold Kling
Bryan asks, without nominal rigidities, why doesn't the PSST model specifically predict that prices will adjust to restore full employment? Suppose that a bunch of mortgage underwriters get laid off. There are two possible full employment equilibria. (a) They can... MORE
Macroeconomics
Arnold Kling
The ratio of nominal GDP to employment is NGDP/L, where L is the level of employment. This can be decomposed into: NGDP/L = (NGDP/RGDP) x (RGDP/L) = the GDP deflator x productivity As long as inflation and productivity growth are... MORE
January 23, 2012
Economic Methods
Bryan Caplan
In 2009, I bet John Quiggin that Europe's unemployment would average at least 1.5 percentage-points higher than the United States over the following decade. Quiggin's update:Until now, I've been consistently ahead. EU-15 and US unemployment rates were very close during... MORE
January 17, 2012
Macroeconomics
Arnold Kling
I am going to try to stick to substance, and not do name-calling. But I think I am articulating a model that is in the spirit of Keynes, which probably puts me on the Brad DeLong and Paul Krugman side... MORE
January 14, 2012
Growth: Causal Factors
Bryan Caplan
Gross Domestic Product is staunchly atheoretical. If someone spends money on X, X is GDP - even if "someone" is Congress, and X="a bridge to nowhere." There are exceptions; most notably, the stats supposedly exclude "intermediate goods" to avoid double... MORE
January 13, 2012
Macroeconomics
Arnold Kling
Nick Rowe writes, Negative AD shocks will do harm to PSST, but positive AD shocks cannot do good to PSST. The issue of asymmetry in macroeconomic phenomena is important. I would speculate that in a modern economy the process of... MORE
January 12, 2012
Labor Market
Arnold Kling
Walter Kurtz writes, Credit Suisse defines structurally impaired sectors to "include real estate related industries, finance, manufacturing, and the state and local government sector." These are the sectors that at least in part rode the "bubble" economy wave. Many of... MORE
January 4, 2012
Macroeconomics
David Henderson
Messieur Walras...was one of the first "mathematical economists," who chose the title Elements of Pure Economics for his 1874 book...Do you wonder what is "pure" economics? It's not an epithet, like pure baloney. "Pure" is a reference to the language... MORE
December 31, 2011
Labor Market
Bryan Caplan
With this, Matt Yglesias instantly enters my sadly short list of good Keynesians:The depressing truth is that the easiest way to bring good, high-paying manufacturing jobs back to America is to make them less good and less well-paying...More goodness:[T]he reality... MORE
Macroeconomics
Arnold Kling
James Hamilton writes, My suggestion is that America should try to return to what some scholars maintain was the original source of America's success, which came from using North America's abundant natural resources as a basis for a competitive advantage... MORE
December 29, 2011
Macroeconomics
Arnold Kling
The Economist writes, They have thrived on the back of massive disillusion with mainstream economics, which held that the economy would grow steadily if central banks kept inflation low and stable, and that there were no great gains in the... MORE
December 28, 2011
Macroeconomics
David Henderson
Backhouse and Bateman argue, as the book's title implies, that although Keynes wanted a substantial amount of government intervention, he did believe in preserving large elements of capitalism. This part of the book is somewhat persuasive, although their discussion of... MORE
December 23, 2011
Macroeconomics
Arnold Kling
Scott Sumner writes, Now here's one of the most striking facts about US business cycles. When the unemployment rate does rise by more than 0.6%, it keeps going up and up and up. With the exception of the 1959 steel... MORE
December 21, 2011
Macroeconomics
Arnold Kling
He speaks for me when he writes, The institutional fact that makes a liquidity trap an irrelevant academic construct is the unlimited ability of the central bank to create money. One can make this point in an irrefutable manner by... MORE
December 19, 2011
Books: Reviews and Suggested Readings
Bryan Caplan
Volume 2: Macroeconomics of Grady Klein and Yoram Bauman's Cartoon Introduction to Economics ships this week - a great last-minute stocking stuffer. Volume 1 was good (see here and here); volume 2 is better. Chapter 2 ("Unemployment") does a swell... MORE
December 17, 2011
Labor Market
Arnold Kling
Bryan writes, Unemployment is just a labor surplus; since wages are the price of labor, the fundamental cause of unemployment has to be excessive wages. Nick Rowe writes, The only way to increase output in a demand-constrained economy is to... MORE
December 15, 2011
Macroeconomics
Arnold Kling
Stiglitz writes, At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced... MORE
Behavioral Economics and Rationality
Bryan Caplan
When Keynesians want to gloat, they often point to the overwhelming empirical evidence in favor of nominal wage rigidity. For the latest example, see Krugman on the Irish labor market. Their unemployment is 14.5%, but the nominal wage index has... MORE
December 12, 2011
Macroeconomics
Arnold Kling
In the latest issue of Capitalism and Society. I wrote one of the papers, and then Peter Howitt wrote a comment. I recommend both of them, although personally I find Howitt's paper more interesting, because I already knew what I... MORE
December 11, 2011
Macroeconomics
David Henderson
I've been busy in the last week with end-of-quarter classes and two speeches, the latter of which I'll report on today or tomorrow. Which is why I hadn't replied to Jeff Sommer's criticism of me in the New York Times.... MORE
December 8, 2011
Macroeconomics
David Henderson
On Tuesday, I posted my notes from John Cochrane's December 3 talk at Hoover. When he saw my notes, John sent me his talk and gave me permission to reprint it. Here it is. Comments at "Restoring Robust Economic Growth... MORE
December 7, 2011
Austrian Economics
David Henderson
How important is the work of Friedrich Hayek in 20th-century economic thought? David Warsh has written an excessively nasty piece on that, which doesn't mean it contains no kernels of truth. Alex Tabarrok has written a defense of Hayek which... MORE
December 6, 2011
Macroeconomics
David Henderson
At his Friday talk at Hoover, University of Chicago economist John Cochrane went a mile a minute to try to fit a lot into 10 minutes. He succeeded and the talk was outstanding. But because he went so fast, my... MORE
December 2, 2011
Macroeconomics
Arnold Kling
He writes, If I understand the news coming out of Europe correctly, the new head of the European Central Bank is offering a simple deal: If fiscal policy becomes hawkish, monetary policy will be dovish. In other words, as government... MORE
Labor Market
Arnold Kling
Here are some data on job losses in each recession since 1970 (I grouped together the two recessions in 1980-1982). I look at total losses in nonfarm payroll employment and losses in employment in the durable goods sector. The figures... MORE
November 24, 2011
Macroeconomics
Arnold Kling
Michael Mandel writes, real state and local government output, as measured by the BEA, has been effectively flat since 2001. To put it a different way, the stagnation at the state and local government level started way before the 2007... MORE
November 23, 2011
Labor Market
Arnold Kling
Interviewed by Phil Bowermaster here. I elaborate on my thesis that the Great Depression was a major transition and that we currently are undergoing another major transition.... MORE
November 22, 2011
Labor Market
Arnold Kling
Tyler Cowen comments, drawing a response from Bryan. I just don't think that the fraction of the healthy adult population with ZMP has risen much since the last time unemployment was 5%. Here is where the term sustainable in patterns... MORE
Labor Market
Bryan Caplan
Tyler makes some thoughtful points on ZMP. Replies:1. There has been plenty of evidence for "labor hoarding"; oddly, once the ZMP workers start actually being fired, the concept suddenly becomes controversial. The simple insight is that firms don't hoard so... MORE
November 20, 2011
Labor Market
Arnold Kling
An economist who attended a business conference told me that the trucking industry is doing well (probably a sign that the economy overall is improving). However, industry experts foresee a shortage of drivers next year. How is that? Some possibilities:... MORE
November 19, 2011
Macroeconomics
Arnold Kling
Atif Mian and Amir Sufi write, If weak household balance sheets are responsible for a large share of job cuts, we expected losses in non-tradable industries to be much larger in U.S. counties with weak household balance sheets. That is... MORE
November 18, 2011
Labor Market
Arnold Kling
His post is here. I would say that there is a decent probability that he is correct. However, below are some potential counter-arguments. I will also address Don Boudreaux. On the point that past forecasts of technological unemployment have been... MORE
November 17, 2011
Macroeconomics
Arnold Kling
As you may know, I have been recording chalk-talks for my high school economics class. I did macro first, and now I am working on micro (I am now quite a few lectures ahead of where we are currently in... MORE
Labor Market
Bryan Caplan
My brilliant former student Eli Dourado wonders why I'm so hostile to the Zero Marginal Productivity (ZMP) theory of high unemployment:It is hard to think of another idea that is more Caplanian. This is after all the man who pointed... MORE
November 15, 2011
Labor Market
Arnold Kling
The broadest measure of employee compensation is called the employment cost index. It includes the cost of benefits, such as health insurance. It is available quarterly, starting in the first quarter of 2001. I used the private sector worker ECI.... MORE
Macroeconomics
Arnold Kling
A while back, Scott Sumner wrote, The BLS doesn't claim housing prices fell 7.7% since mid-2006, they claim they rose by 7.7%. Just a minor 39.3% discrepancy with C-S. BLS is the Bureau of Labor Statistics, the custodians of the... MORE
Labor Market
Bryan Caplan
In my last reply to Arnold, I asked for a "Guide to Discontinuity/ZMP for Skeptics." Arnold's response:The main evidence that I cite against the AD/AS story is the length of unemployment spells and the large number of workers who are... MORE
Labor Market
Arnold Kling
Mike Konczal writes, Every age group has seen a substantial drop in the employment-population ratio during this Lesser Depression, but no other group I've seen comes close to this plummet. For the first time in half a century, a majority... MORE
Labor Market
Arnold Kling
Bryan writes, What's the best available "Guide to Discontinuity/ZMP for Skeptics"? Non-economists have always been quick to believe stories about technological unemployment. Economists have been ridiculing this popular fear for centuries. What happened in the last three years that ought... MORE
Labor Market
Bryan Caplan
My last post critiqued Arnold's PSST ("patterns of sustainable specialization and trade") alternative to the conventional aggregate supply/aggregate demand model:In Arnold's story, firms and workers violate the First Law of Wing Walking: Never let hold of what you've got until... MORE
November 14, 2011
Labor Market
Arnold Kling
Bryan writes then when technological change occurs, we should observe Cut wages in existing industries drastically enough to keep firms afloat and workers fully employed. That is true for small changes. Mathematically, it assumes continuous functions. It may not be... MORE
Labor Market
Bryan Caplan
For the last couple of years, Arnold has been energetically promoting a macroeconomic alternative to the standard AS-AD model. He calls it PSST - "patterns of sustainable specialization and trade": I focus on patterns of trade to try to avoid... MORE
November 10, 2011
Optimum Currency Areas
Arnold Kling
That is about all that is left to say about the European situation. Clive Crook writes, the only sane choice is to accept the logic of the currency union they created and the obligations that go with it. In the... MORE
November 6, 2011
Macroeconomics
Arnold Kling
From Ed Glaeser. Unemployment represents a crisis of imagination, a failure to figure out how to make potential workers productive in the modern economy. That might be a one-sentence articulation of PSST. The challenge is to find the comparative advantage... MORE
October 31, 2011
Labor Market
Bryan Caplan
Yesterday, while reviewing my tax withholdings, I noticed a weird anomaly. In 2011, for the first time in my life, my employer was paying more Social Security taxes than I was. I furrowed my brow until I remembered this earlier... MORE
October 30, 2011
Macroeconomics
Arnold Kling
He writes, When an economy is not healthy, there is less exchange. There is less buying and selling of goods and services and labor. To describe that unhealthiness as less aggregate demand is just to put the problem into different... MORE
October 23, 2011
Macroeconomics
Arnold Kling
I am not a fan of textbook macroeconomics. But it is a marvel of logical consistency when compared with the macroeconomics that you get from journalists. From the perspective of a macroeconomic textbook, journalists write as if the aggregate supply... MORE
October 22, 2011
Macroeconomics
Arnold Kling
He writes, There are no solid theoretical foundations for price level theory in a modern economy where hedonics is very important. It's not just that we're not good at measuring price changes for computers and consulting services; it's not even... MORE
October 21, 2011
Macroeconomics
Arnold Kling
Citing work by his colleagues, David Andolfatto writes, the collapse of the construction sector accounts for 46.4% of the decline in U.S. GDP and 51.9% of the decline in total employment (roughly 3.4 million jobs). Pointer from Mark Thoma. There... MORE
October 18, 2011
Growth: Consequences
Arnold Kling
1. I found an ungated version of the John Haltiwanger paper first spotted by Mark Thoma and then praised by Tyler Cowen. Some excerpts and my comments are below the fold. 2. Brian Arthur has a piece on the digital... MORE
October 15, 2011
Macroeconomics
Arnold Kling
Russ Roberts continues to engage with Tyler Cowen on whether there has been stagnation. A lot of the argument is over what has happened to the median worker. But that may not be a useful construct. Let us continue to... MORE
October 14, 2011
Macroeconomics
David Henderson
Pardon me for coming late to this discussion. I've been sitting on airplanes this week but am now back. Russ Roberts recently wrote: The evidence for the Keynesian worldview is very mixed. Most economists come down in favor or against... MORE
October 13, 2011
Economic Methods
Arnold Kling
Some thoughts, beyond my reaction of "eh." 1. Since their work became widely circulated, one can argue plausibly that 99 percent of all macroeconomics papers published, dissertations completed, and tenure decisions awarded have been in the mold of Sargent, Sims,... MORE
October 11, 2011
Labor Market
Arnold Kling
I liked the comment thread on this post. A few paragraphs from Michael E. Sullivan's comment: You can get a huge return by hiring a personal assistant if your time is very valuable, but in order to achieve this, your... MORE
Macroeconomics
David Henderson
"A Nobel for Non-Keynesians," my piece on the Nobel prize winners, Thomas J. Sargent and Christopher A. Sims, ran in the Wall Street Journal today. I wrote it yesterday a.m., which is why I didn't take time to post on... MORE
October 5, 2011
Macroeconomics
Arnold Kling
He writes, First, America and the world were victims of their own success. Rapid productivity increases in manufacturing had outpaced growth in demand, which meant that manufacturing employment decreased. Labor had to shift to services. The problem is analogous to... MORE
Labor Market
Arnold Kling
In an economy where some folks are very rich and many folks are unemployed, why are there not more personal servants? Why don't Sergey Brin and Bill Gates have hundreds of people on personal retainer? I pose this question as... MORE
October 4, 2011
Macroeconomics
Arnold Kling
Tyler Cowen writes, Every time you write down an IS-LM model you should hear a clock start ticking in your head. The longer the clock ticks, you more you need to worry about this problem because the more that a)... MORE
September 29, 2011
Labor Market
Arnold Kling
From the WSJ blog: Since the recession ended, businesses had increased their real spending on equipment and software by a strong 26%, while they have added almost nothing to their payrolls. The post's title also is eloquent.... MORE
September 28, 2011
Macroeconomics
Arnold Kling
From a speech by Electronic Arts CEO John Riccitiello, reported by Andy Katkin. I see an unfortunate gap between the economic performance of key parts of the tech sector, and the rest of our economy. I see two economies on... MORE
September 26, 2011
Macroeconomics
Arnold Kling
Does that sound like a good book title? The theme would be that treating the economy as if it were a single individual that sometimes spends less and works less is a simplification that does more harm than good. This... MORE
September 19, 2011
Economic Methods
Arnold Kling
My latest essay. the Congressional Budget Office can reasonably estimate the effect of economic and policy scenarios on components of the government's budget, including taxes and spending. However, it cannot reasonably estimate the effect of tax and spending changes on... MORE
September 13, 2011
Macroeconomics
Arnold Kling
He writes, First, let's do more research to help reduce the uncertainty regarding the fiscal situation we face and the new, modern and more complex economy in which we live. This step will involve de-emphasizing a number of metrics underlying... MORE
Labor Market
Arnold Kling
Phil Bowermaster writes, Increasingly, perhaps, a job is something that we each have to create. We can't count on someone else to create one for us. That model is disappearing. We have to carve something out for ourselves, something that... MORE
September 12, 2011
Macroeconomics
Arnold Kling
From Narayana Kocherlakota, The impact of any macroeconomic shock can be divided into two components. One component is the effect of the natural demand and supply adjustments that would occur if prices and their expectations were to adjust continuously. Monetary... MORE
September 11, 2011
Economic History
Arnold Kling
1. Doug Irwin offers a monetarist explanation of the 1937 recession, based on gold sterilization. Scott Sumner is no doubt pumping his fist in the air. 2. Daniel Little on the Great Factor-Price Equalization. 3. Here is a thought I... MORE
Economic Methods
Arnold Kling
On the Internet, it is easy to find the John Kenneth Galbraith quip, "The only function of economic forecasting is to make astrology look respectable." Does anyone have a genuine citation for it? A page number somewhere? Anyway, they're back... MORE
September 8, 2011
Macroeconomics
Arnold Kling
Paul Krugman writes, You often hear people saying that the crisis has revealed the need for new economic thinking, for new ideas about macroeconomics. Yet the first priority seems to be to resuscitate old ideas. Brad DeLong describes an interview... MORE
Labor Market
Arnold Kling
I figured I would talk before the President does. Here goes. Let me know what you think.... MORE
September 1, 2011
Macroeconomics
Bryan Caplan
Keynesianism is widely seen as a "pump priming" rationale for government intervention. The government sees the economy in the doldrums, gives it a much-needed jolt, and then the private economy gets back on feet - with no need for further... MORE
August 30, 2011
Monetary Policy
Bryan Caplan
Don't miss Tyler Cowen's excellent post on the size versus the length of fiscal stimulus. Key passages:For all the talk of a "large stimulus," you don't hear much about a "longer stimulus."... Ideally a stimulus employs some idle labor, stops... MORE
August 26, 2011
Macroeconomics
Arnold Kling
Michael Woodford writes, expectations can be shaped far more effectively by speaking directly about future policy, rather than leaving it to be inferred from actions that have no definite implications for the future. Words speak louder than actions? Woodford is... MORE
August 23, 2011
Behavioral Economics and Rationality
Bryan Caplan
Nominal wages rarely fall - even when there's high unemployment. Part of the reason is regulation, of course. But even under laissez-faire, employers have to cope with human psychology. Almost all workers think that nominal wages cuts are unfair. And... MORE
August 18, 2011
Macroeconomics
Arnold Kling
That is the question that occurred to me after reading Tyler Cowen. If the employers don't want you at the high wage, and don't want you at the low wage, what might your perceived MP be, temporarily or not? MP... MORE
August 17, 2011
Macroeconomics
David Henderson
From advocate to opponent. Advocate: The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when... MORE
August 15, 2011
Macroeconomics
Arnold Kling
From the introduction to a new paper by Paul Beaudry and Franck Portier: Changes in measured macroeconomic activity are mainly driven by changes in the volume of trade between individuals. There are two types of causes to changes in volume... MORE
Monetary Policy
Arnold Kling
He writes, The past few weeks have settled, to my satisfaction at least, a long-running debate on this very topic. Rather than targeting inflation, central banks should keep nominal incomes growing on a pre-announced path: say 5 per cent a... MORE
Labor Market
Arnold Kling
Tyler Cowen writes, Why don't the unemployed lower their wages to find a job? The more tragic you think unemployment is, the greater the puzzle here, and yet the people who stress the tragedy are often least likely to admit... MORE
August 3, 2011
Labor Market
Arnold Kling
The latest GDP revisions have tightened the relationship between employment and GDP in this cycle compared to the unrevised data. Some advocates of an AD-AS story are ready to say, "Nothing structural to see here. The aggregate production function is... MORE
August 2, 2011
Macroeconomics
Bryan Caplan
I'm not a fan of Tyler Cowen's view that many unemployed workers have Zero Marginal Product (ZMP). Cowen and Lemke:In essence, we have seen the rise of a large class of "zero marginal product workers," to coin a term. Their... MORE
July 28, 2011
Macroeconomics
Arnold Kling
Explain why, with unemployment over 9 percent, there has emerged the phenomenon of self-service frozen yogurt shops.... MORE
July 25, 2011
Economic Methods
Arnold Kling
Nick Rowe writes, the answer to the question "what is the effect of a 1% increase in perceived risk on government bonds?" is exactly the same as the answer to the question "what is the effect of a 1% increase... MORE
July 24, 2011
Books: Reviews and Suggested Readings
Arnold Kling
I've finished Manias, Panics, and Crashes, 5th edition. Some thoughts in addition to my previous ones (here and here). p. 55: The Kipper- und Wipperzeit [according to Wikipedia, translates to tipper and see-saw time] of 1619-1623...got its name from the... MORE
July 22, 2011
Books: Reviews and Suggested Readings
Arnold Kling
If I were writing a blurb for the fifth edition of Charles P. Kindleberger's classic Manias, Panics, and Crashes, I would say that "This is the best narrative that has been written about the 2008 financial crisis, and it was... MORE
Macroeconomics
David Henderson
Indeed, Krugman's presentation doesn't incorporate any of the more sophisticated arguments about the financial system of such old-line, hard-core Keynesians as James Tobin. He moreover completely ignores any possible complications arising from Ricardian Equivalence, essentially knocking down straw-men objections to... MORE
July 21, 2011
Monetary Policy
David Henderson
Lots of brilliant people talking past each other. Lacking a common language for communication. Welcome to elite macroeconomics, circa 2011. The right doesn't think we need more NGDP [Nominal Gross Domestic Product] and the left doesn't understand that the Fed... MORE
July 20, 2011
Macroeconomics
Arnold Kling
John Taylor writes, In my view, rigidities exist in the real world and to describe accurately how the world works you need to incorporate such rigidities in your models, which of course Keynes emphasized. But you also need to include... MORE
July 19, 2011
Macroeconomics
Arnold Kling
Lacy Hunt writes, In 1933, Fisher held out some hope that fiscal policy might be helpful in dealing with excessive debt, but within several years he had completely rejected the Keynesian view. By 1940, Fisher had firmly stated to FDR... MORE
July 16, 2011
Macroeconomics
Arnold Kling
Scott Sumner raises some challenging points. But the link between the housing bubble and the severe financial panic is much weaker than people realize. And the link between the severe financial panic and high unemployment in 2011 is almost nonexistent.... MORE
July 12, 2011
Macroeconomics
Arnold Kling
There is an argument for fiscal expansion, which is "unemployment is bad, and Republicans are bad for wanting to cut spending, especially when there is a lot of unemployment." However, if you want to change someone's mind, you need something... MORE
July 7, 2011
Macroeconomics
Arnold Kling
Scott Sumner (he's back) [UPDATE--and with (ouch!) sarcasm] writes, In the past I've frequented discussed a strange sort of schizophrenia among macroeconomic commentators. They talk as if fiscal stimulus affects RGDP growth whereas monetary stimulus affects inflation. (Of course both... MORE
July 5, 2011
Macroeconomics
Arnold Kling
On PSST, my former thesis adviser writes via snail mail, Obviously I don't have to be told that there are very many outputs and very many distinguishable inputs. A question arises whether aggregation of some degree is a last resort,... MORE
June 22, 2011
Macroeconomics
Arnold Kling
Ted, in a comment on this post, asks a number of good questions. How similar is your idea of PSST to David Levine's Production Chains? Thanks for point out this paper. There is a lot of overlap, in that we... MORE
Macroeconomics
Arnold Kling
Jason Collins writes, Incarceration removes young men from the mating market during their mating prime. As the propensity to commit crime is heritable, the removal of criminals from the mating market will reduce the frequency of the genes associated with... MORE
June 15, 2011
Macroeconomics
Arnold Kling
From the Wall Street Journal. Mr. Aponte is part of a growing field of itinerant "contract" attorneys who move from job to job, getting paid by the hour, largely to review documents for law firms and corporate clients. These short-term... MORE
June 13, 2011
Macroeconomics
Arnold Kling
He gives us a double whammy. He writes in the Financial Times, That the problem in a period of high unemployment, as now, is a lack of business demand for employees not any lack of desire to work is all... MORE
June 9, 2011
Macroeconomics
Arnold Kling
Justin Wolfers writes, Focus on the red line, and you'll see that the recession began in the final quarter of 2006, not the end of 2007. The red line also fell by more, and over a longer period. And today,... MORE
June 8, 2011
Macroeconomics
Arnold Kling
Karl Smith is interested in some sort of bet. I, however, will predict that the US will achieve an average 5% real growth [rate] over a sustained period [of] say 12 quarters [or] more starting within five years. Tim Pawlenty... MORE
Macroeconomics
Arnold Kling
From CBS news: About 6.2 million Americans, 45.1 percent of all unemployed workers in this country, have been jobless for more than six months - a higher percentage than during the Great Depression. I read this as saying that, relative... MORE
June 2, 2011
Macroeconomics
Arnold Kling
The AS-AD paradigm includes a concept called potential GDP. Mainstream macroeconomists sort of force-feed macroeconomic history into AS-AD by talking about "cyclically-adjusted productivity" when they talk about AS and "trend-adjusted GDP" when they talk about AD. Consider the following types... MORE
June 1, 2011
Economic History
Arnold Kling
Cambridge University reports on research by economic historian Sheilagh Ogilvie. In some communities in Germany, people recorded their possessions at the time of marriage. This can allow Ogilvie to reconstruct the development of the German economy from 1600 to 1900... MORE
Macroeconomics
Arnold Kling
Brad DeLong writes, When you ask believers in "recalculation" what pattern of production and trade proved to be unsustainable in 2007, they answer: "building so many houses." When you ask believers why the market economy has been unable to sort... MORE
May 31, 2011
Macroeconomics
Arnold Kling
Nick Rowe writes, Why wouldn't a reduction in marginal tax rates on all forms of "nominal interest income" (i.e. all forms of "income" from deferred consumption) have exactly the same effect on Aggregate Demand as an increase in expected inflation?... MORE
Macroeconomics
Arnold Kling
Noah Smith seems to think of it that way. in a PSST world, there is no invisible hand. This opens the door for a hugely expanded role for government (or other large, centralized actors) in the macroeconomy. If global patterns... MORE
May 14, 2011
Macroeconomics
Arnold Kling
A commenter here writes, So the stimulus was the left's version of "trickle down economics"? Well, Timothy Conley and Bill Dupor write, We estimate the Act created/saved 450 thousand government-sector jobs and destroyed/forestalled one million private sector jobs. Thanks to... MORE
May 12, 2011
Macroeconomics
David Henderson
One thing I've always liked about Chicago Tribune columnist Steve Chapman's writing is its high degree of sophistication in economics relative to the usual in regional and even national newspapers. Exhibit A is his column today on inflation. He brings... MORE
May 10, 2011
Macroeconomics
Arnold Kling
Title: Technological Unemployment in a Stock-Adjustment Model Abstract: Innovation can cause overproduction of consumer durable goods relative to the desired stock. Unemployment can result, until new industries emerge to absorb labor. Think of the auto industry in the 1920s. Given... MORE
May 9, 2011
Books: Reviews and Suggested Readings
Arnold Kling
As you know, it's Inventing Ourselves Out of Jobs? America's Debate over Technological Unemployment, 1929-1981., by Amy Sue Bix. It came out in 2000. I ordered it after seeing it referred to in A Great Leap Forward, the book I... MORE
Growth: Causal Factors
Arnold Kling
James C. Cooper writes, Between 1999 and 2009, these large global corporations pared 2.9 million workers from their U.S. payrolls while adding 2.4 million jobs at their foreign affiliates. That's a reversal from the previous decade, when they boosted payrolls... MORE
Macroeconomics
Arnold Kling
Tyler Cowen writes about the hospitality sector of the economy, In terms of absolute levels, business is above where it was before the crisis. At first glance, that should seem enough to support the nominal wage levels of 2007. You... MORE
May 7, 2011
Books: Reviews and Suggested Readings
Arnold Kling
As promised, here is my review essay on Alexander Field's A Great Leap Forward. I think the highlight of the essay is the table that lays out the six eras discussed in the book. How much does the current period... MORE
May 4, 2011
Macroeconomics
Arnold Kling
Matt Rognlie takes on the monetarists. Note that the comments on the post, including Matt's comments, are where the debate gets elucidated.... MORE
May 2, 2011
Finance: stocks, options, etc.
Arnold Kling
Some comments on my post on Social Security challenged me to bet. Here is a bet I am willing to make. It concerns the following proof. 1. national output = national income (note that is true by definition in a... MORE
May 1, 2011
Macroeconomics
Bryan Caplan
The new Keynes-Hayek video has been reviving academic interest in history of thought. The issue: Was Keynes an advocate of central planning? This is well outside my expertise, but I can't resist quoting the infamous intro to the German edition... MORE
April 29, 2011
Central Planning vs. Local Knowledge
David Henderson
I'll try to hit highlights that other people haven't mentioned (much) on the latest video by John Papola and Russ Roberts. Big picture, though: I think it's even better than the first one, both in content and in "production values."... MORE
April 28, 2011
Macroeconomics
Arnold Kling
Wow. Mike Munger, a political science professor at Duke, gives an Oscar-caliber performance as a security guard in the opening scene. Keynes argues that we cannot simply sit back and watch unemployment mount up. Hayek argues that the economy is... MORE
April 25, 2011
Finance: stocks, options, etc.
Arnold Kling
John Cochrane writes, Most of macroeconomics focuses on variation in a single intertemporal price, "the" interest rate, which intermediates saving and investment. Yet in the recent recession...interest rates paid by borrowers (and received by any investors willing to lend) spiked... MORE
April 19, 2011
Macroeconomics
Bryan Caplan
Home prices did amazingly well during the Great Depression. According to Schiller's index, it looks likes inflation-adjusted prices fell from about 74 to 69 between 1929 and 1933 - about a 7% decline. By 1940, they were up to about... MORE
April 13, 2011
Macroeconomics
Arnold Kling
David Leonhardt quotes economic historian Alexander Field: In 1941, the U.S. economy produced almost 40 percent more output than it had in 1929, with virtually no increase in labor hours or private-sector capital input Sounds like a jobless recovery. The... MORE
April 12, 2011
Macroeconomics
Arnold Kling
I heard him give a talk yesterday. He commits what he calls the "Summers heresy" and suggests that there are important gender differences. On mathematical/spatial reasoning, men have a higher mean and, more important, a higher variance. So the upper... MORE
April 11, 2011
Macroeconomics
Arnold Kling
In the comments on other posts, I have seen questions addressed to me about "excessive corporate profits." I am going to answer this question in very basic terms. The way that national income accounting works, we have: net private saving... MORE
April 6, 2011
Labor Market
Arnold Kling
Patricia Minczeski writes on the WSJ blog, U.S. wages as measured in the Labor Department's employment report have been largely stagnant over the past few months, despite improvements in the job market. In fact, many industries saw more wage growth... MORE
March 30, 2011
Macroeconomics
Arnold Kling
Is he now this country's most important macroeconomist? Here, he writes, in many of these industries, we actually have physical measures- tons of steel, barrels of oil, bushels of corn-that gives us a check on the BEA numbers (The one... MORE
March 24, 2011
Macroeconomics
Arnold Kling
First, we learned that business start-ups declined sharply. Now, we learn that job creation was sluggish. I would recommend trying to understand why these phenomena occurred, rather than relying on preconceptions. I think that there is some real work to... MORE
Books: Reviews and Suggested Readings
David Henderson
It is disappointing that there is one zombie idea that Quiggin does not bury and still buys into: the idea that a government with a lot of coercive power over people's lives can be trusted to use that power for... MORE
March 22, 2011
Books: Reviews and Suggested Readings
Arnold Kling
You can now access the current issue and complete archive of Brookings Papers on Economic Activity. Many classic papers in applied macro are hence made available. Thanks to Ted Gayer for an email pointer, and thanks to Brookings for undertaking... MORE
Macroeconomics
Arnold Kling
He writes, After the most recent downturn, however--and to a lesser extent after its two predecessors--things have been different. The downturn was not caused by a liquidity squeeze. The Federal Reserve cannot wave is wand and return asset prices to... MORE
March 18, 2011
Macroeconomics
Arnold Kling
Kling wrote, the textbook definition of a liquidity trap is an infinite elasticity of the demand for money. The central bank can expand the money supply to an unlimited degree, without affecting interest rates, output, or prices. Paul Krugman #1... MORE
Macroeconomics
Arnold Kling
Menzie Chinn writes, It appears to me that real interest rates were undeniably higher during the Reagan administration than during, say, the past four quarters of the Obama administration I see that we have managed to change the topic from... MORE
March 17, 2011
Macroeconomics
Arnold Kling
The difference being that you might one day see a unicorn. A liquidity trap requires 1. Low nominal interest rates. (The nominal interest rate is the interest rate as stated.) 2. High real interest rates, due to low or negative... MORE
Macroeconomics
Arnold Kling
I am a bit "off" this morning. Ordinarily, my philosophy is "catch them doing something right." If you try to correct people when they do something wrong, they just take offense, and you accomplish nothing. But, nonetheless: Nobel Laureate Paul... MORE
March 16, 2011
Macroeconomics
Arnold Kling
Matt Holzmann writes, Silicon foundries and specialty materials factories were destroyed or damaged with no real chance yet to determine the extent of that damage. But it is certain there will be severe shortages of a number of critical materials.... MORE
Macroeconomics
Arnold Kling
Suppose that a natural disaster occurs in one region. How does this affect the rest of the world? In the aggregate supply and demand paradigm, it would seem that the rest of the world benefits from stronger net exports. In... MORE
March 14, 2011
Macroeconomics
Arnold Kling
Summarizing an IMF conference, Olivier Blanchard lists nine points. I will make extended comments below the fold. Here is a crucial sentence: Monetary policy has to go beyond inflation stability, adding output and financial stability to the list of targets,... MORE
Macroeconomics
David Henderson
One of the commenters, mark, on Arnold's post today on the Great Depression noted that Gene Smiley has a book out on it. The book is excellent. I asked Gene to put in a few thousand words the highlights of... MORE
March 12, 2011
Macroeconomics
Arnold Kling
The purpose of this exercise is to test my understanding of Sumner's view of monetary theory and policy. I will do this by putting words in the mouths of Sumner and Taylor. It will be a long post, so it... MORE
March 6, 2011
Macroeconomics
Arnold Kling
PIMCO's Bill Gross writes, most of the publically issued $9 trillion of Treasury notes and bonds are now in the hands of foreign sovereigns and the Fed (60%) while private market investors such as bond funds, insurance companies and banks... MORE
March 5, 2011
Macroeconomics
David Henderson
Yesterday, CNBC's Squawkbox had Alan Greenspan on for an extensive interview. The difference between the communication skills of Alan Greenspan as economic commentator and the communication skills of Alan Greenspan as Fed Chairman is like the difference between day and... MORE
March 3, 2011
Macroeconomics
Arnold Kling
1. Does the Fed matter? Vincent and Carmen Reinhart write, First, spending and pricing decisions are assumed to be based on long-term assessments of real income and real rates of return. Second, changes in monetary policy can only change real... MORE
March 2, 2011
Macroeconomics
David Henderson
Last month, Alex Tabarrok posted an interesting piece on the failure of Keynesian politics. Let's posit arguendo, he said, that Keynesian economics is correct: during a recession, if the government increases aggregate demand using tax cuts or government spending increases,... MORE
February 21, 2011
Labor Market
Arnold Kling
Christian Stucchio writes, it looks like job losses in construction and manufacturing are huge! In contrast, job losses in finance or business are much smaller, government is flat, and health and education have actually gained jobs! On his post, you... MORE
Macroeconomics
David Henderson
Although the financial-market panic that had flared up in late September 2008 began to subside early in 2009, net private investment continued to fall, becoming negative (-$53 billion, annual rate) in the first quarter of 2009 and even more negative... MORE
February 17, 2011
Economic Methods
Arnold Kling
Which of the following impediments to economic adjustment do you believe to be the most important? a) the cost of establishing a new enterprise b) the cost of integrating new workers and equipment into an existing enterprise c) the cost... MORE
February 15, 2011
Growth: Consequences
Arnold Kling
David Brooks writes, In other words, as Cowen makes clear, many of this era's technological breakthroughs produce enormous happiness gains, but surprisingly little additional economic activity. This is Tyler Cowen's Internet story. Lots of value, but not much economic activity.... MORE
February 14, 2011
Macroeconomics
Arnold Kling
Maybe I should write something the length of a Kindle single on Patterns of Sustainable Specialization and Trade. Below might be a way to write the opening.... MORE
February 9, 2011
Macroeconomics
Arnold Kling
From Karl Smith: Getting a job decreases the amount of work it takes to live. That's why jobs are good. This is very consistent with the PSST story. Economic activity consists of people specializing and doing things for one another.... MORE
February 6, 2011
Labor Market
Arnold Kling
This is an attempt to get at the notion of real adjustment costs in a model of Patterns of Sustainable Specialization and Trade. It is something like the Fischer Black model of macro, which influenced Tyler Cowen and me to... MORE
February 4, 2011
Macroeconomics
Arnold Kling
A commenter on this post points to a paper that Greg Mankiw wrote on real business cycle theory. If workers were unemployed voluntarily in recessions because they were moving to new jobs in other sectors, we would expect high unemployment... MORE
February 3, 2011
Macroeconomics
Arnold Kling
The "natural rate of unemployment, in other words," is the level that would be ground out by the Walrasian system of general equilibrium equations, provided there is imbedded in them the actual structural characteristics of the labor and commodity... MORE
Macroeconomics
Arnold Kling
I am disappointed by some of the reactions to my macro play. People are not being deliberately obtuse, but they are being obtuse. That is what happens when you are committed to one paradigm and someone tries to suggest something... MORE
February 2, 2011
Macroeconomics
Arnold Kling
The characters: Bao, Esteban, Leroy, and Marcel Act One (the boom): Bao and Leroy have opened a restaurant, as have Esteban and Marcel, serving curried baked beans and Pupusas in mushroom-wine sauce, respectively. There is a lot optimism and economic... MORE
January 28, 2011
Macroeconomics
Arnold Kling
Nick Rowe writes, Monetary disequilibrium theorists will disagree with those Keynesians. We add monetary exchange to the mix. We don't buy and sell output for labour. We don't buy and sell output for bonds. We buy and sell output for... MORE
January 27, 2011
Macroeconomics
Arnold Kling
I am constantly amazed by bloggers and commenters who sneer that I do not understand macroeconomics in general or aggregate demand in particular. Often, the most sneering comments come from people who have no clue about the way economists use... MORE
January 25, 2011
Political Economy
Arnold Kling
I have very little time for blogging this week. Here are some things that would interest me if it were a normal week: 1. Ronald Bailey on various studies of how libertarians differ from others in terms of moral outlook.... MORE
January 21, 2011
Growth: Causal Factors
Arnold Kling
Jim Tankersley writes, The Great Recession wiped out what amounts to every U.S. job created in the 21st century. But even if the recession had never happened, if the economy had simply treaded water, the United States would have entered... MORE
January 20, 2011
Labor Market
Arnold Kling
Michael Mandel writes, This first chart shows the change in wage and salary payments by major industry from 2000-2009, adjusted for inflation, using BEA data. We see that healthcare and social assistance generated $210 billion in real wage gains from... MORE
January 19, 2011
Austrian Economics
Arnold Kling
He writes, Contrary to Sumner, there is no huge reallocation of construction workers (from January 2006 to April 2008) that Kling or the Austrians must explain. Scott Sumner used housing starts to suggest that most of the decline in housing... MORE
January 18, 2011
Labor Market
Arnold Kling
The New York Times asks various folks for their view of why jobs have not come back during this recovery. I recommend taking a longer view of the process. I think that a major reconfiguration of the U.S. economy has... MORE
January 16, 2011
Macroeconomics
Arnold Kling
Nick Rowe notes that Spain and Ireland also have seen unusually high productivity, and hence high unemployment, relative to output during this recession. Here's my guess. It's because all three countries had a big fall in construction. But what's so... MORE
Macroeconomics
Bryan Caplan
Tyler's impressed that spending and output are up, but employment isn't. But the simplest story is just that employment is becoming a lagging indicator.* Consider: After the last "jobless recovery," the unemployment rate still fell to 4.9% by the end... MORE
Labor Market
Arnold Kling
The debate is hotting up, as our friends across the pond would say. Some random comments. 1. The Washington Post reports that some on the left want to see older workers encouraged to retire, to make room for young workers.... MORE
January 14, 2011
Macroeconomics
Arnold Kling
He looks at data. Housing starts peaked in January 2006, and then fell steadily for years: January 2006 -- housing starts = 2.303 million, unemployment = 4.7% --April 2008 -- housing starts = 1.008 million, unemployment = 4.9% --October 2009... MORE
Macroeconomics
Arnold Kling
1. Some folks on the right are bothered by the term "sustainable" in patterns of sustainable specialization and trade. They seem to be afraid that I am some sort of tree-hugging wuss. Or that I think patterns of trade need... MORE
January 13, 2011
Macroeconomics
Arnold Kling
Brad DeLong writes, It seems fairly clear to me that calling this "structural change" is somewhat of a misnomer. Structural change is when workers find jobs in expanding industries. That happens overwhelmingly during booms. For workers to lose jobs in... MORE
Macroeconomics
Arnold Kling
Regular readers know that I am trying to nudge them toward a different paradigm in macroeconomics. I want to get away from thinking of economic activity as spending, and instead move toward thinking of it as patterns of sustainable specialization... MORE
January 12, 2011
Labor Market
Arnold Kling
One story of the 1930's, which I discussed recently, is that agricultural workers were displaced by tractors and other forms of mechanization. I find this an interesting story, and I went on to I post Who Will Write This Paper?... MORE
January 11, 2011
Labor Market
Arnold Kling
Title: Fixed Worker Costs and the Distribution of Leisure Abstract: In an earlier paper, we showed that a change in technology can lead to an increase in leisure. In this paper, we explain how an increase in leisure can be... MORE
Macroeconomics
Arnold Kling
In an interview, Ben Ramalin says, We treat complex things as if they were merely complicated... distinguished between complicated systems, which can be modeled mathematically, and complex systems, for which there is no mathematical model which can say, if X... MORE
January 7, 2011
Labor Market
Arnold Kling
Perhaps Cowen and Lemke. Here is my sketch: Title: Technology Shifts and Unemployment Abstract: We present a model in which shifts in technology cause unemployment. There are two types of workers, which we call Type C and Type S. A... MORE
January 6, 2011
Labor Market
Arnold Kling
They write, The fact that the United States has pre-crisis levels of output with fewer workers raises doubts as to whether those additional workers were producing very much in the first place. If a business owner fires 10 people and... MORE
Macroeconomics
Arnold Kling
I am trying to sort out my thinking on unemployment in the Recalculation Story. I think that a basic question is this: when workers lose jobs because a sector needs to shrink, this creates a pool of unemployed workers. Why... MORE
December 16, 2010
Labor Market
Bryan Caplan
Bob Murphy has taken the time and trouble to explain and graph my critique of Obama's payroll tax cut. Nice work, Bob!... MORE
December 14, 2010
I've read through Perry Mehrling's The New Lombard Street, and I need to read it again. Meanwhile, some thoughts. 1. Mehrling is an outstanding and engaging intellectual historian, but he fails to appreciate financial crisis porn. I'll explain below. 2.Tyler... MORE
December 13, 2010
Macroeconomics
Arnold Kling
I offer a new insight into the Recalculation Story. It is inspired by this quote from p.66 of Leuchtenberg's The FDR Years, the essay on the way that many policy makers and pundits were calling on the government to mobilize... MORE
December 12, 2010
Macroeconomics
Arnold Kling
In the comments on what I am hoping will be a classic post (my rant against monetarism), Bill Woolsey insists [and Nick Rowe echoes] [if] we see lower demands for nearly all goods, low hires everwhere, low vacacancy rates, reduced... MORE
Economic Methods
Arnold Kling
From the Recommendations for Further Reading column by Timothy Taylor in the Journal of Economic Perspectives fall issue. I eagerly look forward to this regular feature, which was started by the late Bernie Saffran, the beloved Swarthmore economics professor. My... MORE
Macroeconomics
Arnold Kling
Starting with Mark Thoma I landed on a comment by Nick Rowe. My position is that a general glut can *only* be caused by an excess demand for the medium of exchange. Oy. Such confusion. And this is nothing personal... MORE
December 11, 2010
Macroeconomics
Bryan Caplan
I know lots of Keynesian economists and lots of right-wing non-economists. I've spent decades in both worlds. In the process, I've noticed some recurring macroeconomic miscommunications between the two camps. Each takes something so much for granted that it can't... MORE
December 9, 2010
Macroeconomics
Arnold Kling
The graph at John Taylor's blog explains stimulus failure. (I wrote about the Cogan-Taylor work earlier, but it bears repeating.) Everyone, including Keynesians, agrees that if Ricardian equivalence holds, then stimulus does not work. Ricardian equivalence means that the folks... MORE
December 7, 2010
Labor Market
Bryan Caplan
With perfectly flexible wages, it doesn't matter whether tax law says "employees pay" or "employers pay." Tax incidence depends on supply and demand elasticity, not legislative intent. If wages are nominally rigid, however, the law matters. If you cut a... MORE
December 6, 2010
Macroeconomics
Arnold Kling
A new paper by David Levine. capitalist economies by virtue of being efficient employ longer and more specialized production chains than more poorly organized economies. This raises output, welfare and utility, but it also leads to more "crises" than shorter... MORE
December 2, 2010
Macroeconomics
Arnold Kling
My views here may have been unclear. I said it better in my Hydraulic Macro Fable. In a diverse economy with extensive division of labor, it is inefficient to pay people in the form of output. If I am the... MORE
Finance: stocks, options, etc.
Arnold Kling
Not atypically, I start the morning with links from the indispensable Mark Thoma. 1. Steven Randy Waldman waxes Austro-Keynesian. Read the whole thing. His peroration: It is not technocratic economists who will win the day and pull us out of... MORE
December 1, 2010
Macroeconomics
Arnold Kling
On three links from Mark Thoma, on macro theory, the euro, and the stalled housing market. 1. Nick Rowe writes, If people could trade goods and labour directly at zero transactions costs, without having to use monetary exchange, all Keynesian... MORE
November 30, 2010
Macroeconomics
Arnold Kling
In an attempt to view macroeconomics through a 1970 lens, I decided to model the Phillips Curve as a simple linear trade-off, using the period 1956-1968. In those years, the inflation rate averaged 2.19 percent and the unemployment rate averaged... MORE
November 28, 2010
Economic Methods
Arnold Kling
Below, I elaborate on two claims. 1. Macroeconometrics requires the imposition of prior beliefs. 2. If one has diffuse prior beliefs, the correct macroeconomic policies are not easily formulated.... MORE
November 26, 2010
Macroeconomics
Arnold Kling
According to Prad Krulong, macroeconomists had it and then lost it. They lost it some time after 1970. We had this magic formula, call it M70, and somehow we let it slip from our collective memory. But what was M70?... MORE
November 14, 2010
Growth: Causal Factors
Arnold Kling
John Hagel writes, the Shift Index focuses on return on assets (ROA) for all public companies in the US since 1965. The bottom line: ROA has collapsed by more than 75% over this period. Thanks to Patri Friedman for the... MORE
Macroeconomics
Arnold Kling
Brad DeLong writes, All five of these theories are best taught sympathetically by being taught historically: as long traditions of thought that smart people have used to try to understand a changing and confused world. Thus Minskyism from its nineteenth... MORE
November 6, 2010
Macroeconomics
Arnold Kling
First, he writes, I see a three step process. A monetary shock (money supply or demand) causes flexible asset prices to change immediately (stocks, commodities, exchange rates, etc.) This causes output to rise, and consumer prices and wages respond with... MORE
November 5, 2010
Labor Market
Arnold Kling
After a report showing a gain of 150,000 jobs last month, Mark Thoma says that the glass is half empty. it could have been worse, but in past recoveries we've had job growth of hundreds of thousands, far more that... MORE
Macroeconomics
Arnold Kling
I have agreed to write something on the history of the Phillips Curve, so I may post on the topic from time to time. The heyday of the Phillips Curve was 1956-1969. In that fourteen year period: --unemployment was below... MORE
November 3, 2010
Macroeconomics
Arnold Kling
I think that I usually understand what Paul Krugman is saying, even when I disagree with him. However, I do not think that I understand Why Inflation Targets Need to be Higher well enough to say whether or not I... MORE
October 30, 2010
Economic History
Arnold Kling
The request is for my reaction to the way that economies in the Great Depression seemed to do better after going off the gold standard. Does this provide evidence that monetary easing would help today? In general, macroeconomic data are... MORE
Macroeconomics
Arnold Kling
From the WSJ Real Time Economics blog, here and here. 1. Banks have an inventory of about 1 million foreclosed homes, plus another 5 million homes where the loans are badly nonperforming. Any way you look at it, that is... MORE
Fiscal Policy
Arnold Kling
John F. Cogan and John B. Taylor write, Our main finding is that the increase in government purchases due to the ARRA has been remarkably small, especially when compared to the large size of the overall ARRA package. In fact,... MORE
October 24, 2010
Fiscal Policy
David Henderson
Here's a paragraph from Christina Romer's op/ed in the New York Times: Now is not the time [to cut the deficit]. Unemployment is still near 10 percent in the United States and in Europe. Tax cuts and spending increases stimulate... MORE
October 17, 2010
Monetary Policy
Arnold Kling
Jeffrey Rogers Hummel explains the Bernanke view of financial intermediation but raises a critical question about its policy implications. what distinguishes banks from other financial intermediaries is not merely that deposits are used as money but also that banks, in... MORE
October 12, 2010
Economic Methods
Arnold Kling
Scott Sumner asks, How was it that just a few years later it was almost impossible to get anything published without assuming rational expectations, efficient markets, etc. Let me tell you. For a period of about 5 to 10 years,... MORE
Fiscal Policy
Arnold Kling
This month's issue of Reason has an article about fiscal tightening moves that did not cause macroeconomic disaster. I discuss the demobilization after World War II. Maurice McTigue discusses New Zealand 25 years ago. David Henderson talks about Canada 15... MORE
October 11, 2010
Macroeconomics
Arnold Kling
As Tyler reports, it goes to Peter A. Diamond (unqualified to be a Fed governor, according to some self-styled experts), Date T. Mortensen, and Christopher A. Pissarides. A few comments. 1. This appears to be for theories of labor matching.... MORE
October 8, 2010
Labor Market
Arnold Kling
The employment situation reported today showed a decline in nonfarm payroll employment. That means that my favorite indicator, labor capacity utilization, is at its lowest level since the recession began. The National Bureau of Economic Research, which uses spending as... MORE
October 4, 2010
Macroeconomics
Arnold Kling
Larry Ribstein writes, I have been insisting for awhile now that the economy was only the trigger of permanent decline in the demand for Big Law's services. Indeed, the factors cited in the Hildebrandt analysis support this: outsourcing and other... MORE
Austrian Economics
Arnold Kling
A reader asks me to explain the difference. Answer below the fold.... MORE
October 1, 2010
Finance: stocks, options, etc.
Arnold Kling
At the unpleasant session yesterday, I did learn something interesting from Doyne Farmer of the Santa Fe Institute, while he was ranting against the state of the art in macroeconomic models. He said that in 2006, the Fed simulated a... MORE
Macroeconomics
Bryan Caplan
Keynesians have been a smug bunch from their earliest days. Here's how Keynes once replied to Hayek:Thus those who are sufficiently steeped in the old point of view simply cannot bring themselves to believe that I am asking them to... MORE
September 30, 2010
Austrian Economics
Arnold Kling
I started to read it. Should I finish? Some excerpts and my comments. the timidity and confusion of Reagonomics make very clear what its choice will be: massive inflation of money and credit, and hence the resumption of double-digit and... MORE
September 29, 2010
Macroeconomics
Arnold Kling
Recalculation differs from textbook structural unemployment. In textbook structural unemployment, there are two GDP factories, one in the north and one in the south. There is a shortage of workers in the south, and there are too many workers in... MORE
Macroeconomics
Bryan Caplan
Eventually, however, the war spread to the very issue of whether unemployment in recessions in involuntary... Sweetwater economists began to respond to the natural gravitational pull of the assumptions of optimization and well-functioning markets, which tend to rule out the... MORE
September 27, 2010
Macroeconomics
Bryan Caplan
A year ago, I wrote a little-known post called "Additive Shocks." A week ago, Sumner made my point with more panache:...I don't know about you, but I don't recall reading; "Severe AD shocks are really, really bad, except when the... MORE
September 24, 2010
Economic History
Arnold Kling
Karl Smith writes, Its as close to a test of modern macro theory as we have. We thought if we shrank the growth rate of the money supply we would get a recession but we also lower the rate of... MORE
September 23, 2010
Macroeconomics
Arnold Kling
He says, the days of what I call the "Field of Dreams" strategy--build a bigger GDP, and the jobs will come--should be over. It's a sensible strategy in many contexts, but it has two serious drawbacks in the present situation.... MORE
September 22, 2010
Macroeconomics
Arnold Kling
In August of 2003, I wrote about my preferred economic indicator, which I called a labor capacity utilization index, or LUCY. I want to update it. Back then, I used an index of aggregate hours worked, which I assume meant... MORE
September 21, 2010
Macroeconomics
Arnold Kling
Nick Rowe writes, When we go into a recession, many things become easier to buy and harder to sell. And when we go into a boom, those same things become easier to sell and harder to buy. A recession has... MORE
September 20, 2010
Macroeconomics
Arnold Kling
The official committee of the National Bureau of Economic Research says, "Yes." The New York Times asked "Really?" Many bloggers answered "no." I was one of them. Employment declined by nearly one million workers in the four months after the... MORE
Economic History
Arnold Kling
What are the ten most important episodes of economic contraction to study? Some obvious ones: 1. The Great Depression in the U.S. 2. The Great Depression in Europe 3. The Japanese slump of the 1990's and beyond 4. The oil... MORE
Labor Market
Arnold Kling
James Hamilton on the JOLTS data, which I have also been pushing. Caroline Baum on the Kling view of the job creation problem. Arthur Brooks on the Arthur Brooks controversy.... MORE
September 17, 2010
Macroeconomics
Arnold Kling
The following should not be construed as advice to graduate students. Let someone else try it first. 1. Forget the national income and product accounts. Pay no attention to the arbitrary classification of output as C,I,G, and NX. 2. Instead,... MORE
September 16, 2010
Business Economics
Arnold Kling
Russ Roberts discusses some survey data in which small businesses report that their biggest problem is lack of sales. Some economists have leaped on this as a decisive data point demonstrating that the problem in the economy is aggregate demand,... MORE
September 13, 2010
Macroeconomics
Arnold Kling
Russ Roberts asks whether spending creates prosperity. has foreign aid spending created prosperity in those countries? Usually not. Or maybe never. The money gets spent and then it's over. The multiplier never materializes. And that's because these economies are broken.... MORE
Macroeconomics
Arnold Kling
Dane Stangler and Paul Kedrosky write, When they come into existence, for example, startup firms create, on average, three millions jobs per year. Many of these jobs are lost and new ones are created, but employment at the moment of... MORE
September 11, 2010
Macroeconomics
Arnold Kling
My latest essay: Entrepreneurs in healthcare and education face unusually strong barriers to entry. Both industries are credentials cartels. Licensing and accreditation are key requirements to compete in those fields, and incumbents are in control of the process. In addition,... MORE
September 2, 2010
Monetary Policy
Arnold Kling
John Taylor writes, The Taylor rule says that the federal funds rate should equal 1.5 times the inflation rate plus .5 times the GDP gap plus 1. Currently the inflation rate is about 1.5 percent and the GDP gap is... MORE
Macroeconomics
Arnold Kling
She says, by June, before the Recovery Act could have had much of an impact, it was 9½ percent. That is, our projection turned out to be wrong even before the Recovery Act had a chance to get off the... MORE
September 1, 2010
Economic Methods
Arnold Kling
In an interview, he says, the more dynamic, uncertain and ambiguous is the economic environment that you seek to model, the more you are going to have to roll up your sleeves, and learn and use some math. Pointer from... MORE
August 31, 2010
Macroeconomics
Arnold Kling
As Bryan offers data for study, let me suggest that in the United States the regime changes somewhere between 5.0 and 6.0 percent for the annualized "core" inflation rate (the CPI excluding food and energy). 1. Take the moving six-month... MORE
August 30, 2010
Labor Market
Arnold Kling
Megan McArdle writes, How much unemployment reduction you get for a given amount of stimulus spending is, obviously, at best an imperfect estimation. But let's take the CBO's estimates as representing a rough consensus of those who favor stimulus: for... MORE
August 29, 2010
Macroeconomics
Arnold Kling
Bryan asks how I think that the Fed can make big changes in inflation regime but not make small changes within a regime. Again, my thinking is based almost entirely on my reading of postwar U.S. monetary history, which went... MORE
Monetary Policy
Arnold Kling
Bryan's question on testing for inflation regimes drew interesting comments. Some notes: 1. The idea that the rate of inflation and its variability are correlated is not original with me. I know the observation was made earlier in the literature,... MORE
August 27, 2010
Macroeconomics
Bryan Caplan
Arnold has a novel theory of dual inflation regimes:I don't think that the Fed can fine tune the economy. I think that, at most, it can toggle between two regimes: a regime where inflation is high and variable; and a... MORE
Finance: stocks, options, etc.
Arnold Kling
Brad DeLong started this one, and Tyler Cowen picked up on it. Megan McArdle has the longest list (which by no means implies that she was the most often wrong.) 1. My way of thinking about the price/rent ratio for... MORE
August 26, 2010
There has been a lot of drama among monetary theorists in the blogosphere, and I have been waiting for Scott Sumner to join the fray. He writes, Thus the question is never whether low rates unfairly subsidize borrowers, or whether... MORE
Macroeconomics
Arnold Kling
Mark Thoma articulates the conventional view. It's useful to break down the economy into four major sectors -- households, businesses, government, and the foreign sector...lower consumption growth will be a substantial drag on the economy...looking to housing to lead the... MORE
August 23, 2010
Finance: stocks, options, etc.
Arnold Kling
At The Economist, pointer from Tyler Cowen. Laurence Kotlikoff writes, current bondholders will get hurt in two ways. The prices of their bonds will fall due to concern about future money creation and the current price level will jump due... MORE
Finance: stocks, options, etc.
Arnold Kling
Paul Krugman writes, Right now, the Mankiw indicator is -8.5 -- core inflation at about 1, unemployment at 9.5. As you can see, that implies a majorly negative interest rate; what we actually get is zero. He suggests that the... MORE
August 22, 2010
Labor Market
Arnold Kling
Minneapolis FRB President Narayana Kocherlakota says, I mentioned that the relationship between unemployment and job openings was stable from December 2000 through June 2008. Were that stable relationship still in place today, and given the current job opening rate of... MORE
August 16, 2010
Macroeconomics
Arnold Kling
Now, I am getting to the part of Macroeconomic Patterns and Stories where Leamer gets very conventional. Economic activity equals spending, monetary policy equals the Fed Funds rate, and all the fiscal and monetary dials work as they do in... MORE
August 15, 2010
Macroeconomics
Arnold Kling
In chapter 10 of Macroeconomic Patterns and Stories, Ed Leamer writes, in recessions, the most price sensitive customers drop by the wayside, and what remains are the wealthy who don't care much about price. Facing this kind of customer base,... MORE
Macroeconomics
Arnold Kling
Obviously, I am going through Macroeconomic Patterns and Stories chapter by chapter. It is really too bad that he positioned it as a textbook, because I think that the rest of the profession needs to read it. Anyway, he signed... MORE
Macroeconomics
Arnold Kling
Continuing my relatively unplanned commentary on Macroeconomic Patterns and Stories, chapters 7 and 10 are on idleness. One can think of a recession as resources being idle, and then we wonder why they are idle when they could be productive.... MORE
Labor Market
Arnold Kling
The other day, I verified Ed Leamer's finding that there is momentum in payroll employment. This is an extremely important finding, as I will explain below. Just as a teaser, I think it strongly supports Tyler Cowen's ZMP story, but... MORE
August 13, 2010
Labor Market
Arnold Kling
Tyler Cowen writes, In a highly specialized modern economy, it is much easier to prevent jobs from being destroyed than to create them again, at least assuming those are "good" jobs in the first place. (Yes, people thought they knew... MORE
Labor Market
Arnold Kling
According to Ed Leamer's Macroeconomic Patterns and Stories, chapter 4, payroll employment is not a random walk. The change in payroll employment in August will be highly correlated with the average change from May through July. This was 26,667, according... MORE
Macroeconomics
Arnold Kling
The previous installment was here. The installment below discusses macroeconometrics. It is very brief, because I think that the issue is better discussed in the context of the historical perspective that I envision providing in the main part of the... MORE
Macroeconomics
Arnold Kling
Bryan weighs in on an issue of seasonal employment. This issue has produced much controversy among a few wonks. See the post by Mark Thoma. Almost 40 years ago, I was a seasonal teenage worker, in a factory in South... MORE
August 12, 2010
Macroeconomics
Arnold Kling
I am starting to re-read Ed Leamer's textbook, Macroeconomic Patterns and Stories. Very early, he presents a graph of real GDP from 1955 to 2005 on a log scale, showing that it grows at a trend rate of 3 percent,... MORE
August 9, 2010
Finance: stocks, options, etc.
Arnold Kling
Kevin Villani enters the dispute over what caused the financial crisis on the side of those of us who see misguided policy as a major factor. Philip Greenspun worries about what happens when the marginal product of a worker falls... MORE
August 7, 2010
Macroeconomics
Arnold Kling
1. Nobel Laureate Edmund Phelps writes, One reform would be to create a First National Bank of Innovation -- a state-sponsored network of merchant banks that invest in and lend to innovative projects. Another would be to improve corporate governance... MORE
August 6, 2010
Macroeconomics
Arnold Kling
This morning, we will find out whether the recovery remains jobless. Meanwhile, I have an essay, Labor is Capital, that offers an explanation for jobless recoveries. Much of today's American workforce is engaged in roundabout production, which Böhm-Bawerk equated with... MORE
August 5, 2010
Labor Market
Arnold Kling
Joseph Y. Calhoun III points out the Recalculationist implications of Mark Perry's post showing that job openings are increasing much faster than employment. Read for yourself.... MORE
August 4, 2010
Economic History
Arnold Kling
I dug up two interesting articles. In case I am more interested in this than you are, I will put this post below the fold.... MORE
August 2, 2010
Macroeconomics
Arnold Kling
The previous installment was here. The installment below covers behavioral economics. Recall that the ultimate approach in the Doubtbook will be to stitch together the history of macroeconomic thought with the history of macroeconomic episodes. The opening chapter looks at... MORE
July 29, 2010
Macroeconomics
Arnold Kling
Alex Tabarrok writes, The U.S. housing vacancy rate--an unemployment rate for home--is at its highest level since at least 1965 (see figure). Why? Is it sticky prices? Lack of aggregate demand? Structural? For labor, the recalculation story says that employment... MORE
Macroeconomics
Bryan Caplan
How many times have you heard the following argument in the last two years? Tax cuts/helicopter drops of cash/whatever won't stimulate demand. People are too nervous to spend. Whatever you give them, they'll just save it. The problem with this... MORE
July 28, 2010
Economic Methods
Arnold Kling
What the Blinder-Zandi paper does is explore the properties of a macroeconometric model. The economics profession abandoned those models thirty years ago, so the tool they are using is like a fossil, frozen in time. Of course, there have been... MORE
Economic Methods
Arnold Kling
Alan Blinder and Mark Zandi used Zandi's econometric model as the basis for a claim that the stimulus and the TARP worked. Thirty-five years ago, I was Blinder's research assistant, doing these sorts of simulations on the Fed-MIT-Penn model for... MORE
July 26, 2010
Macroeconomics
Arnold Kling
The Economist asks about it. Paul Seabright answers: this recession, more than most, seems likely to have produced a great increase in the mismatch, due to the unsustainable patterns of consumption and investment induced by the credit boom that preceded... MORE
July 24, 2010
Macroeconomics
Arnold Kling
I have had a number of requests for this. I will put it below the fold.... MORE
July 23, 2010
Macroeconomics
Arnold Kling
Nick Rowe writes, That's the real dichotomy. Habits never change, vs habits instantly change to be consistent with the new world. And most reasonable economists would want to go somewhere in between those two extremes. If you expect the new... MORE
July 22, 2010
Macroeconomics
Arnold Kling
The previous installment was here. This installment discusses expectations. [UPDATE: This installment happens to contain what I would say is my answer to the question posed today by Tyler Cowen.|... MORE
Economic History
Arnold Kling
I want to return to the Vedder-Galloway paper, that I mentioned here. I want to make it clear that I have a lot of problems with that paper, and I will not be basing my own views on it. More... MORE
Macroeconomics
Arnold Kling
He writes, I do not think that the currently popular DSGE models pass the smell test. They take it for granted that the whole economy can be thought about as if it were a single, consistent person or dynasty carrying... MORE
July 21, 2010
Economic History
Arnold Kling
Official data are somewhat sparse. I would appreciate pointers to any better data or additional information. I am also curious about what newspapers and magazines were reporting at the time about postwar conversion--how well it was going, what was working,... MORE
July 19, 2010
Macroeconomics
Arnold Kling
Vernon L. Smith and Steven Gjerstad write, In the immediate aftermath of most recessions, housing expands more rapidly than any other component of GDP, and inflation falls. Through the first part of the expansion, housing increases and inflation remains low.... MORE
Macroeconomics
Arnold Kling
Previous installment is here. The new installment below discusses finance theory. I happen to think that the relationship between macroeconomics and finance is more problematic than the relationship between macro and any other branch of economics. John Hicks writing in... MORE
Labor Market
Arnold Kling
Tyler Cowen writes, In general, which hypotheses predict lots more short-term unemployment among the less educated, but among the long-term unemployed, a disproportionately high degree of older, more educated people? This stylized fact seems to point toward search and recalculation... MORE
July 16, 2010
Macroeconomics
Arnold Kling
Tyler Cowen asks, Why does it take so long? This isn't one of those West European scenarios where, due to benefits, being unemployed is permanently somewhat attractive alternative for some subset of the work force. Nor is the United States... MORE
Macroeconomics
Arnold Kling
I use the term "textbook macro" a lot. I want to stop and define it. In textbook macro, sometimes there is excess supply of labor and sometimes there is not. That is the supply side of the economy. The demand... MORE
July 15, 2010
Macroeconomics
Arnold Kling
Russ Roberts writes, I'm not saying Keynes (or Obama or Larry Summers) is wrong because all spending does is bid up prices and wages. I'm not trying to prove that the stimulus failed. I'm challenging the standard macro textbook story... MORE
Fiscal Policy
David Henderson
Arnold laid out one of the two ways the CEA estimated the effects of Obama's "stimulus" package. Greg Mankiw has a particularly nice statement about the other way. Mankiw writes: That is, the CEA took a conventional Keynesian-style macroeconomic model... MORE
July 14, 2010
Macroeconomics
Arnold Kling
The Council of Economic Advisers says so. The reason that the Council has about as much credibility as Baghdad Bob is that chart that everyone has seen showing that unemployment with the stimulus is higher than what they predicted without... MORE
Macroeconomics
Arnold Kling
I am leaning toward a view of macroeconomics in which firms, households, and government face a collision between beliefs and reality. Beliefs tend to be formed out of habitual observation. If certain types of investments in human and physical capital... MORE
July 13, 2010
Macroeconomics
Arnold Kling
Bryan writes, Out of all of Arnold's macroeconomic views, only one strikes me as truly absurd: His skepticism about the ability of central banks to affect nominal GDP and other nominal variables. Here is my problem. Nominal GDP is measured... MORE
Macroeconomics
Bryan Caplan
Out of all of Arnold's macroeconomic views, only one strikes me as truly absurd: His skepticism about the ability of central banks to affect nominal GDP and other nominal variables. The latest example:[A]n increase in the supply of money will... MORE
Finance: stocks, options, etc.
Arnold Kling
The first chapter of the Macro Doubtbook definitely needs a section on the relationship between finance theory and macroeconomics. I think that relationship is an uneasy one. Macroeconomists use what is called "portfolio balance theory" to argue that changes of... MORE
July 12, 2010
Macroeconomics
Arnold Kling
Tyler asks, If aggregate demand is so low, why are profits so high? Garett Jones would say that labor is mostly overhead, and firms have shed a lot of overhead. They are sacrificing growth in future capabilities in order to... MORE
July 11, 2010
Macroeconomics
Arnold Kling
Stephen Williamson writes, From a New Monetarist point of view, a key element of the financial crisis relates to the scarcity of liquid assets. There is one type of liquid asset, which is outside money. Currency and bank reserves play... MORE
July 9, 2010
Here is the long-awaited section on monetary theory. If you ask me the question, what will happen if the Fed stops paying interest on reserves, my answer would differ from Scott Sumner's. I would say, "Not much will happen in... MORE
July 8, 2010
Macroeconomics
Arnold Kling
Scott Sumner is worried about little things like unemployment and fiscal sustainability. Fortunately, our political leaders are not distracted by such trivialities. The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks,... MORE
Macroeconomics
Arnold Kling
Here, I talk about capital theory as a path for macroeconomics. Some recent posts are relevant. Tyler Cowen talks about the saving-investment balance. Paul Krugman implicitly says that investment follows what I call in the installment below the "accelerator model"... MORE
Fiscal Policy
David Henderson
Arthur Laffer, whose work I've often respected and who, I think, has been underappreciated by the economics profession, has a piece in today's Wall Street Journal on unemployment insurance (UI). It's titled, "Unemployment Benefits Aren't Stimulus." I wish I could... MORE
July 7, 2010
Macroeconomics
Arnold Kling
Tim Kane finds that the tendency for a firm to add or subtract jobs declines with the age of the firm. Much of the job creation on average comes from startup firms. In fact, Kane puts it this way: without... MORE
July 6, 2010
Macroeconomics
Arnold Kling
Yves Smith and Rob Parentau write, Over the past decade and a half, corporations have been saving more and investing less in their own businesses. A 2005 report from JPMorgan Research noted with concern that, since 2002, American corporations on... MORE
July 5, 2010
Finance: stocks, options, etc.
Arnold Kling
Why Are Firms Saving So Much?, asks The Economist. A number of economists offer thoughts, including Hal Varian, Brad DeLong, and Mark Thoma. Andrew Smithers points to some data. despite the rise in US corporate cash flow, non-financial corporate balance... MORE
Macroeconomics
Arnold Kling
Howard Bloom writes, Over three billion years ago, bacteria already had a cycle of boom and bust built into their DNA. The cycle of boom and bust is a search strategy. It's a cycle that uses us to explore the... MORE
July 3, 2010
Macroeconomics
Arnold Kling
Mark Thoma points to an interview with Robert Hall, who I consider the Don Sutton of the economics profession.* Read the whole thing. Here are some excerpts from the interview, with my comments. Issuing what appear to be overvalued public... MORE
Macroeconomics
Arnold Kling
Doc Merlin is among those linking to a New York Times story about manufacturers having difficulty finding skilled workers. I would love to say that I find that the story validates my views macroeconomics. Instead, I just find the story...odd.... MORE
July 1, 2010
Macroeconomics
Arnold Kling
This discusses labor markets. I also discussed them in my macro lectures, and I may want to integrate more of that material here. The full installment is below. This was the previous installment. Here is an excerpt of the current... MORE
Labor Market
Arnold Kling
James Hamilton writes, Suppose you adopted Feldstein's perspective that those individuals who fully expected to get back their old jobs soon are not really unemployed, but should instead be viewed the same way we treat workers who remain employed but... MORE
June 29, 2010
Macroeconomics
Arnold Kling
The first installment was The Northwest Passage. An excerpt from the second installment, called General Equilibrium Theory: suppose that unemployment did not exist, but that instead there was a very low-value job (say, dishwashing) that is always available, at whatever... MORE
June 25, 2010
Macroeconomics
Arnold Kling
Below are two pages of the hypothetical book on macro. Once (If?) I get to the main part of the book, I will need good sources for analysis of pre-1920's macroeconomic events and for postwar events in other countries.... MORE
Macroeconomics
Arnold Kling
Suppose I were to write a book on macroeconomics. How should it be structured? My goals would be: 1. Explain why controversies in macroeconomics are so difficult to resolve. Explain why it is a mistake to be supremely confident in... MORE
June 24, 2010
Macroeconomics
Arnold Kling
Internally at Econlog, GYOB means "get your own blog." It is a term of disparagement used to describe commenters who frequently post comments that are longer than the original post. In the case of Paul Seabright, I am thinking that... MORE
June 23, 2010
Macroeconomics
Arnold Kling
Reading Paul Seabright has made me want to once again dismiss the theory of aggregate demand and instead push Recalculation. There are two patterns that must emerge in a complex modern economy. One is a pattern of labor specialization. People... MORE
June 22, 2010
Books: Reviews and Suggested Readings
Arnold Kling
Notwithstanding my disagreements with Paul Seabright on political economy, the revised edition of The Company of Strangersis one of the best economics books to come out so far this year. I strongly recommend it, particularly if you did not read... MORE
June 20, 2010
Monetary Policy
Arnold Kling
Tyler Cowen writes, I believe the "zero bound" is perhaps the single largest "red herring" in the economics profession today. If you understand that sentence, you know everything you need to know about Tyler's case against fiscal stimulus. In case... MORE
June 18, 2010
Finance: stocks, options, etc.
Arnold Kling
He writes, You may not have heard much about the Great Deviation. I define it as the recent period during which macroeconomic policy became more interventionist, less rules-based, and less predictable. It is a period during which policy deviated from... MORE
June 15, 2010
Books: Reviews and Suggested Readings
Arnold Kling
Various things that came up while I was traveling are discussed below.... MORE
June 9, 2010
Labor Market
David Henderson
After talking to me about those figures, CNNMoney reporter Tami Luhby wrote, "Though Labor Department statistics say there are 5.5 job seekers for every opening, Reynolds said there is work available if people are willing to relocate or take jobs... MORE
June 1, 2010
Monetary Policy
David Henderson
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. This is from Ambrose Evans-Pritchard in the Telegraph, a British publication. It goes on:... MORE
May 30, 2010
Macroeconomics
Arnold Kling
Fischer Black started from a model of efficient markets with diversified investors. However, there is nondiversifiable risk in the economy, there will be times when you get a bad draw. At those times, the value of physical and human capital... MORE
May 23, 2010
Macroeconomics
Arnold Kling
Tyler Cowen writes, This is the era of the rude economic awakening, and Greece is simply an extreme manifestation. The new European bailout plan is a denial of this truth rather than recognition of the new reality that a lot... MORE
May 22, 2010
Macroeconomics
Arnold Kling
by Rob McClendon. The two segments are each less than ten minutes. They cover a range of topics, from what Nick Schulz and I call Economics 2.0 to bank bailouts to the outlook for employment. Part one. Followed by Part... MORE
Macroeconomics
Arnold Kling
Jean Tirole writes, Economic theory stresses the necessity for the state to boost industrial and financial sectors during periods of liquidity shortage. [here a footnote reads, "This is an old theme, dating back at least to Keynes and Hicks. For... MORE
May 21, 2010
Macroeconomics
Arnold Kling
Nick Rowe writes, Regulation and supervision can never eliminate financial instability. If your faith is contingent on being able to prevent financial crises, you have lost the faith. Read the whole thing. I too am struck by the rapid change... MORE
May 17, 2010
Macroeconomics
Arnold Kling
The talk is here. Very worthwhile. Near the end he makes the point that when there is a large collapse there is a tendency to blame it on huge imbalances prior to the crash. The "huge imbalances" view is what... MORE
May 14, 2010
Macroeconomics
Arnold Kling
David Leonhardt looks at the behavior of real wages in the latest recession. A big reason wages have held up this time is inflation has been nearly absent. As some economic historians have pointed out to me, there is a... MORE
May 11, 2010
Macroeconomics
Arnold Kling
Russ Roberts interviews Ed Leamer. If you are not already familiar with Leamer's views on econometrics, then you should listen. Leamer has a notion of macro that I think needs more elaboration. He says that in a normal economy, when... MORE
May 7, 2010
Macroeconomics
Arnold Kling
Two months ago, I wrote, The standard forecast is, "employment has been less than what we expected, so let's assume it will continue to be less than expected." My forecast is that the recalculation is just getting started, and we... MORE
May 5, 2010
Fiscal Policy
Arnold Kling
Nick Rowe writes, If it prints money and is not in a recession, or has inflation, then that is a problem. Printing money will make inflation worse, and that's a problem. But it's a negative feedback problem. The inflation will... MORE
May 3, 2010
Macroeconomics
Bryan Caplan
In 12th grade, I took a one-semester economics course. My high school didn't have A.P. econ (though I took the test on my own initiative), so the course was a little dumbed down. Actually, to be blunt, the teacher didn't... MORE
April 27, 2010
Macroeconomics
Arnold Kling
Sean Rushton writes, Part Two of Mundell's analysis is the most intriguing and least understood aspect. He argues that, as the real-estate bubble burst, large quantities of fresh liquidity were demanded by the public and banks. In summer 2007, the... MORE
April 22, 2010
Economic History
David Henderson
Bryan's question is tough to answer. In the culture and in the media, things are so much better now, in the sense that the mainstream media feel the need to contend with libertarian and free-market ideas. They didn't feel that... MORE
Economic History
Arnold Kling
Bryan writes, I'm too young to remember much about the politics and economics of the Seventies. From books, though, I get the impression that American political economy was in complete disarray The first thing that I would say is that... MORE
Economic History
Bryan Caplan
I'm too young to remember much about the politics and economics of the Seventies. From books, though, I get the impression that American political economy was in complete disarray: high inflation, high unemployment, crazy price controls, regulatory explosion, crushing taxes,... MORE
April 19, 2010
Macroeconomics
Bryan Caplan
Tyler's not satisfied by the traditional nominal rigidities explanation for continuing high unemployment:It's also the case that the rate of new job creation has been especially low. Yet the nominal wages on those jobs-to-be are not constrained by previous contracts... MORE
April 18, 2010
Macroeconomics
Arnold Kling
The CEA Chairwoman does not take on anyone by name, but She writes, in my view the overwhelming weight of the evidence is that the current very high -- and very disturbing -- levels of overall and long-term unemployment are... MORE
April 16, 2010
Economics of Education
Arnold Kling
Again, I am pressed for time, so not many comments. 1. Tyler Cowen points to a story about an LSU professor teaching a biology course for non-majors who gave bad grades and was removed from teaching the class. LSU cited... MORE
April 12, 2010
Macroeconomics
Arnold Kling
A friend writes to say that Recalculation sounds like an interesting theory, but he finds it hard to explain to others. Below are some thoughts.... MORE
Economic History
Arnold Kling
Burt Folsom, Jr. and Anita Folsom write, [President Roosevelt's] key advisers were frantic at the possibility of the Great Depression's return when the war ended and the soldiers came home. I mentioned this in my post on Roger Farmer's book.... MORE
April 11, 2010
Books: Reviews and Suggested Readings
Arnold Kling
How the Economy Works, by Roger Farmer. The publisher sent me a review copy. Farmer seems to be trying to accomplish what I have tried to do with a series of blog posts on macroeconomics. That is, he wants to... MORE
April 8, 2010
Austrian Economics
Arnold Kling
Paul Krugman writes, why isn't there similar unemployment during the boom, as workers are transferred into investment goods production? He says he has asked this before, and he has. I have answered it before, and he has never responded. The... MORE
March 28, 2010
Macroeconomics
Arnold Kling
Scott Sumner writes, The recession was caused by a severe AD shock, i.e. falling NGDP. If it had been caused by an AS shock then the recession would have been accompanied by higher inflation. It would really help if people... MORE
March 22, 2010
Austrian Economics
Arnold Kling
Macroeconomic Theory and its Failings, edited by Steven Kates. The publisher, Edward Elgar, prices its hardbacks out of reach for ordinary readers. I assume that their target buyers are libraries. I received a review copy. The book consists of essays... MORE
March 9, 2010
Finance: stocks, options, etc.
Arnold Kling
Dean Baker says no. Spain is noteworthy because it now has an unemployment rate of more than 19%, the highest rate in any of the wealthy countries. Spain did not have a financial crisis. In fact, its well-regulated financial system... MORE
March 4, 2010
Macroeconomics
Arnold Kling
The Wall Street Journal reports: The Monster Employment Index surged in February, with increases across a range of geographies and job categories, suggesting that employers are starting to emerge from a long hibernation. The Index, compiled by online job service... MORE
March 1, 2010
Macroeconomics
David Henderson
Econlib's featured article this month is GDP Fetishism by me. Opening graf: When economics professors teach the basics of Gross Domestic Product (GDP), we usually caution our students that it is not a good measure of welfare. Unfortunately, many economists... MORE
February 26, 2010
Macroeconomics
Arnold Kling
In a Garett Jones economy, a worker represents an investment. A firm can vary its production without adding or subtracting workers. At the margin, what workers do is provide additional capabilities, what Jones calls organizational capital. In a Hyman Minsky... MORE
Macroeconomics
Arnold Kling
Eric S. Raymond writes, We've spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker -- which meant the minimum revenue-per-employee threshold below which hiring doesn't make sense has crept up and up... MORE
February 24, 2010
Macroeconomics
Bryan Caplan
My questions for DeLong sparked two good non-DeLong questions in the comments:From Steve Roth:Employers *are* more likely (than employees) to put the money under their mattress.Perhaps not literally. But actually/practically.Employers spend a smaller percentage of marginal earnings on immediate consumption... MORE
Macroeconomics
Arnold Kling
By the way, my panel appearance on jobs is now up on C-span (I start about 45 minutes in. Also, I saved some of my thoughts for the Q&A, which starts about 64 minutes in.) In this post, I want... MORE
Macroeconomics
Bryan Caplan
David Henderson replied to this comment by Brad DeLong, but I'm still trying to figure out what Brad's saying. To requote:So is your argument really that if not for the stimulus package wages would be falling--and falling wages would be... MORE
February 22, 2010
Macroeconomics
Arnold Kling
Mark Gertler and Nobuhiro Kiyataki write, As balance sheets strengthen with improved economics conditions, the external
finance problem declines, which works to enhance borrower spending, thus enhancing the boom. Along the way, there is mutual feedback between the
financial and... MORE
February 18, 2010
Economic Methods
Arnold Kling
Menzie Chinn writes, the forecasts are generated using old-fashioned models in the spirit of the neoclassical synthesis (demand determined in short run, supply determined in the long run) with (as I understand it) backwards looking expectations rather than model-consistent expectations.... MORE
February 8, 2010
Macroeconomics
Bryan Caplan
Sumner writes:I'm not convinced mood swings are as obvious as they might seem. I've argued that the stock market crash of 1929 was a rational response to the sudden awareness that we were rushing headlong into Depression. I wonder if... MORE
February 3, 2010
Economic Methods
Arnold Kling
Sometimes, people want something so badly that there is money to be made selling them a defective product. Werner Troesken's paper (full version here) on the history of quack medicines offers an example. No matter how many of these medicines... MORE
February 1, 2010
Economic Methods
Arnold Kling
I am possibly going to speak on a panel in a few weeks on the issue of U.S. unemployment. I am thinking of trying to convey two ideas (is that too many? I only have ten minutes). 1. Do not... MORE
January 26, 2010
Macroeconomics
Arnold Kling
Senators Charles E. Schumer and Orrin G. Hatch write, Starting immediately after enactment, any private-sector employer that hires a worker who had been unemployed for at least 60 days will not have to pay its 6.2 percent Social Security payroll... MORE
January 19, 2010
Macroeconomics
Arnold Kling
If Josh Barro had not written this: As states and localities continue to fight budget crises, they have an opportunity to close gaps by freezing employee wages. Because public employee compensation rose too fast over the last three years, they... MORE
January 18, 2010
Macroeconomics
Arnold Kling
Scott Sumner writes, If NGDP falls 8% below trend, then nominal wages must also fall 8% below trend to maintain full employment, regardless of what is happening to real wages. So I think his story of the past year really... MORE
January 17, 2010
Macroeconomics
Arnold Kling
Scott Sumner cites James Tobin on the virtues of the Fed targeting nominal GDP. I wish Tobin had lived long enough to have something to say about the role of money in the current financial crisis. As you know I... MORE
Macroeconomics
Arnold Kling
Daniel Little discusses Seeing Like a State, which is something of a cult classic among some Masonomists. Thanks to Mark Thoma for the pointer. Well worth a read. Bill Woolsey says that it is obvious why we had a such... MORE
January 15, 2010
Finance: stocks, options, etc.
Arnold Kling
John Cochrane tells it, and he says, Now that the short-termcredit crunch is over, the recession seems likely to be followed by a quick recovery, at least if the government does not get in the way with too many counterproductive... MORE
Macroeconomics
Arnold Kling
Several economists, not just Scott Sumner, have argued that the recession is too deep and too broad to be explained by the Recalculation Story. I think that there are many weaknesses in the Recalculation Story. It is far from a... MORE
January 13, 2010
Macroeconomics
Arnold Kling
First I am so used to NGDP targeting be attacked from the right that I forget that it has no supporters on the left. Recall that conservatives usually support inflation or price level targeting, and think that NGDP targeting is... MORE
January 12, 2010
Finance: stocks, options, etc.
Arnold Kling
Ricardo Caballero writes, By 2001, as the demand for safe assets began to rise above what the U.S. corporate world and safe mortgage‐borrowers naturally could provide, financial institutions began to search for mechanisms to generate triple-A assets from previously untapped... MORE
January 10, 2010
Macroeconomics
Bryan Caplan
I doubt that Arnold's Recalculation story is more than a smidge of the current world recession. But I can certainly imagine shocks where he'd be dead on - and there are few shocks I enjoy imagining more than the triumph... MORE
January 8, 2010
Macroeconomics
Arnold Kling
1. On the current state of the economy, Mark Thoma highlights the employment-to-population ratio. Here is his chart: I think he is right to push this, because I find it a more reliable indicator than the unemployment rate. The graph... MORE
January 7, 2010
Finance: stocks, options, etc.
Arnold Kling
Interesting throughout. Thanks to Mark Thoma for the pointer. I agree with much of Rajan says, so I want to highlight the sentence with which I agree the least. On the role of government in the housing market, he says... MORE
January 4, 2010
Growth: Causal Factors
Arnold Kling
Robert Samuelson writes, What scars will the Great Recession leave? We are already seeing some. Americans are moving less than at any time since World War II, reports demographer William Frey of the Brookings Institution. People are tied to existing... MORE
January 3, 2010
Finance: stocks, options, etc.
Arnold Kling
He says, Slide 4 shows that the version of the Taylor rule based on forecast inflation (in green dots) explains both the course of monetary policy earlier in the past decade as well as the decision not to respond aggressively... MORE
Macroeconomics
Arnold Kling
From his Nobel AEA meeting lecture. It should have been easy to put the evidence of a mammoth housing bubble together with the concepts of third-generation crisis theory to see how a nasty deleveraging cycle could occur without the "original... MORE
December 31, 2009
Macroeconomics
Arnold Kling
Tyler Cowen writes, We're also seeing job losses in virtually every sector. It's not for instance a "sectoral shift away from services and into matchstick production and tungsten." It's a shift out of jobs which are revealed as unprofitable and... MORE
December 30, 2009
Growth: Causal Factors
Arnold Kling
These relate to recent discussions on this blog. 1. Clifford Winston and Robert Crandall on market failure and government failure, from Forbes last October. 2. A review of an optimistic book by Gregg Easterbrook. Mark Perry ties this back to... MORE
December 28, 2009
Fiscal Policy
Arnold Kling
Paul Krugman provides an analysis showing arithmetically that the fiscal stimulus will have a declining contribution to GDP growth, even as stimulus spending increases. What is interesting to me about this analysis is that the concept of a multiplier has... MORE
December 26, 2009
Macroeconomics
Arnold Kling
Joseph Lawler writes, The beauty of the structural change theory of jobless recoveries is that it is testable. If hiring is determined by shifts in what the economy produces, then the data will show that permanent layoffs outnumber temporary layoffs... MORE
December 23, 2009
Macroeconomics
Arnold Kling
From a short paper he calls Picking up Nickels: The more speculators ex ante expect bailouts and the more speculators are impressed with their own cleverness, the more hesitant should the central bank be about providing monetary accommodation. The paper... MORE
December 21, 2009
Finance: stocks, options, etc.
Arnold Kling
The syllabus looks interesting, but I think there are two topics that I would emphasize more if I were teaching it. 1. How did we get here? Most people seem to start their history of the crisis in about 2007... MORE
December 19, 2009
Macroeconomics
Arnold Kling
Read Scott Sumner's post. I would distill it as arguing that macroeconomics and monetary theory follow a cyclical pattern. 1. During good times, such as the Great Moderation, a view develops that the monetary authority can stabilize the economy by... MORE
Macroeconomics
Bryan Caplan
Maybe I'm just misinterpreting this passage, but I feel the need to correct one of my favorite textbook authors. Alex Tabarrok writes:A fall in wages increases the incentive to hire (call this the substitution effect) but it decreases the income... MORE
Macroeconomics
Bryan Caplan
Penny: He's a really good-looking guy, and I thought he was kind of cheesy at first... Billy: [quietly] Trust your instincts. Penny: But, he turned out to be totally sweet. Sometimes people are layered like that. There's something totally different... MORE
December 16, 2009
Macroeconomics
Bryan Caplan
Paul Krugman repeats his argument that wage cuts are an individually rational but socially destructive way to reduce unemployment. His motive: To quash a politically impossible effort to cut the minimum wage. Paul does address the real balance effect, but... MORE
Macroeconomics
Arnold Kling
Alan S. Blinder writes, The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate. There are two possible explanations. One: The last two quarters were among the most technologically... MORE
December 14, 2009
Macroeconomics
Bryan Caplan
I'm a sucker for a good Simpsons reference. Here's a great one from Bob Murphy:It may smack of paranoid conspiracy theories to some readers, but as the principal in the Simpsons said when the students overheard him predicting that they... MORE
Macroeconomics
Arnold Kling
Alex Tabarrok forwards Paul Krugman's citations of the late Paul Samuelson on the ineffectiveness of monetary policy, due to high substitutability between Federal reserve liabilities and other assets. Alex says that Samuelson sounds like me. Clearly, the causality runs from... MORE
December 8, 2009
Macroeconomics
Arnold Kling
Mike Moffatt wants to know if I see Stephen Gordon's analysis as supporting the Recalculation Story for Canada. Gordon writes, the manufacturing sector is where most of the damage occurred. Even though it employed fewer than one worker in eight... MORE
Macroeconomics
Arnold Kling
Scott Sumner writes, Why would doubling the supply of currency cause people to hold twice as much currency in real terms? Here is my thought experiment. Suppose that the government retired lots of $10 bills, giving $5 bills in exchange,... MORE
Macroeconomics
Bryan Caplan
Unless I've unfairly overlooked someone, it looks like no recalculationist answered my original question - namely, "By what percentage do real GDP and employment fall if nominal GDP unexpectedly declines by 5%?" Arnold comes the closest.In this example, I would... MORE
December 7, 2009
Macroeconomics
Bryan Caplan
Arnold answers my question with another question:[W]hy does nominal GDP suddenly fall by 5 percent?Let's keep it simple: The public freaks out for no good reason and responds by trying to increase cash balances, and the Fed doesn't accomodate.... MORE
Macroeconomics
Bryan Caplan
Suppose that the modern U.S. economy faced no out-of-the-ordinary recalculation problems. By what percentage do real GDP and employment fall if nominal GDP unexpectedly declines by 5%?P.S. If you're wondering why I'm asking...... MORE
December 6, 2009
Macroeconomics
Arnold Kling
Karl Smith looks at gross job flows and ask whether they support or refute the Recalculation Story. We can think of three reasons for people to lose jobs. First, normal churn, in which people shift out of declining firms and... MORE
December 4, 2009
Labor Market
Arnold Kling
1. Cut pay for state, local, and Federal workers. Many people worry about governments having to cut back on employment. They see this as an argument for higher government spending. However, it is actually a much stronger argument for cutting... MORE
Macroeconomics
Arnold Kling
I mention Scott Sumner a lot on this blog. Why? Because I see him as sticking up for mainstream macroeconomics. I myself have been pushing a non-mainstream idea, sort of a muddle between Leijonhufvud and Hayek that I call the... MORE
December 2, 2009
Macroeconomics
Arnold Kling
That is, he is saying things I disagree with. 1. Between July and November 2008 the Fed adopted an ultra-tight monetary policy. 2. Real interest rates on indexed 5 year T-bonds rose from 0.5% to 4.2% 3. The tight money... MORE
December 1, 2009
Macroeconomics
Arnold Kling
This is not big news, but Derek Thompson writes as if it is. The CBO came out today with a new report on the effect of the stimulus, or the American Recovery and Reinvestment Act (ARRA). The conclusion is that... MORE
Macroeconomics
Arnold Kling
On most monetary issues, I don't. But I like this post, where he comes out four square in favor of using the monetary base as his measure of the money supply. So when people start asking me about the banking... MORE
November 26, 2009
Growth: Consequences
Arnold Kling
In an interview, Bruce Greenwald says, Basically, in the Depression a huge sector of the economy that everyone had always regarded as central, died. And it dies for an almost virtuous reason. That sector of course is agriculture. Because productivity... MORE
November 22, 2009
Macroeconomics
Arnold Kling
Robert Shiller writes, Consider this possibility: after all these months, people start to think it's time for the recession to end. The very thought begins to renew confidence, and some people start spending again -- in turn, generating visible signs... MORE
November 21, 2009
Macroeconomics
Arnold Kling
What I call the Recalculation Story has many origins. One of them is Axel Leijonhufvud. He recently wrote, The economy is an adaptive dynamical system. It possesses the self-regulating, "equilibrating" properties that we usually refer to as "market mechanisms". But... MORE
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
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