Archive for January, 2009

Class News (335/402): Podcast Update

January 31, 2009

It looks as if  F&S podcasts will happen!  We will experiment Tuesday night.  I will try to get a podcast on the blog after the session, but there is no guarantee of success.  Please plan accordingly.

Hat tip to June Kim in 402 (pm) for technical support!

Posted at 8:40 am (updated 2:28 pm)


Class News (335/402): Quiz 2 Key/F&S Sessions

January 30, 2009

Here are keys to Quiz #2:

Friedman & Schwartz (F&S) study session is on for Tuesday, February 3rd, 7 pm, Seigle L006 (i.e., same time/place as last one).  I reserved that room at that time for the semester and will conduct study sessions the next few weeks.  [Note: I received email pleas for Monday nights because of conflicts.  I prefer Mondays, but logistics could not be worked out.   I am open to recording podcasts for the blog, but I don’t have the necessary infrastructure/experience.  If someone wants to help – attending sessions, recording me in podcast format, and assisting with uploading – I would look favorably on that effort.  See syllabus on factors used to determine borderline grades.]

Of course, students with conflicts can always ask questions via email or during office hours.

Posted at 1:47 am

Further Study (402): Becker/Posner on Inequality

January 30, 2009

In class, I argued (from Barro) that it makes more sense to target poverty than income inequality – if you want to improve social welfare worldwide.   Turns out, Gary Becker and Richard Posner held forth on rising income inequality in the U.S. and world back in 2006.  Here is the link to Posner’s post: Posner on Income Inequality.  Here is Becker’s response: Becker on Income Inequality.  Note: Their blog contains links to their individual home pages, where you can find bios.

Hat tip to Yera Choi!

Posted by MDV at 12:47 am

WSJ Alert 3 (335/402): More on Stimulus

January 29, 2009

First off, I am renaming required business-press posts (“WSJ Alert” instead of “WSJ Email”). Several students were expecting emails. Sorry for the confusion.

Here is an article from today’s WSJ (A1) on the bill passed last night: House Passes Stimulus Package (WSJ). Here is a critical op-ed from today’s Washington Post by Martin Feldstein (Harvard Prof, former NBER head): Feldstein – An $800 Billion Mistake. I searched for pro-stimulus musings, without much luck! I am sure Christy Romer or Larry Summers will pen something for the Administration soon. In the meantime, so you won’t think I am out to indoctrinate, here is a “Letter to the Editor” from yesterday’s WSJ by Alex Field, a respected macroeconomic historian (and New Keynesian) at Santa Clara University:

What John Maynard Keynes argued, and what the experience of World War II showed, was that when an economy is well below potential output, large scale government spending can bring it to full employment very quickly. Ideally, if the spending is well chosen, it will increase aggregate supply. But even if it does not, the effect on aggregate demand can be beneficial. The principles needed to analyze a severely depressed economy differ from those that apply to one fully employed, and the policies one recommends may well be the opposite of those one would counsel to foster long run economic growth.

The larger point, to many Keynesians, is the irrelevance of the contents of the package. Government spending on anything will increase aggregate demand, thereby boosting output and employment. Here is the Master himself from The General Theory:

…Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better.

It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly “wasteful” forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict “business” principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions.

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

…Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed two activities, namely, pyramid-building as well as the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as good as one; but not so two railways from London to York. Thus we are so sensible… (MDV Note: Last sentence intended to be sarcastic.)

Here is a link to the whole chapter, if you want context: Keynes (GT) – Chapter 10. Here is a link to the entire book: Keynes – General Theory. (Note: You are not responsible for anything more than excerpt above. Consider GT links “Further Study.”)

Last point (more “Further Study” stuff): In 402 (pm), I noted the New Keynesian tent was big – indeed so big it includes Greg Mankiw (another Harvard prof, served President Bush as Chair of the Council of Economic Advisors) and Paul Krugman (certified President Bush loather). Both went to MIT. In his blog, Mankiw muses on why they went separate directions: Mankiw on Krugman.

Posted at 9:45 pm

Admin Alert (335/402): Syllabus Changes, etc.

January 29, 2009

The syllabus indicates most every quiz will have a take-home component due the following Wednesday.   To that end, in an earlier post I said there would be one this week.  There will be no take-home exercise this week, and I am changing the schedule for these exercises. It is important to get your hand dirty  with data.  It is also important to practice essays/problems of the type appearing on exams.  (The goal of weekly quizzes is to provide an incentive to keep up, not test deep understanding.)   That said, I can tell folks are getting off to a slow start on Friedman & Schwartz  (F&S).  I want you to spend time with the book, so you have (1) an understanding of U.S. macroeconomic history that to help you think more deeply about the current financial crisis/recession and (2) an exposure to/appreciation of original research in economics.   But, believe it or not, I realize you do have other classes.  So to head off despair and F&S neglect, I will not give weekly take-home data exercises/problems.  Instead, I will gin up a few take-home exercises for part 1 of the class and a few for part 2.  Each will count as an additional quiz, and you will have 10-14 days to knock it out.  But I will still average your best 10.  What this means is you now have at least 18 quizzes (assuming 4 take-home exercises).   Note: This is a Pareto improvement — no one is worse off (blow off the take-home exercises and your quiz average is based on the best 10 of the 14 originally scheduled ) and anyone completing an exercise is better off (more quiz drops).   Standby for the first take-home exercise.

The consensus view is sessions should continue, so I will hold them for at least the next few weeks.  The next one will be Monday or Tuesday night at 7 pm.  (I am having problems finding a room.)  I will post the date/time/location no latter than Monday morning.   Again, these are optional and offering them is Pareto improving by the same reasoning as the change in the take-home exercises.

Last Wednesday, I spent the entire 402 (am) class answering F&S questions.  To keep other classes from getting too far ahead, I devoted much of 335 and 402 (pm) lecture to non-scheduled material (FOMC statement in 335/Barro vs. Krugman in 402).   In all three classes, I built slack into the course outline, so we
should to catch up in a few lectures. And further F&S tangents shouldn’t be a problem; the study sessions will take care of most questions. To avoid “where are we?” type confusion, I will make it clear each week what is fair game for quizzes.   And, of course, I will note in class where we are.  (This advisory is targeted at my fall 104 students.  Last semester, I did not use class as productively as usual, in large part because of a 14-year hiatus from 104.   There is still rust — I have not taught 335 or 402 in 4+ years — but it is coming back pretty fast.)

Note to 335: Monday I will finish up “Overview of Financial Markets” and start “Financial Structure.”  The “Intro to Money” chapter is short and descriptive, so I will leave it to you.

Have a great weekend!

Posted by MDV at 4:17 pm

Further Study (335/402): U.S. vs. Europe

January 28, 2009

Think the Europeans have it all figured out?  Maybe no, but maybe yes…   Here is an interesting article from the International Herald Tribune on differences in welfare policy between the Old World and the New: Is Europe’s welfare system a model for the 21st century?

Hat tip to Marlous von Waijenburg (a European, of course – SMILE)!

Posted by MDV at 12:12 am

F&S Aid (335/402): Notes on Chapter 2

January 27, 2009

I updated/expanded the reading notes to chapter 2, “The Greenback Period.”   I hit most of the new points in the study session.  Here is the link: reading-notes_fs-chapter-2

Posted by MDV at 10:33 pm

Further Study (335/402): More Macro Links

January 27, 2009

For those wanting to dig still deeper into the history of 20th century macroeconomic thought…

The Concise Encyclopedia of Economics (CEE) contains short essays on a broad range of economic concepts/issues – written by well-respected economists.   Under Econ Resources on this blog, you will find a link.   CEE contains essays titled:  Keynesian Economics, New Keynesian Economics, Monetarism, New Classical Macroeconomics, and Rational Expectations.  (Real Business Cycle theory is discussed in the New Classical Macro essay).   There are also biographical essays on major players in the evolution of macro thought, including  Milton Friedman, Bob Lucas, Ed Prescott, Bob Solow, and James Tobin.

Check it out!

Posted at 6:01 pm

Further Study (335/402): Macro History Readings

January 27, 2009

Because there were no assigned readings for my “History of Macro Thought” lectures, I thought you might like references.  Here are two non-technical articles that collectively cover most of the ground.

De Long, J. Bradford.  “The Triumph of Monetarism?  Journal of Economic Perspectives. 14, no. 1 (2000): 83-94. Here is the link: de-long_monetarism.

Woodford, Michael.  “Revolution and Evolution in Twentieth-Century Macroeconomics.”  Paper presented at a conference, Frontiers of the Mind in the Twenty-First Century, U.S. Library of Congress, Washington, D.C., June 1999. Here is the link: woodford_20th-century-macro.

De Long is a spirited New Keynesian and political infighter (Democrat).  His blog is linked in my “Favorite Econ Blogs.”

In addition, here is a link to a op-ed from yesterday’s New York Times by Paul Krugman in which he continues to chamption a stimulas package: Krugman – Bad Faith Economics.  By the way, in my view Krugman has done first rate scientific work as an economist.  I am less enamored of his politics.  (If you care why, read the following essay by Arnold Kling: An Open Letter to Paul Krugman.)  You should make up your own mind, though, so I will continue to provide a range of views to consider.

Posted by MDV at 3:27 pm

Class News (402): Quiz #1 Info

January 27, 2009

Tomorrow’s quiz will cover F&S chapter 2 (Greenback Period), the Barro/Krugman WSJ emails, the “History of Macro Thought” lecture (from 1/21 and 1/26), and Barro, chapter 3 (pp. 36-46 only).   The in-class portion will be split equally between F&S and non-F&S material.   I have not written the quiz yet, but it will most likely be 10-15 true/false questions.  (I will post a note if format changes.)  A take-home exercise (counting toward next week’s quiz) will be posted Wednesday night.  Ninety percent of the material for this week’s quiz is the same for both 335 and 402, but the quizzes will be different.  You have to take the quiz in both classes unless I have given you permission (confirmed in email traffic) to take it only once.

Posted by MDV at 2:40 pm