Holman Jenkins on the Role of Organized Labor in Blocking Policy Initiatives in the Democratic Party

Mancur Olson, an economist who studied The Rise and Decline of Nations

Mancur Olson, an economist who studied The Rise and Decline of Nations

Last Saturday, Holman Jenkins had a very interesting op/ed in the Wall Street Journal: “Hey Mitt, Voters Aren’t the Obstacle.” What is the obstacle in Holman’s view? The political influence of organized labor.  The theory Holman bases his analysis on is from the brilliant economist Mancur Olson, who focused on the forces that change institutions over time. Holman:

Mancur Olson, the late and admired social thinker, described the lobbying incentives created by policies that concentrate benefits on the few and disperse the costs to the many. Recipients of federal entitlements aren’t highly motivated to oppose the kind of long-term reforms actually required by our fiscal dilemma. Organized labor is.

I encountered Mancur Olson through his book The Rise and Decline of Nations. Here is wikipedia’s summary of The Rise and Decline of Nations in its article on Mancur Olson:  

In 1982, [Mancur Olson] expanded the scope of his earlier work in an attempt to explain The Rise and Decline of Nations. The idea is that small distributional coalitions tend to form over time in countries. Groups like cotton-farmers, steel-producers, and labor unions will have the incentives to form lobby groups and influence policies in their favor. These policies will tend to be protectionist and anti-technology, and will therefore hurt economic growth; but since the benefits of these policies are selective incentives concentrated amongst the few coalitions members, while the costs are diffused throughout the whole population, the “Logic” dictates that there will be little public resistance to them. Hence as time goes on, and these distributional coalitions accumulate in greater and greater numbers, the nation burdened by them will fall into economic decline. 

The most interesting thing in Holman’s piece is his list of bipartisan and Democratic initiatives that were thwarted by union lobbying. I have added bullets and combined three different quotation blocks here, but the words are Holman’s:

  • When a flurry of bipartisan health-insurance proposals failed in the Nixon and Ford administrations, including a stillborn Kennedy-Nixon compromise and 1974’s promising Long-Ribicoff bill, all were defeated because labor rejected anything that wasn’t single-payer. (Ted Kennedy later called it his greatest legislative regret.)
  • When liberals like Rep. Jerrold Nadler proposed investing the 1990s Social Security surpluses in the stock market so the money wouldn’t be squandered on unrelated federal spending, labor killed the idea.
  • When Dick Gephardt, Tom Daschle and Rick Santorum voiced support for Social Security supplemental accounts, and when President Clinton said a bipartisan reform would be his No. 1 priority in 1999, labor snuffed the burgeoning consensus.
  • When Democrats gathered to nominate Al Gore in 2000, public-employee unions contributed a record number of delegates—at least 20% of the total. One of labor’s biggest aims, according to a lobbyist for the union-backed Fund for Assuring an Independent Retirement, was throwing cold water on any Democratic enthusiasm for Social Security and Medicare reform.
  • Think uninsured voters had any hand in designing ObamaCare? ObamaCare was largely designed by organized labor. Labor beat back attempts to curb the regressive tax subsidy for employer-provided insurance. Labor plumped for the incentives that will soon cause many employers to shift their health-care costs to taxpayers.
  • [Michelle Rhee, a Democrat] was the break-the-crockery D.C. schools chancellor, whose mission came to an end when Mayor Adrian Fenty was booted by a local electorate straight out of the latest Romney gaffe. To put it bluntly, voters in D.C. sided with the teachers union that Ms. Rhee was fighting over the students she was trying to help.

Holman summarizes as follows:

We don’t dismiss the power of AARP, but organized labor dominates the Democratic Party on Capitol Hill. Organized labor has been the force, decade after decade, carefully tending the creation of the many liabilities and excesses that now threaten the Republic.

Let me say this on my own behalf. No one should blithely assume that unions will support liberal policies, if by liberal policies one means policies to help the poor and the suffering. Most unions are middle-class organizations that in their political activities are ready and willing to sacrifice the interests of the poor to benefit their members and their leaders. (Here I am distinguishing the political activities of unions from the wage-and-benefit-raising and worker-voice activities of unions that I discuss in my post “Adam Ozimek on Worker Voice.”)

My Platform, as of September 24, 2012

Detroit Metro Times mockup of the card for my Federal Lines of Credit Proposal

This is an update of my post “Miles’s Best 7 “Save-the-World” Posts, as of July 7, 2012”– a title with a bit of gentle self-mockery at my own presumption. This time, inspired by the U.S. presidential campaign, I want to think of my most important policy recommendations as a kind of shadow political platform. I have neither the odd talents, the drive, nor the sheer stamina required to be a political candidate. But if I were a political candidate, this is the platform I would run on. 

Let me organize some key posts for each policy area. Within each policy area, I have arranged them in a recommended reading order. Many of the proposals are the proposals of others, but if I put a post in this list, it is something I have signed on to, with whatever caveats are in my post.

There are three areas where I don’t have as much in the way of specific proposals (with the one exception of Charter Cities), but the posts hint at an approach. I have signaled these by using the word “perspectives” in the area heading.

Until I do another update, you will be able to access this post at any time by the “‘Save the world’ posts” link at my sidebar. Or you should be able to reach it by using the searchbox further down on the sidebar.

Short Run Fiscal Policy

Long Run Fiscal Policy

Monetary Policy

Immigration Policy and Helping the Poor

Perspectives on Long Run Economic Growth and Human Progress

Global Warming

Labor Market and Education Policy

Health Care

Perspectives on Finance

Bipartisanship in Governing and Proper Conduct During Political Campaigns

Foreign Policy, etc.

General Perspectives

Let's Have an End to "End the Fed!"

Question. Professor Kimball - Former student here. Question. With QE3 recently announced, conversation about monetary policy and the Federal Reserve is picking up once again. I just got done watching one of those Institute for Humane Studies LearnLiberty videos explaining why we should end the Fed. It seems like most mainstream economists don’t take this view. Could you tell us your thoughts?

Answer. It is good to have a stable track of prices and output at its natural level. The Fed’s adjustments of the money supply make that possible. Without the Fed we would be at the mercy of other monetary winds–which could be anything from gold supply and demand to the vagaries of free banking. We would be particularly vulnerable to financial crises like the one we suffered in 2008. Without the Fed’s decisive action, the Great Recession would have been much worse. David Wessel’s book “In Fed We Trust: Ben Bernanke’s War on the Great Panic” is a good account.  Unfortunately, that decisive action had to include bailing out big banks, which is a big part of why the Fed is unpopular now.

Economists have emphasized for some time now how important it is to have an independent central bank such as the Fed when inflation is too high to be able in order to be able to do the unpopular things necessary to bring inflation down. In the last few years, we have seen how important it is to have an independent central bank such as the Fed when inflation is too low in order to be able to do the unpopular things (such as bank bailouts and quantitative easing) necessary to bring inflation up–and in particular to avoid getting too close to negative territory. The Fed doesn’t always make the right decisions, but in general it is responsive to good economics in a way that other institutions often are not.

Rodney Stark on the Status of Women in Early Christianity

From Rodney Stark’s book Discovering God: The Origins of the Great Religions and the Evolution of Belief, pp. 320-321:

In a Greco-Roman world where women were severely disadvantaged and many upper-class women even were relegated to nearly complete seclusion, Christianity (like the other “oriental” faiths) accorded women considerable status and an opportunity to lead. Beyond that, Christianity made life far more attractive for all female members. 

The advantages of Christian females began at birth. Infanticide was widely practiced by Greco-Romans, and it was especially female infants who were dispatched. A study of inscriptions at Delphi made it possible to reconstruct 600 families. Of these, only six had raised more than one daughter. As would be expected, the bias against female infants showed up dramatically in the sex ratios of the imperial population. It is estimated that there were 131 males per 100 females in the city of Rome, and 140 males per 100 females elsewhere in the Empire.  

The advantages of Christian women continued into the teens. Roman law suggested that girls not marry until age twelve, but there were no restrictions on earlier marriage (always to a far older man). A study based on inscriptions determined that about 20 percent of pagan girls married before the age of thirteen, compared with 7 percent of Christian girls. Only a third of pagan girls married at eighteen or older, compared with half of Christian girls. Once married, pagan girls had a substantially lower life expectancy, much of the difference being due to the great prevalence of abortion, which involved barbaric methods in an age without soap, let alone antibiotics.  Given the very significant threat to life and the agony of the procedure, one might wonder why pagan women took such risks. They didn’t do so voluntarily. It was men–husbands, lovers, and fathers–who made the decision to abort. It isn’t surprising that a world that gave husbands the right to demand that infant girls be done away with would also give men the right to order their wives, mistresses, or daughters to abort. Indeed, both Plato and Aristotle advocated mandatory abortions to limit family size and for various other reasons. 

Christian wives did not have abortions (nor did Jewish wives). According to the Didache, a first-century manual of Church teachings, “Thou shalt not murder a child by abortion nor kill them when born.”

Christian women also enjoyed very important advantages in terms of a secure marriage and family life. Although rules prohibiting divorce and remarriage evolved slowly, the earliest Church councils ruled that “twice-married” Christians could not hold church offices. Like pagans, early Christians prized female chastity, but unlike pagans they rejected the double standard that gave men sexual license. Christian men were urged to remain virgins until marriage, and extramarital sex was denounced as adultery. Henry Chadwick noted that Christianity “regarded unchastity in a husband as no less serious a breach of loyalty and trust than unfaithfulness in a wife.” However, this was not paired with opposition to marital sexual expression….

Standing Firmly for Freedom of Speech within Mormonism

Title page of the MormonThink website that may get David Twede excommunicated

I hope you have detected in my posts the affection I have for Mormonism. You may have wondered why I left Mormonism to become a Unitarian-Universalist.  (I officially remain on the Mormon Church’s records as a member, priest and elder.) The number one thing that drove me from active participation in Mormonism was abridgement of freedom of speech by Mormon Church leaders. Individual Mormons have been punished by the Mormon Church for their exercise of free speech even when they speak and write outside of church in a private capacity. According to the New York Times, this may be happening again, this time to David Twede. Here is the article: “Web Site Editor May Face Mormon Excommunication.”

Freedom of speech bolsters truth and weakens falsehood. If a belief is really true, it should having nothing to fear from freedom of speech. Believers in the virtues of the free market–which has some imperfections, but still has brought greater prosperity to the world than any other economic system ever has–should be attracted to the virtues of free speech as well. As a species, the human race cannot afford to give up the power of free speech to help us fulfill our potential.

I recognize the need for institutions to maintain their institutional cohesion. It is inevitable that there are limitations on freedom of speech while someone is acting in an official capacity for an institution, and that there are rules of order during meetings of an institution. And it is inevitable that a wide range of information will be used when decisions are made about promotion to the leadership ranks of an institution. But rank-and-file members of an institution willing to remain rank-and-file members should never be punished for their exercise of freedom of speech on their own time and in a private capacity. As I tweeted a few minutes ago along with the New York Times link:

This is America! We should have freedom of speech so deep in our bones it’s hard to abridge it even in a church context

Update: Here is a link to a Huffington Post article about the the final outcome. (The article also has a graphic about the most and least Mormon states.)         

Noah Smith on the Demand for Japanese Government Bonds →

In this post, Noah Smith argues that the price of Japanese government bonds (JGB’s) is still high (which is the same thing as saying the interest rate on Japanese government bonds is still low) despite the size of the Japanese government debt because people believe that the Japanese government will raise taxes in the future.  

Towards the end of his post, Noah raises the possibility of negative real interest rates as another way to deal with the debt. This seems quite possible to me. If confidence in the willingness of future Japanese governments to raise taxes falls, then the price of JGB’s will fall and their interest rates will rise significantly above zero. In that situation there would be more room for the Bank of Japan (BOJ) to push interest rates on JGB’s down toward zero again (and equivalently, push prices of JGB’s up) to stimulate the Japanese economy. If that stimulus raises inflation to the 2% per year rate that the Bank of Japan has said it wants, then real interest rates could easily be -2% (a nominal interest rate of 0 minus inflation of 2%) for quite some time.  

An important bit of background is that the Japanese government seems to be able to do quite a bit to twist the arms of insurance companies, regional banks and pension funds to get them to continue to hold JGB’s, as Noah argues in his earlier post “Financial Repression, Japanese Style.” And the pension funds in turn don’t give workers many choices about how to invest. That is the core of Noah’s answer to the obvious question of why anyone would ever put up with low real interest rates for JGB’s when higher real interest rates are available on foreign assets.

Another Dimension of Health Care Reform: Discouraging Soft Drink Consumption →

This article by Sharon Begley, “Can it! Soda studies cite stronger link to obesity,” discusses the strongest evidence so far that discouraging the consumption of sugary soft-drinks could reduce obesity. (The studies actually look at the effects on weight of substituting diet soft drinks for sugary soft drinks.)  

Many people think of discouraging sugary soft drink consumption as something that would appeal mainly to the political left. But Modeled Behavior suggests in a tweet at least one way to discourage soft drink consumption that might appeal to the political right, saying this: 

A federal ban on using food stamps to buy non-diet soda seems like a natural policy for Romney.

Let me say something about diet soft drinks. My understanding is that there is currently not enough evidence to say definitively what the effects of diet soft drinks are, though the recent studies cited in Sharon Begley’s article suggest that it causes less weight gain than sugary soft drinks. Based on the shreds of scientific evidence and reasoning I have read, my hypothesis is this:

Sweetness itself, regardless of how the sweet taste is generated may trigger an insulin response, getting the body ready for food. If food is not forthcoming, that readiness for food will make one feel hungry. Drinking diet soft drinks with a meal is OK, since in that case getting the body prepared for food was appropriate. But drinking diet soft drinks as a snack is likely to lead to weight gain.  

Be careful. I am not saying this is known. It isn’t. As far as I know, the evidence just isn’t there. But if I were an obesity researcher, this is the hypothesis I would be investigating. I would be delighted for any references to evidence for or against this hypothesis, and encourage those who are obesity researchers to pursue it, if they are not already. Because the hypothesis involves the detailed timing of consumption diet soft drinks, it would be hard to get good evidence from non-experimental data.

Love's Review

David Love, whom I only now learn goes by “Dukes,” was a star student in my very advanced “Business Cycles” class at the University of Michigan. He went on to get a Ph.D. in Economics at Yale and become a tenured macroeconomics professor at Williams College. We have stayed in touch over the years, but had not corresponded recently. I share his email a few days ago with his permission:  

Dear Miles,

After a week of continuously visiting and reading your blog, I thought I’d let you know that you’re providing a wonderful public service. There’s a gem in nearly every entry, and I’ve found myself eagerly returning to see whether you’ve posted anything new. If you want to know how influential a good blog can be, consider that I’ve read Chetty’s article on measuring risk aversion; your recent NBER paper on the fundamental aspects of well being; and I just ordered an exam copy of Weil’s textbook on Economic Growth – and all in the week since I started visiting Confessions of a Supply Side Liberal. I was especially touched by your sermon inspired by David Foster Wallace, and I sent it along to friends and family far removed from economics.

There are many economics blogs out there, but yours contains a rare mixture of fine writing, humanity, and Feynman’s pleasure of finding things out. Thanks for putting it out there!

Sincerely,

Dukes

Pedro da Costa on Krugman's Answer to My Question "Should the Fed Promise to Do the Wrong Thing in the Future to Have the Right Effect Now?"

In Krugman’s Legacy: Fed gets over fear of commitment, Pedra da Costa gives a nice summary of Paul Krugman’s view that the Fed needs to commit to overstimulate the economy in the future in order to stimulate the economy now.  In a post back in June, I asked the question “Should the Fed Promise to Do the Wrong Thing in the Future to Have the Right Effect Now?” directing my question to Scott Sumner in particular. This was really a question about whether  "Quantitative Easing" (see my post “Balance Sheet Monetary Policy: A Primer”) has an effect independent of how it changes people’s expectations about future safe short-term interest rates such as the federal funds rate. If buying long-term and risky assets has an independent effect, then with large enough purchases, the Fed can stimulate the economy now without committing to push the economy above the natural level of output in the future, as I discussed in “Trillions and Trillions: Getting Used to Balance Sheet Monetary Policy,” where the picture of a giant fan at the top of the post symbolizes the idea that a small departure from the way things work in a frictionless model, multiplied by huge purchases of long-term and risky assets, can have a substantial effect. In my view, Krugman made an error by trusting a frictionless model too much. In other contexts, economists are suspicious of frictionless models that make extremely strong claims if applied uncritically to the real world, as I discuss in “Wallace Neutrality and Ricardian Neutrality.”

On the question of how the world works, “Wallace Neutrality and Ricardian Neutrality” links to Scott Sumner’s answer, while “Trillions and Trillions: Getting Used to Balance Sheet Monetary Policy,” links to Noah Smith’s answer. Scott, Noah and I are on record against the frictionless model behind Paul Krugman’s views. I have tried hard to convince Brad DeLong on this issues, as you can see in “Miles Kimball and Brad DeLong Discuss Wallace Neutrality and Principles of Macroeconomics Textbooks.” My sense is that Brad has come around to some degree, though that may be just wishful thinking on my part. 

There is a technical name for what I am talking about in this post–a name you can see above: “Wallace neutrality.” For some links on Wallace neutrality, see my post “‘Wallace Neutrality’ on wikipedia.”

Let me be clear that this scientific issue will become most important when the economy has recovered. At that some, I forecast that some voices will call on the Fed to “keep its commitment” to leave interest rates low even after the economy has recovered “in order to maintain credibility for stimulative promises in the more distant future.” The Fed needs to be able to point back to a clear record of statements showing that it never made such a commitment. Those most concerned about inflation (“inflation hawks”) in the FOMC  (the Federal Open Market Committee, which is the monetary policy decision-making body in the Federal Reserve System) should be particularly worried about this, and should make clear in every speech that the Fed has not made any precommitment to overstimulate the economy in the future.

If large scale asset purchases have an independent effect on the economy (not working through expectations), building up a track record of following through on promises to overstimulate the economy is unnecessary. In other words, if the real-world economy does not obey Wallace neutrality, situations in which the federal funds rate and the Treasury bill rate are close to zero can be dealt with by purchasing other assets, instead of by promises of future overstimulation.

My recommendation is that the Fed continue to insist that it is only predicting its future policy, not precommitting. Even better would be to make clear that the Fed will continue very vigorous stimulative policy until output is again fully on track to reach its natural level, but is making no commitment to push the economy above its natural level of output (unless doing so is necessary for price stability). If I understand correctly, recommendations by Market Monetarists that the Fed should announce that it is targeting nominal GDP are in this spirit.

Stephen Donnelly on How the Difference Between GDP and GNP is Crucial to Understanding Ireland's Situation →

Ireland is in trouble. But outside Ireland, many economists think it is doing fine. Why? Stephen Donnelly argues that part of the answer turns on the difference between Gross Domestic Product and Gross National Product. Gross Domestic Product (GDP) is the value of goods and services produced within a country each year or quarter. Gross National Product (GNP) is the value of goods and services produced by the labor, capital and other resources owned by citizens of a country each year or quarter. For most countries, GDP and GNP are close to each other, but Ireland has attracted so much foreign investment that a large share of its capital stock in owned by foreigners. Thus, Ireland’s GNP is much lower than its GDP.

The presence of the foreign-owned capital raises wages in Ireland, so it is a good thing. But the income from the foreign-owned capital itself does not belong to Irish citizens, and so is not much help when it comes to handling the debt of the Irish government–especially since the Irish government needs to keep the promise to tax foreign-owned capital lightly that it made in order to attract foreign investment.

Energy Imports and Domestic Natural Resources as a Percentage of GDP

Much is written and said about the impact of energy imports and natural resources on output. But a basic fact makes it hard for energy imports and natural resources to matter as much as people seem to think they do: natural resources account for a small share of GDP–on the order of 1% = .01, and energy imports measured as a fraction of GDP are also on the order of 1% = .01. Even a 20% increase in the price of imported oil, for example, should make overall prices go up something like a .01 * 20% = .2%. It should take a huge increase in the price of oil to make overall prices go up by even 1%.  Am I missing something?  

It is a little dated, but here is what I found online about oil imports as a percentage of GDP. (I’ll gladly link to a more recent graph instead if there is one.) 2% of U.S. GDP is near the high end for the value of our oil imports in the past.  And here are World Bank numbers for factor payments to natural resources as a percentage of GDP.  

Cross-National Comparisons of Tax and Benefit Systems and Economic Behavior

Question from tommlu

Hi. I’m an undergraduate in my senior year, and I was wondering if you could any topics for an economic thesis, particularly in the area of taxation. Let me say that I am unconvinced that taxes has an effect on economic growth in the short run or the long run. There’s no doubt that taxes create a disincentive to work, but is that effect really so large as to decrease overall economic activity (productivity, demand, income,). If you could offer any suggestions for me, I would love to hear them. Thanks.

Answer

To me, the more interesting question is the long-run question. Here, I think there is something very useful you could do in an undergraduate thesis. Tax and benefit systems of different countries are complex enough that it is not easy to research all the details to compare how different tax and benefit systems lead to different effects. (I have seen this done more comprehensively for tax and benefit policies that would affect retirement decisions than for tax and benefit policies for younger workers).  Doing thorough case studies of the tax and benefit systems of various countries and looking for the predicted effects would be a great service. For example, do many of the French take August off because of the details of their tax and benefit system? Is there something about Germany’s tax code and benefit code that helps explain why so few German women work? Don’t forget advanced Asian economies, such as Japan.

You would have the most impact if you concentrate first and foremost on providing clear summaries of how the tax and benefit codes of different countries work and what the details are. I know I would learn a lot from that. I think most economists would.

What I am suggesting might have been impossible before Google Translate, but nowadays, your computer will give you a translation that is probably good enough to figure out most of what is going on.

Matthew O'Brien: How Much is a Good Central Banker Worth? →

This is a very interesting article. In relation to what Matthew writes, let me say that Ben Bernanke is a superstar central banker in my book. It is a mistake to judge central bankers by a standard of perfection. Central banking is too hard for that. Ben has done a great job in difficult circumstances, as can be seen in David Wessel’s book In Fed We Trust. My guess is that Ben’s biggest mistakes as a central banker have come from deferring too much to other views that were less on-target than his own. Although making monetary policy decision-making less centered on the Chairman of the Fed is the right thing for the long-run future, I think we would have had better monetary policy in the last few years had Ben trusted his own judgment more and asserted himself more strongly. Ben’s mistakes of intellectual humility are the kinds of mistakes a serious seeker of the truth makes.

Books on Economics

Two questions: One, I am interested in your recommendations about a book/articles to read list for those lay-persons interested in the study of economics. I am attorney by training but love to read about differing theories on economics. I am a bit on the progressive side in my politics and so found your definition of “supply-side liberal” interesting. Second, your view on FDR and Depression-era economic policies and what it took for the U.S. economy to recover during that time. Thanks.

billythekidatheart

Answers: On what non-economists should read about economics, my first reaction is that the economics blogosphere is the place to go. For example, if you want a discussion accessible to non-economists of current economic disputes, Noahpinion.com does a good job. I have been telling Noah for some time that as part of his academic career he should become a historian of modern macroeconomic thought. You can see his talent for that in his blog.  

My second reaction is that some economics textbooks are truly excellent and good for anyone to read even if they are not taking a class. I am currently reading some of the macroeconomics chapters from Tyler Cowen and Alex Tabarrok’s Modern Principles of Economics. It is a great read. I agree with this review on Amazon: 

This is one of the most readable textbooks I have ever encountered. The writing is amazingly interesting given that it is a general, core subject. The book includes many very up-to-date samples and reads almost like a magazine in places.

I need to read a lot more to decide whether to use it for my class, but I am definitely tempted. 

At the next level up, I love David Weil’s textbook Economic Growth. This is the truly important stuff in economics. You can see what I learned from (the first edition of) this book in my post “Leveling Up: Making the Transition from Poor Country to Rich Country.”

My third reaction is to look at what I have actually read. (In conversation, economists often use the words “revealed preference” to express the idea “Watch what I do, not what I say.”) I have kept a list of books I have read since 1995. I have been planning to write posts based on that list at some point. Let me use your question as an occasion to do a basic post on the economics slice of my book list.  

Only a small fraction of the books I read are economics books. Here are the economics, economic policy and business books on the list, with the month I finished reading each. For the most part, I have linked to the most recent edition I found. I should say that I disagree with two of the books below in important respects: The Paradox of Choice by Barry Schwartz and Happiness by Richard Layard, although these are very interesting books. Let me also say that Thorstein Veblen is a terrible prose stylist, so I doubt you would enjoy reading The Theory of the Leisure Class. 

  1. The Unbound Prometheusby David S. Landes (4/97)
  2. The Lever of Riches by Joel Mokyr (5/97)
  3. The Wealth and Poverty of Nations by David Landes (5/98)
  4. Luxury Fever by Robert H. Frank (3/99)
  5. The Evolution of Retirement by Dora L. Costa (8/99)
  6. The Return of Depression Economics by Paul Krugman (9/01)
  7. The Wealth of Man by Peter Jay (10/01)
  8. Digital Dealing by Robert E. Hall (11/02)
  9. The New Culture of Desire by Melinda Davis (8/03)
  10. The Rise of the Creative Class by Richard Florida (8/03)
  11. The Overspent American by Juliet Schor (12/03)
  12. The Matching Law by Richard J. Herrnstein  (3/04)
  13. The Sense of Well-Being in America by Angus Campbell (4/04)
  14. Macroeconomics (5th ed.) by N. Gregory Mankiw (4/04)
  15. The Progress Paradox by Gregg Easterbrook (5/04)
  16. False Prophets: The Gurus Who Created Modern Management…by James Hoopes (5/04)
  17. The Paradox of Choice by Barry Schwartz (7/04)
  18. The Elusive Quest for Growth by William Easterly (2/05)
  19. Growth Theory by David Weil (3/05)
  20. Happiness by Richard Layard (3/05)
  21. The Joyless Economy by Tibor Scitovsky (5/05)
  22. The Winner-Take-All Society by Robert Frank and Philip Cook (8/06)
  23. The Theory of the Leisure Class by Thorstein Veblen (9/06)
  24. The 2% Solution by Matthew Miller (1/07)
  25. The World is Flat by Thomas Friedman (1/07)
  26. The Harried Leisure Class by Staffan Linder (2/07)
  27. The Age of Abundance by Brink Lindsey (12/07)
  28. Utilitarianism by John Stuart Mill (12/07)
  29. Super Crunchers by Ian Ayres (4/08)
  30. Principles of Macroeconomics by N. Gregory Mankiw (4/09)
  31. Macroeconomics by Paul Krugman and Robin Wells (11/09)
  32. In Fed We Trust by David Wessel (1/10)
  33. The White Man’s Burden by William Easterly (2/10)
  34. Sonic Boom: Globalization at Mach Speed by Gregg Easterbrook (6/10)
  35. The Quants by Scott Patterson (6/10)
  36. A Beautiful Mind by Sylvia Nasar (2/10)
  37. The Rational Optimist: How Prosperity Evolves by Matt Ridley (7/10)
  38. The Nature of Technology  by W. Brian Arthur (8/10)
  39. The Philosophical Breakfast Club by Laura J. Snyder (4/11)
  40. Thinking, Fast and Slow by Daniel Kahneman (1/12)
  41. Grand Pursuit: The Story of Economic Genius by Sylvia Nasar (2/12)
  42. The Road to Serfdom by Friedrich Hayek (4/12)
  43. Free to Choose by Milton Friedman (5/12)
  44. A Theory of Justice by John Rawls (7/12)

Outside of what I read for classes (such as

The Worldly Philosophers

by Robert Heilbroner

and the 1977 or so edition of Paul Samuelson’s textbook) I can only remember a few economics books I read before I started my book list. Three good ones are

On your second question, about the Great Depression, I agree with Milton Friedman and Anna Schwartz’s view (in a book I’m afraid I haven’t read: A Monetary History of the United States, 1867-1960) that the depth and length of the Great Depression resulted from bad monetary policy. In my view, the only reason things have been any better in the last few years is because of better monetary policy–in important measure because of Ben Bernanke, but more broadly because the economics profession has learned from its past mistakes. (Paul Krugman’s New York Times column yesterday, “Hating on Ben Bernanke,” is right to criticize the “liquidationist” view. Though one can debate whether it should have gone even further, this past week the Fed moved a long way in the right direction and deserves to be applauded. The views that Mitt Romney and Paul Ryan are expressing about monetary policy are potentially disastrous if they really mean them, and extremely unhealthy even if those expressed views are simply a matter of being willing to say anything to win an election.) 

As for FDR, based on economics seminars I have attended, my view is that as a technical economic policy matter (and leaving aside war-related decisions as a separate category) the details of what FDR did in economic policy were a mess, and mostly made things worse during the 1930’s. (The long-run virtues and vices of FDR’s policies that have lasted to the present are still at the center of our political debate.) However,despite how unimpressive FDR’s policies were from a technical point of view,FDR’s success in maintaining a modicum of confidence and so staving off political pressure for a bigger turn toward socialism was a huge contribution. And FDR’s principle of “bold, persistent, experimentation” is wonderful. (I was glad to hear Barack Obama echo those words in his acceptance speech.) I have used this principle of “bold, persistent, experimentation” as a major part of my argument in several posts:

The Deep Magic of Money and the Deeper Magic of the Supply Side

Introduction

I will assume that you have either read The Lion, the Witch and the Wardrobe, seen the movie, or don’t intend to do either. So I won’t worry about spoiling the story for you. C.S. Lewis’s fantasy is set in the world of Narnia. WikiNarnia explains the laws of nature in Narnia that drive the plot of The Lion, the Witch and the Wardrobe:

The Deep Magic was a set of laws placed into Narnia by the Emperor-beyond-the-Sea at the time of its creation. It was written on the Stone Table, the firestones on the Secret Hill and the sceptre of the Emperor-beyond-the-Sea.

This law stated that the White Witch Jadis was entitled to kill every traitor. If someone denied her this right then all of Narnia would be overturned and perish in fire and water.

Unknown to Jadis, a deeper magic from before the start of Time existed which said that if a willing victim who had comitted no treachery was killed in a traitor’s stead, the Stone Table would crack and Death would start working backwards.

Like the Deep Magic and the Deeper Magic in Narnia, in macroeconomics, money is the Deep Magic and the supply side is the Deeper Magic. In the short run, money rules the roost. In the long run, pretty much, only the supply side matters. In this post, I want to trace out what happens when a strong monetary stimulus is used to increase output and reduce unemployment. In the short run, output will go up, but in the long run, output will return to what it was.

The Deep Magic of Money

Let me start by explaining why money is the Deep Magic of macroeconomics. There are many people in the world today who think it is hard making output go up, and that we need to resort to massive deficit spending by the government spending to stimulate the economy or from tax cuts meant to stimulate the economy. But as I explained in an earlier post, Balance Sheet Monetary Policy: A Primer, there are few limits to the power of money to make output go up in the short run. 

Money as a Hot Potato when the Short-Term Safe Interest Rate is Above Zero. When short-term safe interest rates such as the Treasury bill rate or the federal funds rate at which banks lend to each other overnight are positive, almost all economists agree that money is very powerful. Suppose the Federal Reserve (“the Fed”) or some other central bank prints money to buy assets. In this context, when I say “money” I mean currency (in the U.S., green pieces of paper with pictures of dead presidents on them) or the electronic equivalent of currency–what economists sometimes call “high-powered money.” (When the Fed creates the electronic equivalent of currency, it isn’t physically “printing” money but it might as well be.) The Fed requires banks to hold a certain amount of high-powered money in reserve for every dollar of deposits they hold. Any high-powered money that a bank holds beyond that is not needed to meet the reserve requirement and is usually not a good deal because it earns an interest rate of zero (unless the Fed decides to pay more than that for the electronic equivalent of currency held in an account with the Fed). So inside the banking system, reserves beyond those that are required–called “excess reserves”–are usually a hot potato. Also, outside the banking system, at an interest rate of zero, high-powered money is normally a “hot potato” that households and firms other than banks try to spend relatively quickly, since every minute they hold high-powered money they are losing out on higher interest rates they could earn on other assets, such as Treasury bills. I say “relatively” quickly because there is some convenience to currency. So if the Fed prints high-powered money to buy assets, that hot potato money stimulates spending until until people and firms wind up with enough deposits in bank accounts that most of the high-powered money is used up meeting banks’ requirements to hold reserves against deposits, while the rest is in people’s pockets or the equivalent for convenience.

What Happens at the Zero Lower Bound on the Nominal Interest Rate. Many things change when short-term, safe interest rates such as the federal funds rate or the Treasury bill rate get very low, near zero. Then high-powered money is no longer a hot potato, either inside or outside the banking system. Banks and firms and households become willing to keep large piles of high-powered money–piles doing nothing (something even many non-economists have remarked upon lately). In the U.S. extremely low interest rates are a relatively new thing, but Japan has had extremely low interest rates for a long time; in Japan, it is not unusual for people to have thick wads of 10,000-yen notes (worth about $100 each) in their wallets. There are economists who believe that when short-term safe interest rates are essentially zero so that high-powered money is no longer a hot potato that money has lost its magic. Not so. Printing money to buy assets has two effects: one from the printing of the money, the other from the buying of the assets. That effect can be important, depending on what asset the Fed is buying.

Normally, the Fed likes to buy Treasury bills when it prints money. But buying Treasury bills really does lose its magic after a while. Interest rates on Treasury bills falling to zero is equivalent to people being willing to pay a full $10,000 for the promise of receiving $10,000 three months later. (You can see that the interest rate is then zero, since you don’t get any more dollars back than what you put in. If you paid less than $10,000 at first, then you would be getting more dollars back at the end than what you put in, so you would be earning some interest.) No one is willing to pay much more than $10,000 for the promise of $10,000 in three months, since other than the cost of storage, one can always get $10,000 in three months just by finding a very good hiding place for $10,000 in currency. So when the interest rate on Treasury bills has fallen to zero, it is not only impossible to push that interest rate significantly below zero, in what turns out to be the same thing, it is impossible to push the price of a Treasury bill that pays $10,000 in three months significantly above $10,000.

Fortunately, there are many other assets in the world to buy other than Treasury bills. Unfortunately, the Fed only has the legal authority to buy a few types of assets. It can buy long-term U.S. Treasury bonds. It can buy mortgage-backed assets from Fannie Mae and Freddie Mac–which are companies that were created by the government to make it easier for people to buy houses. (They used to be somewhat separate from the government, despite being created by the government, but the government had to fully take them over in the recent financial crisis.) The Fed can buy bonds issued by cities and states. It can also buy bonds issued by other countries (as long as the bonds are reasonably safe), but usually doesn’t, since other countries would have strong opinions about that. A key thing the Fed does not feel it is allowed to do is to buy packages of corporate stocks and bonds. Still, with the menu of assets the Fed clearly is allowed to buy, it can have a big effect on the economy, even when short-term, safe interest rates are basically zero.

If the Fed buys packages of mortgages, it pushes up the price of those mortgage-backed assets. When the price of mortgage-backed assets is high, financial firms become more eager to lend money for mortgages, even though they remain somewhat cautious because they (or others who serve as cautionary tales) were burned by mortgages that went sour as part of the financial crisis. If financial firms become eager to lend against houses, more people will be able to refinance and spend the money they get or that they save from lower monthly house payments, and some may even build a new house.

If the Fed buys long-term Treasury bonds, that pushes up their price, making them more expensive. Some firms and households who had intended by buy Treasury bonds will now find them too pricey as a way to get a fixed payoff in the future. With Treasury bonds too pricey, they will look for ways to get payoffs in the future that are not so pricey now. They may hold onto their hats and buy corporate bonds or even corporate stock, despite the risk. That makes it easier for companies to raise money by selling additional stocks and bonds. Up to a point it also pushes up the price of stocks and bonds, so that people looking at their brokerage accounts or their retirement accounts feel richer and may spend more. If you don’t believe me, just watch how joyous the stock market seems every time the Fed surprises people by announcing that it will buy more long-term Treasury bonds than people expected–or how disappointed the stock market seems every time the Fed surprises people by announcing that it won’t buy as many long-term Treasury bonds as people had expected.

The Cost of the Limited Range of Assets the Fed is Allowed to Buy. It is true that at some point the legal limits on what the Fed is allowed to buy will put a brake on how much the Fed can stimulate the economy. But that does not deny the power of money to raise the price of assets and stimulate the economy, it only means that when we don’t allow newly created money to be used to buy a wide range of assets, then money is hobbled. Aside from the effect limits on what the Fed can buy have on the ability of money to stimulate the economy, those limits also affect the cost of what the Fed does. If the Fed is only allowed to buy a narrow range of assets, it will have to push the price of each of those assets up a lot to get the desired effect, and then when it sells them again to avoid the economy overheating, it may lose money from the roundtrip of buying high (when it pushed the price up by buying) and selling low (when it later pulls the price down by selling). This is a bigger problem the lower the interest rate on a given type of asset is to begin with. It is also a bigger problem the longer-term an asset is. So risky assets that have higher interest rates to begin with–and perhaps, especially, risky short-term assets–are better in that regard.

Summarizing the Deep Magic of Money. The bottom line is that in the short run, money has deep magic that can stimulate the economy as much as desired. Right now, the power of money is as about as circumscribed as it ever is, and yet it still has its magic. And yet, I claim, as almost all other economists claim, that in the long run, the supply side will win out. Not only will the supply side win out in the long run, but in the long run, money has virtually no power to affect anything important–unless continual, rampant printing of money drives the economy into the disaster of hyperinflation, or a serious shortage of money causes prices to fall in a long-lasting bout of deflation. (The fact that, short of hyperinflation or deflation, money has virtually no power to affect anything important in the long run is called monetary superneutrality.) How can money have so much power in the short run and so little in the long run?

The Deeper Magic of the Supply Side

The answer to how money can have so much power in the short run and so little in the long run is that the supply side will bend in many ways in the short run, but will always bounce back.

Price Above Marginal Cost Makes Output Demand-Determined in the Short Run. To begin with, the most basic way in which the supply side is accomodating in the short run is that if a firm has–for some period of time–fixed a price above the cost to produce an extra unit of its good or service (the marginal cost), then it is eager to sell its good or service to any extra customer who walks in the door. And firms will, in general, set their prices at least a little above what it normally costs to produce an extra unit as long as they can do so without losing all of their existing customers. Here is why. Thinking in long-run terms, if the firm sets its price equal to marginal cost, then it doesn’t earn anything from the last few customers. So losing that customer by raising the price a little is no harm. And raising the price a little means that all of the customers who don’t bolt will now be paying more–more that will go into the firm’s pocket. Raising the price too high puts that extra pocket money in jeopardy, so the firm won’t raise prices too high, but it will raise the price at least some above marginal cost as long as it doesn’t lose all of its customers by doing so. To summarize, if firms do fix prices for some length of time as opposed to changing them all the time, they are likely to set those prices above what it normally costs to produce an extra unit of the good or service they sell. And if price is above marginal cost, then given a temporarily fixed price, the amount by which price is above marginal cost is what the firm gets on net when an extra customer walks in the door. For example, produce a widget for a marginal cost of $6, sell it for $10, and take home $4 as extra profits.  

So firms who won’t lose every last customer by raising their price will set price above marginal cost, and then will typically be eager to sell to an extra customer during the period when their price is fixed. I say “typically” because if enough new customers walked in the door, then marginal cost might increase enough above normal to exceed the fixed price. Then the firm would lose money by selling further units, and it will make up an excuse to tell customers about why it won’t sell more. The usual excuse is “we have run out”–which is a polite way of saying that they could do more, for a high enough price, but won’t for the price they have actually set. But since the firm will set price some distance above marginal cost to begin with, there is some buffer in which marginal cost can increase without going above the price. And anywhere in that buffer zone, the firm will still be eager to serve additional customers.  

How Extra Output is Produced in the Short Run. How does the firm actually produce extra units in the short run? Here it is more interesting to broaden the scope to the whole economy. (Much of what follows is drawn from a paper I teamed up with Susanto Basu and John Fernald to write: “Are Technology Improvements Contractionary?”–a paper that has to consider what happens as a result of changes in demand before it can begin to address what happens with a supply-side change in technology.) When the amount customers are spending increases, so that firms need to produce more to serve that extra quantity demanded, the firms may, at the end of the day hire additional employees. But that is usually a last resort. There are many other ways to increase output short of hiring a new employee. Here are three avenues to increase production even before hiring new workers:

  1. ask existing employees to stay longer and work more hours in a week and take fewer vacations;
  2. ask existing employees to work harder while they are at work–to be more focused while at their stations or their desks, and to spend less time away from their work at the water cooler;
  3. delay maintenance of the factory, training, and other activities that can help the firm’s productivity in the long run, but don’t help produce the output the customer needs today.

The Workweek of Capital. One thing that doesn’t have time to contribute much to output when demand goes up is new machines and factories. It is simply hard to add new machines and factories fast enough to contribute that big a percentage of the increase in output. But people working longer hours with the same number of machines and factories don’t necessarily have to crowd around the limited number of machines and workspaces, since those machines and workspaces were often unused after hours anyway. So when the workers work longer, so do their machines and workspaces. Even when new workers are added, they can often be added in a new shift at a time when the machines and workspaces had been unused. So the fact that it is hard to quickly add extra factories and machines is not as big a limitation to output in the short run as one might think. Of course using machines and workspaces around the clock has costs. Extra wear and tear is one cost, but probably a bigger cost is having to pay people extra to be willing to work at the inconvenient hours of a second or third shift. (Note that paying an inexperienced worker working at night the same as a more experienced worker during the day is also paying extra beyond what the inexperienced worker would be worth for production if he or she were working during the day.)

Reallocation of Labor. At the economy-wide level another contribution to higher GDP in a boom is that in a boom the amount of work done tends to increase most in those sectors of the economy where a 1% increase in inputs leads to considerably more than a 1% increase in output–that is, in sectors such as the automobile sector where there are strong economies of scale (also called increasing returns to scale). These tend to also be sectors in which the price of output, and therefore the marginal value of output, is the furthest above the marginal cost of output. So when more work is done in those sectors, it adds a lot of valuable output that adds a lot to GDP–a lot more than if extra work by that same person were done in another sector where the price (and therefore the marginal value) of output is not as far above marginal cost.

Okun’s Law. When firms are finally driven to hiring additional workers, this still doesn’t reduce the number of “unemployed” workers by an equal amount, for the simple reason that, when firms are hiring, more people decide it is a good time to look for a job, and go from being “out of the labor force” (not looking for work) to “in the labor force and unemployed” (looking for work but haven’t found it yet). So in addition to all the ways that firms can increase output without hiring extra workers, the fact that hiring extra workers causes more worker to look for work also makes it hard to make the unemployment rate go down. So hard, in fact, that the current estimates for what is called “Okun’s Law” (after the economist Arthur Okun) say that it typically takes 2% higher output to make the unemployment rate 1 percentage point lower. (Note that a typical constant-returns to scale production function would say that 2% higher output would require 3% higher labor input. Thus, if 2% higher output came simply from hiring extra workers for a constant returns to scale production function, then the unemployment rate would go down almost 3%. So the details of how firms manage to produce more output matter a lot.)   

The Supply Side in the Short Run and in the Long Run. That is the story of the short run. Extra money increases the amount that firms and households want to spend. Firms accommodate that extra desire to spend because price is above marginal cost. They actually produce the extra output by a combination of hiring extra workers and asking existing workers to work longer and harder, in a way that often takes advantage of economies of scale. Firms also may focus their productive efforts more on immediately salable output. They deal with a relatively fixed number of workspaces and machines by keeping the factory or office in operation more hours of the week.

The thing to notice is that both the ways in which the firms accommodate extra demand and their motivation for doing so rely on things that won’t last forever. Workers may work longer and harder without complaint for a while, but sooner or later they will start to grumble about the long hours and the pace of work, and maybe begin looking for another job. Of course, they may not even have to look for another job, since with a booming economy, a job may come looking for them.  So even a boss who is too dense to realize all along the strain he or she is putting workers through, will eventually realize the cost of those extra hours and effort as wages get driven up labor market competition. What is more, the boss will eventually get around to raising the firm’s prices in line with this increased marginal cost as the “shadow wage” of the extra strain on workers goes up (something smart bosses will pay attention to) and ultimately the actual wage goes up (which will catch the attention of even dense bosses).   

As prices rise throughout the economy, another force kicks in: workers will realize they are working hard for a paycheck that doesn’t stretch as far anymore, and start to wonder “Is it worth spending so many long, hard, late hours at work?” Even when the workers’ answer is still “On balance, yes,” because the answer is no longer “YES!” they will not jump to the boss’s orders with the same speed anymore, which will make the boss see the workers as less productive, and therefore see a higher marginal cost of output. All of this speeds the increase in prices even more, and speeds the return of hours worked and intensity of work to a normal pace. The temporary bending of the supply side toward greater production will be undone. There are things that permanently affect the supply side, but short of a monetary disaster, money is not one of those things. Short of a monetary disaster, and leaving aside tiny effects, money only matters in the short run. Economists call this monetary superneutrality and say that money only matters in the short run by saying the words the long-run aggregate supply curve is vertical. 

Three Codas: Inflation Magic, Sticky vs. Flexible Prices, and Federal Lines of Credit

Is There Any Direct Magic by which Money Causes Inflation? A crucial aspect of the story above is that money only causes a general increase in prices–inflation–by increasing output and leading to all the measures discussed above to produce more output. Some economists think that printing money can cause inflation even if it doesn’t lead to an increase in output. Money has magic, but not that kind of magic. 

Let me discuss the two closest things I can think of to money having some direct magic that could raise inflation even without an increase in output.

  1. First, to some extent, inflation can be a self-fulfilling prophecy. If firms believe that prices will be higher in the future, those who have gotten around to changing prices will set higher prices now. So if firms believed that printing money could cause inflation without increasing output, then to some extent it would. But I see no evidence that many firms believe this. They know how hard it is for them to raise prices in their own industry when demand is low.
  2. Printing money to buy assets drives up the prices of assets in general, as financial investors look for assets that are still reasonably priced to buy, bringing up their prices as well. Many commodities, such as oil, copper, and even cattle, have an asset-like quality because they can be used either now or later. (And copper–and depending on the use, cattle–can be used both now and later.) When the Fed pushes up the prices of assets, it pushes up what people are willing to pay now for a payout down the road. That pushes up the price of oil, copper, and cattle now. This looks like inflation, but it is not a general increase in prices, but an increase in commodity prices relative to other prices in the economy. When the economy cools down (often, unlike the story above, because the Fed sells assets to mop up money and cool down an overheated economy), all of these increases in commodity prices go in reverse, and the roundtrip effect on the overall price level from the rise and fall of commodity prices along the way is modest. 

Sticky Prices vs. Flexible Prices. Some prices are relatively flexible and quick to change, while others are fixed for a relatively long period of time. (I don’t emphasize wages being fixed for often as much as a year at a time, since a smart boss should realize that in a long-term relationship, a high level of strain on workers, which can come on quickly, leads to extra costs even if the actual wage changes only slowly.) Prices are especially flexible and quick to change for the long-lasting commodities I discussed above, and for relatively unprocessed food such as bananas and orange juice. (In relatively unprocessed food, most of the cost is from the ingredients and bringing the food to the customer rather than the processing. And it is hard to differentiate one’s product from the competition’s product, so the price can’t be pushed very far above marginal cost.) Another interesting area where prices are very flexible is in air travel, where ticket prices can change dramatically from one week to the next. By contrast, prices are fixed for relatively long periods of time for most services. (My wife Gail is a massage therapist. I know that massage therapists think long and hard before they raise prices on their clients, and warn their clients long in advance about any price increase. In an even more extreme example, it is not uncommon for psychotherapists to keep their price fixed for a given client during the whole period of treatment, even if it lasts for years.) The prices of manufactured goods are in-between in their degree of flexibility.   

When demand is high so that the economy booms, flexible prices move up quickly, while sticky prices move up only slowly. But when the economy cools down, the flexible prices can easily reverse course, while the sticky prices have momentum. (Greg Mankiw and Ricardo Reis explain one mechanism behind this momentum in their paper “Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve”: firms’ sense of the rate of inflation–often based on old news–feeds into their price-setting. In this account, inflation feeds on past inflation that affects that sense of what the rate of inflation is.) So, perhaps counterintuitively, it is inflation in sticky prices that is the most worrisome. The Fed is right to focus its worries about inflation on what is happening to the sticky prices. In the news, this is described as focusing on “core inflation”–the overall rate of price increases for goods other than oil and food. 

The existence of a mix of flexible and sticky prices in the economy is important for macroeconomic models, since it means that higher aggregate demand will have some immediate effect on prices (because of the flexible prices), but the effect on the overall price level will still be limited (because of the sticky prices). Economists often describe this as the “short-run aggregate supply curve” sloping upward–as opposed to being vertical, as it would be if all prices were flexible, or horizontal, as it would be if all prices were sticky. The existence of a mix of flexible and sticky prices is also important because it means that this “short-run aggregate supply curve” can shift when flexible prices change for reasons other than the level of aggregate demand. (Unfortunately, the most obvious reason the “short-run aggregate supply curve” might shift is because of a war in the Middle East that raises the price of oil in a way that is not do to the level of aggregate demand.) 

Federal Lines of Credit. I have focused on monetary policy in this post, arguing that traditional fiscal stimulus–government spending or tax cuts meant to stimulate the economy in the short run–is inferior because it adds so much to the national debt. But  there is one type of fiscal policy that adds relatively little to the national debt, as I discuss in my post “Getting the Biggest Bang for the Buck in Fiscal Policy.” The “Federal Lines of Credit” I propose in that post are a type of fiscal policy that is similar in some ways to monetary policy, since Federal Lines of Credit involve the government making loans to households. Federal Lines of Credit, like money, have deep magic, but in the long run their effects on output will also be countered by the deeper magic of the supply side.

Miles's Teaching Tumblog →

There are some posts I am using for my Principles of Macroeconomics class I think most readers of this blog will not be interested in, but that I want to make available to anyone who is interested. I am going to put them on a secondary Tumbler blog. Here is the link again. And here is the link spelled out:

http://profmileskimball.tumblr.com

I will also put a link on my sidebar, so you can always access it.

The first post on my Teaching Tumblog is up. I typically won’t announce each post on my Teaching Tumblog. You will have to go look to see what is there.