Songs for Intermediate Macroeconomics
I am a big fan of the AI song-creation app Suno. Currently, it will let you create 10 songs a day free, and will store and play back an unlimited number of your songs (as well as letting you discover songs by others).
Full disclosure: I learned about Suno from my daughter, who was associated with a venture capital company (Matrix Partners) that helped fund it. Although she is now leaving that company, she stands to receive a small fraction of its IPO or other exit value. I know I would love Suno even if it had no connection to my daughter.
Suno will take prompts to make a song about anything, including economics! If I can, I’ll try to make up a song or a few about the central idea(s) of each lecture. Listening to them is likely to help you remember key concepts.
You’ll remember the concepts even better if you use Suno or another song-creation app to make songs yourself in your own favorite genre. You can see the prompt I used, which has the key economic ideas in it.
The most annoying limitation on Suno is the limit on the number of characters I can use for a prompt. Running up against that limit, I often intentionally mispell words in order to use fewer characters. You will have to figure out how to deal with that limit if you make your own versions of these songs of economics.
Below are the songs, along with my commentary on them.
A. The Hockey Stick in Per Capita Income
Here my views are shaped by Brad DeLong’s book Slouching Towards Utopia: An Economic History of the Twentieth Century. By “Twentieth Century” in the subtitle, he actually means a “long 20th century” from 1870 to 2010. I do think that recently things have shifted, so ending things in 2010 isn’t bad though one could quibble. But why start the account in 1870? Because 1870 was about when the Second Industrial Revolution began. (Try prompting ChatGPT or other AI: “Tell me about the 2d Industrial Revolution.”) Brad DeLong argues that if the 1st Industrial Revolution (coal, iron, steam, textiles) hadn’t been followed by the 2d (electricity, cheap steel, fertilizers, dyes, explosives, pharmaceuticals, cars, expanded rail networks, mass production), that the “Malthusian Devil” of population growth outpacing resources for that 1st-Industrial-Revolution technology would have won again.
Here are 3 songs about the Malthusian Devil and the eventual escape from it:
I liked “Kings and Queens with Iron Fists” because Brad DeLong emphasizes that when humanity was poor institutions of force and fraud were the main strategy for a few people to get enough, at the expense of everyone else. Now, technology makes it so everyone could have enough, if we could only figure out how to do the social organization right—itself a very difficult problem that is actually the main theme of Slouching Towards Utopia.
All of these songs allude to the 1st Industrial Revolution, and “Dreams of Circuits” alludes to the Digital Revolution. But they give short shrift to the 2d Industrial Revolution. So I asked Suno to make a song directly about the 2d Industrial Revolution:
B. The Invisible Hand
A free market economy is a strange and wonderful thing. As Friedrich Hayek emphasized, it does a lot of processing of widely scattered information. In “America's Big Monetary Policy Mistake: How Negative Interest Rates Could Have Stopped the Great Recession in Its Tracks,” I compared a free market (or relatively free market) to a computer. Recently, I read the philosopher Eric Schwitzgebel’s book for a popular audience, The Weirdness of the World, and realized it might be possible to take the analogy up a notch. Eric Schwitzgebel argues that if the elementary particles of physics somehow interact to generate human consciousness, as a standard nonsupernaturalist view of physics suggests, then interactions between human beings might create a distinct consciousness for, say, the United States of America. To my mind, he missed an opportunity. We actually have a name for the potential consciousness of the economy of the United States or of the world: The Invisible Hand. You don’t have to accept this reasoning. But the fact that we can debate whether a free market economy is a conscious being illustrates how remarkable it is.
(In judging whether there is a distinct consciousness to a free market economy, it is worth remembering that we attribute consciousness to many other animals besides humans. Our dogs and cats certainly seem conscious. My son-in-law Erik Berlin did a series of Twitter polls—back when it was Twitter—on whether various animals were conscious. You can see the results here. The borderline animal was the spider. About 50% of those who answered think spiders are conscious and about 50% think that spiders are not conscious. Now, compare the conciousness of the free market economy to the consciousness of a spider.)
Here is a link to my and my AI Suno’s song on that. The title is an appropriate one for macroeconomic forces that often seem mysterious. For example, if macroeconomic forces raise the unemployment rate, any given individual might escape unemployment, but a larger total number of people are doomed to be unemployed.
C. Levels vs. Changes
In economics, it is crucial to distinguish levels and changes. (That is one reason calculus is so important in economics. y and dy/dt are very different.) Here is a song about that in relation to our economic level and economic growth:
D. US Monetary Policy History
The song “Banner High and Bright” flagged below alludes to (i) William Jennings Bryan’s “Cross of Gold” speech in 1896, arguing for loosening the gold standard (in this case, by allowing the coinage of silver), (b) the Accord of 1951 between the Federal Reserve and the Treasury Department, (c) the US “Great Inflation” of 1965-1982, and (d) the lower inflation since then, with even the high inflation after the pandemic rectified within a few years time. You can easily create graphs of inflation over time, as well as the Federal Reserve’s target interest rate over time using FRED, a convenient data resource provided by the Federal Reserve Bank of St. Louis.
E. How Output Above the Natural Level Causes Higher Inflation and Output below the Natural Level of Inflation Causes Lower Inflation.
For this, I thought carefully about what I have written in research papers. Importantly, “There Is No Such Thing as Decreasing Returns to Scale,” so an upward-sloping supply curve does not come from a long-run U-shaped average cost curve. Rather, it comes from workers, factories and equipment in the factories being at least somewhat attached to particular firms. But also, tight labor markets and tight markets for rental spaces for business and other rentals shift a firm’s supply curve upward.
Firms “daydreaming” about price hikes or price cuts alludes to the “instantaneously optimal desired price” that a firm would wish to have right now if it were the only firm to have perfectly flexible prices. But, in fact, changing prices can be costly—at least if a firm thinks carefully about how to incorporate macroeconomic information into how it changes prices. (Decision-making costs can be substantial. Think of the level of education required to even be involved usefully in incorporating macroeconomic information into price-setting.) But eventually, firms do change prices, and macroeconomic information does percolate into those price changes. Exactly how that happens is a complex and contested area of macroeconomics. So the line “Dreams become what happens” refers to this complex process. A key aspect of this is that firms care not only about the instantaneously optimal desired price now, but the instantaneously optimal desired price in the future, since they might be sticking with the price they set for a while. If there is trend inflation, the instantaneously optimal desired price in the future will be higher than it is now, so trend inflation makes firms set prices higher when they do change their prices. The upshot is that inflation tends to sustain itself, unless output diverges from the natural level. Here are two songs, one for each direction.
(This was in danger of being very dry, I’m afraid, so I thought to put a little color on it by asking Suno to make Country songs about this. Hence the emphasis on farmers.)
F. The Fisher Equation: Real Interest Rate = Nominal Interest Rate Minus Inflation
G. What the Fed Can and Can’t Do in the Short Run and in the Long Run
The main things I would add here if it had worked with the song are
(i) Control over interest rates in the short run also gives the Fed control over the output gap and a host of other things related to the output gap, such as the unemployment rate.
(ii) In the long run, the output gap is, on average, zero (this is beyond the Fed’s control).
(iii) The Fed controls very little in the long run, other than inflation and a few other things closely related to long-run inflation, such as the nominal interest rate.
(iv) As an exception to the above, the Fed probably has the power to ruin things in the long run by pushing the economy into hyperinflation or into secular stagnation by very bad policy. What the chorus of the song says and (i—iii) are what the Fed can and can’t do if it is trying to do good within at least a minimal understanding of how monetary policy works.
H. The Equation of Exchange: MV=PY
I. Negative Interest Rate Policy
A good place to start in understanding negative interest rate policy is my Quartz column “America's Big Monetary Policy Mistake: How Negative Interest Rates Could Have Stopped the Great Recession in Its Tracks.”
Because the song below mentions crypto, I want to emphasize that, from a policy point of view, I am not a fan of typical crypto itself. See my Slate article “Governments Can and Should Beat Bitcoin at Its Own Game.” (Admittedly, to riff on the interest people have in crypto, I have called my policy an “electronic money” policy.)
By contrast to crypto, which I am not interested in (they are risky assets, not money in any ordinary sense), “central bank digital currencies” are something that would be helpful (though not necessary) for negative interest rate policy if done right. “Done right” means that central bank digital currencies themselves have to be able to have negative interest rates on them!
J. The Solow Residual
By solving the Cobb-Douglas production function for technology “A”, one gets the “Solow Residual,” which measures the level of technology from data on output, capital, labor and capital’s share. (Capital’s share is measured by the share of the firm’s—or in the aggregate, the nations’—costs that are accounted for by payments to capital.) Intuitively, the logarithm of technology is measured by log(output) minus a weighted average of log(K) and log(L), and percent changes in technology are measured by the percent change in output minus a weighted average of the percent change in K and the percent change in L. The weights are as one would expect: capital’s share as the weight on log(K) or the percent change in K; labor’s share (which is 1 - capital’s share) as the weight on log(L) or the percent change in L. On all of this, see the “Cobb-Douglas with Constant Returns to Scale Exercise.”
The percent change case is the most common, and the “Solow Residual” ordinarily refers to what you get when you solve for percent change in A. Here is the song:
K. Divisia Indexes
L. Capital’s Share Equals the Output Elasticity of Capital
M. Avoiding Double-Counting or Counting Things That Don’t Belong
N. The Decline of Farming and the Rise and Decline of Manufacturing as a Share of GDP and Employment
In the song below, in addition to the Chorus, the first two lines of the Bridge are mine.
O. Natural Randomized Controlled Trials—The Case of Charter Schools
What I find remarkable here about the evidence is that we have gold standard evidence charter school by charter school about the effects it has on a child to win the lottery and attend the charter school compared to whatever schools the kids who lose the lottery attend. There is no reason for those who win the lottery to be any different on average from those who lose the lottery, except for the causal effect of the charter school.
N. Why Housing is So Expensive
Many of the cities people would otherwise most like to live in have had strongly anti-construction policies. This is sometimes called “NIMBY”: Not In My Back Yard. In addition to directly raising the cost of getting land one is allowed to build houses on, the difficulty in getting permission to build makes it hard for companies to (a) get the immediate benefits of economies of scale and (b) get the technological learning that could have been gained individual firms each building many, many houses. Remarkably, there has been very little measured technological progress in building houses since World War II—a period during which we have gotten much, much better and making other things. See “Why Housing is So Expensive.” and (my renaming—it isn’t actually titled that) “Why Has Construction Productivity Stagnated? The Role of Land-Use Regulation—Reporting on the Work of D'Amico, Glaeser, Gyourko, Kerr & Ponzetto.” Here is the song:
O. Stocks and Flows; State Variables and Control Variables
The distinction between stocks and flows is not the same as the distinction between state variables and control variables, but they are related. The capital stock K is both a stock and a state variable. Investment I is a flow and is usually modeled as a control variable.
P. The Overgrowth of Occupational Licensing (Another Reason to Pay Attention to State and Local Policy)
On occupational licensing, see “When the Government Says ‘You May Not Have a Job’”. Two definitions: “Occupational licensing” is when the government says “you may not do this unless you have gone through everything required to get a license. Certification” is when the government or some other organization says “you may not call yourself a [barber, Certified Professional CoActive Coach,BA,PhD…] unless you have met certain requirements”; those who are not certified can still offer to do the same job without certification, they simply can’t advertise a certification they haven’t earned.
Q. Insurance
Three important types of insurance I discussed in class were life insurance (listen to the song), disability insurance (get as much as you can, as long as it is competitively priced), and annuities (worry about outliving your money, as long as you are healthier than the average American, which almost all of you will be, wait until age 70 to collect Social Security: you’ll get a lot more).
R. The Demographic Transition
This song refers to a graph I drew: per capita income on the horizontal axis, birthrates on the vertical axis. It is a hill (an inverted U). Birth rates increase with income up to the peak, then fall with income after that. This means that once income gets above a certain level, the Malthusian devil is defeated (at least for a long, long time). Since the Malthusian devil tends to drag down income when on the upward sloping part of the curve, Brad DeLong argues that the First Industrial Revolution (think steam) alone would not have been enough to get over the hump to the rightward part of the kid. But the Second Industrial Revolution (think electricity) could do it. Of course, our problem now is that we have moved over so far to the rightward part of the curve that population in rich countries that don’t have much immigration is starting to shrink. (Japan’s population is shrinking by about 1% per year.) But that is not directly a problem about per capita income.
S. The Intersections of Economics with Other Disciplines
T. The Fed’s Monetary Policy Job
The Fed has non-monetary jobs, such as bank and financial regulation. But in monetary policy, here is what the Fed needs to do:
Decide on a long-run inflation target. Like many other major central banks (such as the European Central Bank, the Bank of Japan, the Bank of England) the Fed has chosen 2% per year inflation as its target. I argue instead for a zero inflation target coupled with being ready and willing to use negative rates—including deep negative rates—when needed. See “The Costs of Inflation” and “The Costs and Benefits of Repealing the Zero Lower Bound...and Then Lowering the Long-Run Inflation Target.”
Once it has chosen an inflation target and gotten the economy to that level of inflation, the Fed’s job (as for other central banks) is to keep inflation steady at that rate. Because output above the natural level causes inflation to go up and output below the natural level causes inflation to go down, keeping inflation steady (“stabilizing” inflation) is the same thing as keeping output at the natural level of output. The fact that steadying inflation and keeping output at the natural level are the same thing is called “The Divine Coincidence” by economists. Here is its song:
3. The one other big decision is what to do after a mistake that knocks inflation up or down and therefore knocks the price level off track. (a) Return to the original planned price level track (which required a period of below-target inflation to compensate for above-target inflation, or a period of above-target inflation to compensate for below-target inflation) or (b) follow a permanently different price level track that parallels the original path, either higher or lower. (a) is called “price-level targeting.” (b) is called “inflation targeting.” A zero inflation target would make price-level targeting more attractive because it is then simply trying to keep the price level the same. (Price-level targeting with a 2% per year inflation target is harder to explain. That has a target that is an upward-sloping path for the price level, decided on in advance.)
U. The Inadequacy of GDP and GNP as Measures of National Well-Being
As detailed in GDP: A Brief but Affectionate History, by Diane Coyle, the closely related measures of GDP and GNP arose as a way to measure a nation’s capacity for war. For that, it is a good measure. And as a measure of activity in which money changes hands (plus the services of owner-occupied housing), GDP is quite reasonable. But as a measure of national well-being, it is quite inadequate. The following is a song using the text of Robert F. Kennedy Sr.’s famous quotation about the limitations of GDP, from a March 18, 1968 speech at the University of Kansas. Somewhat arbitrarily, back then, GNP rather than GDP was the favored measure. RFK mentions a figure of $800 billion for GNP. 1967 GDP in 1967 dollars (nominal GDP then) was $832.6 billion. In 2025 dollars—where we can’t be as precise because adjusting for inflation is imperfect—1967 GNP was $8 Trillion! That is, a dollar back then was worth almost ten times what a dollar is worth now.
V. Ultra Short Run, Very Short Run, Short Run, Long Run, Very Long Run
This song gives the basic rundown in its long text:
In this song the full text is mine. Unlike most of these songs, no robot-generated lyrics! Study it carefully.
NOTE: Y = AD after unintended inventory investment is reversed. Thus, Y = AD except in the ultra short run. The ultra short run action is what make Y = AD.
The song below makes a particular point:
Note that the Fed can’t avoid the Very-Short-Run and Ultra-Short-Run action. Nor does it have any real power over the Long-Run or Very-Long-Run action. Its great power is to shortcut the price adjustment process. If the Fed does the right thing, price can stay on its original track and the economy will still be OK.
NOTE: The output gap is defined as output minus the natural level output. Actually, in practice, it is defined as ln(output) - ln(natural output). Thus, a zero output gap implies output is at its natural level.
W. The Rational Expectations Revolution and the Lucas Critique
For the next song, I wrote a generalized version of the Lucas Critique and the prescription for what to do as a macroeconomist with which I agree 100%. Any problems with the implementation of a strategy in response to the Lucas Critique come from faults in how (a) what people want is modeled (for example, people care about feeling happy as well as about money and leisure time), (b) how limitations people face are modeled (sometimes inadequate technical shortcuts are used) and crucially (c) the assumption that people are infinitely intelligent—or at least are so smart that they make perfect economic decisions given what they knew at the time.