Category Macro
Asking the right question about fiscal policy
If you can't get a good answer to a question, it might be because you are asking the wrong question. Good answers need good questions. Before 1975 (roughly), we used to ask questions like: "What is the effect of increasing the money supply today, when unemployment is bigger than normal?" After 1975, economists learned to […]
A very simple derivation of the balanced budget multiplier in a very monetarist model
This is mainly a brain-teaser. But I hope you find it useful, as well as fun. 1. Assume initially there is no government. So G=T=0, and Y=C+I. (You can add in net exports too if you want, or delete I if you want to make the model simpler still.) 2. Assume MV=P(C+I), where V is […]
Where (I think) Mike Woodford’s model of the multiplier is wrong
Paul Krugman asks a fair question. If anyone disagrees with what Mike Woodford says about the New Keynesian government expenditure multiplier, can they point to where exactly they disagree with Mike Woodford's model (pdf). I am going to do just that. I'm not 100% sure I'm right (we never should be). But I think Mike […]
Consumption smoothing and the Keynesian multiplier
This is the simple short version, but it covers quite a lot of ground. Nothing much new here. Maybe the bit towards the end is newish.
If S weren’t I
There is something very strange about a counterfactual conditional in which the counterfactual is logically impossible. There are no possible worlds in which something logically impossible happens, so we can't ask which of the possible worlds in that subset is most plausible. The subset is empty. "If saving were bigger than investment, what would happen […]
Macroeconomics and the Celestial Emporium of Benevolent Knowledge
This is what we teach, right at the very beginning of macro: 1. Macroeconomics is about GDP. 2. On the expenditure side, GDP is divided into Y=C+I+G+NX 3. On the income side, GDP is divided into Y=C+S+T Now read what Borges said on a closely related subject. We don't have to think of macroeconomics that […]
Why “saving” should be abolished
I mean the concept, not the activity. Because it's the most confusing concept in macroeconomics.
The slow speed of recovery, PSST, plucking, and skewed news
Judging by output, employment, and unemployment, the Canadian economy hit bottom around the middle of 2009. Two and a half years later, output, employment and unemployment have recovered a lot. But like most observers I believe, and certainly hope, that we have not yet had a full recovery to the long run sustainable path. Why […]
Bob Murphy plays with the debt burden
I don't normally do blog posts with just a link to someone else's blog post. We aren't that sort of blog. But I'm going to make an exception in this case. Bob Murphy's latest post on the burden of the debt is very clear, very comprehensive on both sides of the debate, and very funny. […]
Steve Landsburg goes “meta” on me
Steve Landsburg has what I think is the best response so far to my "Debt is too a burden on our children unless you believe in Ricardian Equivalence" post. [Update: I strongly recommend Steve's latest post, which puts everything together.] Steve says "I want to explain what [Nick] means, and why it’s wrong." But he […]
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