Category Nick Rowe
Excess demands for apples, bonds, and money in a representative agent economy
1. Assume a representative agent model in which everyone has exactly the same supply and demand for apples. No apples get traded in equilibrium. A law which lowers the price of apples will create an excess demand for apples, but will have no effect on anything else. People will now want to buy apples, but […]
Popular support for increased inequality?
One part of Canada's tax-transfer system increases inequality of wealth. That's not an unfortunate side-effect of the policy; it is deliberately designed that way. It would be very easy to design it differently so that it did not increase inequality.
“But where will the demand come from?” In praise of older Keynesians
It gets asked in every recession. Recovery requires an increase in demand. "But where will the demand come from?" When I was young and foolish I would answer "housing". Which was actually a fairly good guess in the past. But when I got older and more devious I would refuse to answer. "If an armchair […]
The Pro-Usury Party meets the Neo-Wicksellians
Most macroeconomists believe that the real interest rate is what equilibrates AD and AS. If the real interest rate is too high, AD will be too low, and lower than AS, so there's excess supply of output. And the fall in AD will cause an equivalent fall in output. That's the orthodox Neo-Wicksellian position. I […]
Understanding the Keynesian Cross
(Almost) every economist has learned the Keynesian Cross. (Almost) nobody (IMHO) understands it. (Or, less provocatively, we all understand it differently). Here is my interpretation of the Keynesian Cross model. This is how I understand it. (This is inspired by Steve Williamson's post. I partly agree and partly disagree with Steve, but have decided to […]
What equilibrates AD and AS?
Arnold Kling says it's W/P. "4. When it comes to aggregate supply and demand, the regulating mechanism is what is called the real wage rate, which means the wage rate adjusted for the general level of prices (or the cost of living). When prices go up, the real wage rate falls, and vice-versa. When the […]
University crashes
The optimal size of a university is always a little bit bigger than its actual size. More precisely, the size of a university doesn't really matter. What does matter is whether it's growing or shrinking. A growing university is easy to manage. If you need to grow one department relative to another, you hire people […]
The War on Demand, and the short-side rule.
Paul Krugman thinks the War on Demand is strange. I think it's weird. But I've got a different take on what's happening. [Update: Paul Krugman responds. "Nick Rowe makes a good point: most of the time, in market economies, sellers feel constrained while buyers don’t. I’m somewhat surprised that he doesn’t mention why: it’s because […]
Inequality and debt: the soft bigotry of low expectations
"The poor don't have enough income to save, and can't help going into debt to the rich. Debt is caused by inequality". That statement is wrong on many levels. It's wrong theoretically. It's wrong empirically. But most of all, it's wrong because it might make inequality worse. It's the soft bigotry of low expectations. Providence […]
Three ZMPs and two Co-ordination failures
"ZMP" stands for "Zero Marginal Product". It should really stand for "Zero Value Marginal Product". Can an additional worker produce no additional goods of any value? Is that why they are unemployed? Yes, but. There are three types of ZMP. Two of them are based on two different types of coordination failure. The disagreement between […]
Worthwhile Canadian Initiative 
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