Category Nick Rowe
Can rent controls cause a recession? A response to Scott Sumner and Bill Woolsey
There is a perfectly sensible theory that says that rent controls reduce labour mobility and can therefore worsen structural unemployment. I'm going to ignore that sensible theory and put forward a silly theory — one I believe is wrong. But I'm putting forward a silly theory to make (what I think is) a sensible point, […]
The hub and spoke model of money — a rejoinder to Arnold Kling
The textbooks say that money serves as: store of value; medium of account; and medium of exchange. Arnold Kling seems to miss the importance of the fact that money is a medium of exchange. Worse, he misunderstands me, thinking that I am one of those economists who makes a big deal of money's role as […]
Mackerels and Money
Arnold Kling asks: why are mackerels different from money? Why should the M in MV=PY stand for money, and not mackerels? Why can't an excess demand for mackerel cause a recession? Why can't an excess supply of other goods be matched by an excess demand for mackerel? Keynesians don't know the answer to this question […]
Does CMHC have big enough reserves?
This post is more of a bleg; because I'm sure someone reading this knows more about the answer than I do. An insurance company doesn't need reserves if it is insuring a large number of short term uncorrelated risks. The Law of Large Numbers ensures that its annual claims will equal its annual premiums, if […]
So where’s the market failure (in macroeconomics)?
Mike Moffatt asks the right question; and it's the economist's question. In economics, if we think the price of x is too high, we don't just say "we should lower the price of x". We look for the underlying causes of the price of x being too high. "Where's the market failure?"
Dark Age in Macroeconomics? A History of Taught approach
(Or maybe the title should be: "Notes from the Phelps/Lucas Administration"; or "Notes to supplement our fading memories of the late 1970's".) Is this a Dark Age in macroeconomics? In other words, have we collectively forgotten some (important) stuff that we used to understand? I want to approach this question by looking at what was […]
My own memories of the Phelps/Lucas administration
My own memories are similar to Paul Krugman's, but with one important difference. This is the bit I remember differently: "The Lucas view took the economics profession by storm – not because there was any solid evidence for it, but because it was so clever, because it led to nice math, because it let macroeconomists […]
All Microeconomics gets Say’s/Walras’ Law wrong
It's not just John Cochrane; it's not just (modern) Chicago; it's (nearly) all of us. Which economist has not written, said, thought, taught, or learned, the following: "Let there be n goods (including money, if it exists). Max U(X1,X2,..Xn) subject to SUM over n[P(X-E)]=0. Aggregate over all people. Therefore the sum of the n excess […]
A “proof” of Say’s Law; and why money is weird
For a whole economy, does planned expenditure on newly-produced goods necessarily equal planned income from the sale of newly-produced goods? That's what I mean by "Say's Law" in this context. Say's Law is wrong, and the fact that it is wrong is really important for macroeconomics. But it's not obvious why Say's Law is wrong. […]
John Cochrane, Paul Krugman, and Say’s Law, again
Via Casey Mulligan and Karl Smith, here is John Cochrane's response to Paul Krugman. It's a very good response. But there is one part where John Cochrane is definitely wrong. It's small, but important. And it's all about Say's Law, and the crucial difference between a monetary exchange and a barter economy.
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