Month: January 2015

The last time I taught graduate macroeconomics to students about to take their pre-thesis oral exams was way, way, way, way back in 2003. This was what I thought then was the real research frontier in macroeconomics–the papers and directions which people should be extending and in which people should be working if they wanted to do economic research that would truly add to our stock of useful tools and boost our understanding of the macroeconomy.

Which of the bets that I wanted people to place more than a decade ago now have paid off? Which have not? What are the papers from which people should start thinking about further progress in these directions now? And what bets should I have advised graduate students a decade and more ago to make, but did not?

Brad DeLong : Economics 236: Your Last Course in Macroeconomics

PART I: A QUICK OVERVIEW

January 22: Introduction

• Olivier Blanchard (2000), “What Do We Know About Macroeconomics that Fisher and Wicksell Did Not?” Quarterly Journal of Economics 115:4 (November), pp. 1375-1410.
• Olivier Blanchard (1990), “Why Does Money Affect Output? A Survey”, in B.M. Friedman and F. Hahn eds, Handbook of Monetary Economics, 1990, Vol 2, 779-835.

January 29: Unemployment and Institutions

• Dale Mortensen and Christopher Pissarides (1994), “Job Creation and Job Destruction in the Theory of Unemployment,” Review of Economic Studies 61, pp 397-416.
• Olivier Blanchard and Justin Wolfers (2000) “The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence,” Economic Journal, 110 (March), pp. C 1 —33.
• Olivier Blanchard and Lawrence Katz (1997), “What We Know and Do Not Know About the Natural Rate of Unemployment”, Journal of Economic Perspectives 11-1 (Winter), pp. 51-73.
• Steven Nickell (1997), “Unemployment and Labor Market Rigidities: Europe versus North America”, Journal of Economic Perspectives 11-3 (Summer), pp. 55-74.

February 5: Contracts and Aggregate Output

• Robert Townsend (1979) “Optimal Contracts and Competitive Markets with Costly State Verification”, Journal of Economic Theory 21 (October), pp. 265-293.
• Benjamin Bernanke and Mark Gertler (1989), “Agency Costs, Net Worth, and Business Fluctuations,” American Economic Review 79 (March), pp . 14-31.

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February 12: Taking Technology-Shock Theories Seriously

• Susanto Basu and John Fernald (2000), “Why Is Productivity Procyclical? Why Do We Care?” (Cambridge: NBER Working Paper W7940, October).
• Andrei Shleifer (1986), “Implementation Cycles,” Journal of Political Economy 94-6 (December), pp. 1163-1190.
• Dale Jorgenson and Kevin Stiroh (2000), “Raising the Speed Limit: U.S. Economic Growth in the Information Age,” Brookings Papers on Economic Activity 2000-1 (Spring), pp. 125-235.

PART II: THE GROWING STRENGTH OF BEHAVIORALIST APPROACHES

February 19: The Rationale for Behavioralist Approaches

• George Akerlof and Janet Yellen (1985), “Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?” American Economic Review 75-4 (September), pp. 708-20.
• J. Bradford DeLong, Andrei. Shleifer, Lawrence Summers, and Robert Waldmann (1990), “Noise Trader Risk in Financial Markets,” Journal of Political Economy 98-4 (August), pp. 703-38.
• Richard Thaler (1986), “The Psychology and Economics Conference Handbook,” Journal of Business 59-4 part 2 (October), pp. S279 – 284.

February 26: Unemployment and Behavioral Economics

• George Akerlof (1982), “Labor Contracts as Partial Gift Exchange”, Quarterly Journal of Economics pp. 543-69.
• Truman Bewley (1998), “Why Not Cut Pay?” European Economic Review pp. 459-490.
• Matt Rabin (1998), “Economics and Psychology,” Journal of Economic Literature 36-1 (March)pp. 11-46.

March 5: Money Illusion and Aggregate Output

• George Akerlof and Janet Yellen (1985), “A Near-Rational Model of the Business Cycle, with Wage and Price Inertia,” Quarterly Journal of Economics pp. 823-838.
• Robert Shiller (1997) “Public Resistance to Indexation: A Puzzle”, Brookings Papers on Economic Activity 1997-1 (Spring), pp. 159-228.
• E. Shafir, P. Diamond, and A. Tversky (1997), “Money Illusion”, Quarterly Journal of Economics 112-2 (May), pp. 341-374.
• George Akerlof, William Dickens, and George Perry, “The Macroeconomics of Low Inflation”, Brookings Papers on Economic Activity, 1996-1 (Spring), pp. 1-76

March 12: Savings and Economic Psychology

• David Laibson (1997), “Golden Eggs and Hyperbolic Discounting,” Quarterly Journal of Economics, 112-2 (May), pp. 443-77.
• D Laibson, A. Repetto, and J. Tobacman (1998), “Self-Control and Saving for Retirement”, Brookings Papers on Economic Activity, 1998-1 (Spring), pp. 91-196.
• D Laibson, A. Repetto, and J. Tobacman (1998), “A Debt Puzzle” http://www.economics.harvard.edu/faculty/laibson/papers.html.
• E. Duflo and E. Saez (2001), “Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues’ Choices” (Cambridge: NBER Working Paper W7735).

March 19: What Should Investors Do?

• Hal Varian (1987), “The Arbitrage Principle in Financial Economics,” Journal of Economic Perspectives, 1-2 (Fall), pp. 55-72.
• Stephen LeRoy (1989), “Efficient Capital Markets and Martingales,” Journal of Economic Literature 27, pp. 1583-1621.
• Narayana R Kocherlakota (1995), “The Equity Premium: It’s Still a Puzzle,” Journal of Economic Literature, 1996-1, pp. 42-72.
• John H. Cochrane (1991), “Volatility Tests and Efficient Markets: A Review Essay, Journal of Monetary Economics 27, pp. 463-485.

April 2: What Do Investors Do?

• Terence Odean (1998), “Are Investors Reluctant to Realize Their Losses?” Journal of Finance, pp. 1775-1798
• Terence Odean (1999), “Do investors trade too much?” American Economic Review (December).
• Andrei Shleifer and Robert Vishny (), “The Limits of Arbitrage”, Journal of Finance 52, 25-55.

April 9: Whither Behavioral Macro?

• Matt Rabin (2001), “Risk Aversion and Expected-Utility Theory: A Calibration Theorem”, Econometrica http://emlab.Berkeley.EDU/users/rabin/wpapers2.html
• John Gruber and Botond Koszegi (2001), “Is Addiction ‘Rational’?: Theory and Evidence,” Quarterly Journal of Economics 116-4 (Fall), pp. 1261-1305.
• Xavier Gabaix and David Laibson (2001) “Bounded rationality and directed cognition” http://web.mit.edu/xgabaix/www/papers.html.
• E. Fehr, E. S. and Gachter (1998), “Reciprocity and Economics: The Economic Implications of Homo Reciprocans”, European Economic Review pp.845-59 http://www.iew.unizh.ch/home/fehr/.
• Matt Rabin (1993), “Incorporating Fairness into Game Theory and Economics”, American Economic Review 103, pp.1058-82.

PART III: GROWTH ONE LAST TIME

April 16: Corruption and Political Blockages to Growth

• Andrei Shleifer and Robert Vishny (1992), “Corruption,” Quarterly Journal of Economics 108, pp. 599-618.
• Paulo Mauro (1995), “Corruption and Growth,” Quarterly Journal of Economics 110-3, pp. 681-713.
• Jonathan Temple and Paul Johnson (1998), “Social Capability and Economic Growth,” Quarterly Journal of Economics 113, pp. 965-990.
• William Easterly and Ross Levine (1997), “Africa’s Growth Tragedy: Policies and Ethnic Divisions,” Quarterly Journal of Economics 112, pp. 1203-1250.

April 23: Trade and Growth

• Paul Krugman and Anthony Venables (1995), “Globalization and the Inequality of Nations,” Quarterly Journal of Economics 110, pp. 857-880.
• Paul Krugman (1991), “Increasing Returns and Economic Geography,” Journal of Political Economy 99-3 (June), pp. 483-499.
• Gene Grossman and Elhanen Helpman (1990), “Comparative Advantage and Long-Run Growth,” American Economic Review 80-4 (September), pp. 796-815
• Jaume Ventura (1997), “Growth and Interdependence,” Quarterly Journal of Economics 112-1 (February), pp. 57-84.
• Daron Acemoglu and Jaume Ventura (2001), “The World Income Distribution” (Cambridge: NBER Working Paper W8083, January).

April 30: Institutional Roots of Growth

• Lant Pritchett (1997), “Divergence, Bigtime,” Journal of Economic Perspectives 11-3 (Summer), pp. 3-18.
• Daron Acemoglu, Simon Johnson, and James Robinson (2002), “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution,” Quarterly Journal of Economics 117 (November).
• Daron Acemoglu, Simon Johnson, and James Robinson (2001), “The Colonial Origins of Comparative Development,” American Economic Review 91-5 (December), pp. 1369-1401.
• Stanley Engerman and Kenneth Sokoloff (1997), “Factor Endowments, Institutions, and Differential Paths of Growth Among New World Economies,” in Steven Haber, ed., How Latin America Fell Behind (Palo Alto: Stanford University Press).

Raj Chetty:
Behavioral Economics and Public Policy:

Andrew Kaczynski (2012):
Mitt Romney’s Long, Careful Health Care Evolution:
“Romney’s path… tracked a hardening Republican reaction…

…in real time…. January 30[, 2009] speech… [called for] market dynamics, free choice, and personal responsibility, a phrase typically used to refer to the individual mandate…. [On] February 27, Romney said: ‘We need to advance a conservative plan… based on free choice, personal responsibility, and private medicine… like what I proposed in Massachusetts… the plan is a good model.’… In May, Romney wrote an op-ed… largely based off his Massachusetts plan, including an individual mandate…. On June 1… Romney thanked Heritage for helping craft health care reform in Massachusetts…. On June 14 Romney… said the President could learn from RomneyCare, saying: ‘I understand the President considers his plan in respects following the model of Massachusetts. Let’s learn from our experience.’… [On] June 24 Romney said… of the President reviving the exchanges put in place in RomneyCare, ‘we put together an exchange, and the president’s copying that idea. I’m glad to hear that.’…

[On] June 29… Romney touted both his plan and the Wyden-Bennet…. Both plans include a individual mandate. On July 30, Romney… [said] the President could learn a thing or two from… Massachusetts, including using the individual mandate…. On July 31, Romney… spoke specifically about ending the practice of free riding….

On September 19 Romney… spoke positively about his health care reform bill in Massachusetts… didn’t talk about the individual mandate or keeping reforms at the state level…. ‘We can get everyone insured, without breaking the bank and without a government option—there is no government insurance in my Massachusetts reform. The right answer for health care is not more government, it’s less government.’… In December, Romney defended his plan from attacks from Tim Pawlenty…. Romney said ‘What’s primarily wrong with the president’s plan is that he wants to get the federal government into the health insurance business. It’s going to require massive subsidies, a trillion dollars of costs down the road. That is not the right way to go. Instead, let states solve this problem…’ On January 8, 2010 Romney… mentioned his support for a federalist approach…. On February 18 Romney remarked at CPAC that health care reform should be accomplished at the state level….

After health care reform was signed into law on March 23, Romney seemed to briefly re-embrace the [individual] mandate…. In an April 4th interview… Romney… commented the ‘best features’ of the President’s plan were those similar to RomneyCare, including the ‘individual responsibility for getting insurance’…. Kavon Nikrad, frustrated by his failure to get an answer from Romney’s staff on the question of what ‘repeal’ actually meant, cornered Romney at a book signing in mid-April…. “asked Gov. Romney if… ‘the ‘worst aspects’ of Obamacare… include the repeal of the individual mandate and pre-existing exclusion?’ The Governor’s answer: ‘No.’… Romney went on to explain that he does not wish to repeal these aspects”….

Eric Fehrnstrom emailed Ben Smith… ‘Mitt Romney has been very clear in all his public statements that he is opposed to a national individual mandate. He believes those decisions should be left to the states,’ and then later emailed that the mandate ‘should be repealed.’ That email seemed to represent a final decision to stop the political bleading and cauterize the wound. For the last 23 months, Romney has been consistent: He has embraced repeal of the mandated, and stopped making references to the similarities between his plan and President Obama…

Paul Krugman:
Orthodoxy, Heterodoxy, Ideology:
“Many economists responded badly to the economic crisis…

…And there’s a lot wrong with mainstream economic analysis. But how closely are these two assertions related? Not as much as you might think. So I’m very much in accord with Simon Wren-Lewis on the remarkable unhelpfulness of recent heterodox assaults… a lot… misidentifies the problem… gives aid and comfort to the wrong people…. Standard macroeconomics does NOT justify the attacks on fiscal stimulus and the embrace of austerity. On these issues, people like Simon and myself have been following well-established models and analyses, while the austerians have been making up new stuff and/or rediscovering old fallacies…. Formal modeling and quantitative analysis doesn’t justify the austerian position; on the contrary, austerians had to throw out the models and abandon statistical principles to justify their claims….

People who should know better claim… whether fiscal stimulus can work involve[s]… Ricardian equivalence…. But that’s all wrong. Claims that a temporary rise in government spending crowds out an equal amount of private spending were based either on crude confusions between accounting identities and causation, or on a complete misunderstanding of… Ricardian equivalence…. Expansionary austerity… is really hard to get out of any formal model, and by and large the advocates of that position didn’t… try… invoked the confidence fairy pretty much on faith…. Claims that the US and the UK were at risk of an attack by bond vigilantes were similarly hard to justify…. It’s very hard to come up with a way such an attack can either happen or do much damage to a country that borrows in its own currency. As I’ve written many times, I reproach myself for having worried about such things back in 2003, when my own models refused to tell that story…. Last but not least, all that 90 percent threshold of doom stuff was based on no model… just an alleged statistical regularity… [which] probably reflected a lot of reverse causation. So if you go around claiming that model-oriented, quantitative economics gave rise to austerity mania, you’re getting the story all wrong… [and] covering up for the austerians’ intellectual sins…

Nick Bunker:
Weekend Reading:
“Frances Coppola on the fiscal theory of monetary expansion…

…Ben Walsh argues that the boom in oil jobs… is over…. Shane Ferro reports that one million Americans are at risk of losing access to the Supplemental Nutrition Assistance Program…. The United States has the highest GDP per capita, but as Matt Bruenig shows, incomes at the bottom are higher in other developed countries…. What explains the decline in the labor share of income? Dylan Matthews looks into the competing hypotheses…. Cardiff Garcia lays out his observations from the annual Allied Social Sciences Associations meeting…. Ben Casselman and Andrew Flowers… noticed that economists seem to be more engaged with policy.

Tim Worstall:
Someone Needs To Tell Vox.com That Numbers Don’t Work Quite This Way:
“A TEU being a twenty foot container equivalent unit…

…the standard measure of these things, half the size of the container you see on an 18 wheeler trucking rig…. You can get 30 cubic metres of packing peanuts into one and not have to worry very much about the weight. But 30 cubic metres of gold or lead placed on the back of a truck will have the axles exploding into metal shards pretty much instantaneously…. Less than half the density of water and it’s volume that is important. More than that and it’s the weight…. The larger picture about shipping and containerisation [is that] it’s almost certainly true that this one technology is vying with the mobile phone as being the most important influence upon our lifestyles since WWII. Certainly vastly more important than anything that has come out of Congress or the House of Commons in that time. If you want to know quite how much difference then I recommend The Box (although I think he manages to underplay the economic impact)….And both the Vox and BBC pieces are interesting as well. Even if MSC Oscar cannot in fact carry 900 million cans of dog food.

Tim Duy:
Wage Growth–Lack of–Continues to Surprise:
“The December employment report…

…surprising combination of solid job gains and decelerating wage growth…. Overall, the story is one of ongoing improvement in labor markets…. Wage growth, however, nosedived…. If June rolls around with no inflation and no greater wage growth, the Fed will find it challenging to begin normalization…. The wage numbers present a dilemma for the Fed. Simply put, no wage growth means the Fed can’t be particularly confident that inflation will trend toward target…. The Fed is still looking at June, but they need some more help from the data. Of course, June is still a long way off…”

Must- and Shall-Reads:

• Paul Marshall:
  “Put simply, the economy is run by the rich for the rich…”
• Dina ElBoghdady:
  Obama announces plan that could save home buyers hundreds of dollars a year
• Roberto A. Ferdman:
  “There is little empathy at the top. Most of America’s richest think poor people have it easy in this country, according to a new report released by the Pew Research Center…”
• Jordan Weismann:
  Thomas Piketty’s Capital: How the French Professor Changed Economics Conversation in 2014

 

1. Megan McArdle:
   Republicans Are Making Obamacare Harder to Repeal:
   “Weakening the employer mandate is not going to get [Republicans] any closer to repealing Obamacare…. If they actually succeeded in getting this bill passed… they… further entrench the 2010 health-care bill…. A weaker employer mandate will push more people onto the exchanges. Many of those people would be receiving subsidies. The more people who receive subsidies, the harder repeal of the whole law will be…. It’s hard to see why Republicans want to push more people into that part of the system, and hasten the sclerosis that makes programs so hard to kill or change once they have accumulated a lot of users. We haven’t even discussed the extra cost of providing subsidies to millions more people. Republicans seem to like taking votes against Obamacare so much that they’ll vote for anything that undoes what Democrats put in place–even if that thing costs a bunch of money, and takes them further from their stated goal of repealing the whole bill. They need a better hobby…”
   

2. Simon Wren-Lewis:
   Sachs and the Age of Diminished Expectations):
   “I am getting increasingly fed up with people telling me that US growth disproves the idea that austerity is bad for you at the Zero Lower Bound (ZLB). Jeffrey Sachs just joins a long list…. With recent US experience, there is no case against Keynesian analysis to answer. This suggests to me two things. First, lots of people are desperate to show that critics of austerity at the ZLB are wrong, and are prepared to make nonsense arguments to that end. This may be particularly true if you very publicly proclaimed the need for austerity in 2010…. Second, it is a sad day when anyone thinks that 2.3% growth is ‘brisk’ when we are recovering from a deep recession and interest rates have remained at the ZLB. It is so very dangerous when these diminished expectations become internalised by the elite…”
   

3. Aidan Regan:
   Europe’s ‘Structural Reform’ Agenda Little More than a Fairytale:
   “So what is the core economic idea that [Europe’s power-brokers] share? It is the magic economy dust formula of ‘structural reforms’. It is the idea that if national governments just sprinkle enough structural reforms into the economy to enhance market competition they will, eventually, generate the conditions for employment growth. This is captured perfectly in a recent analysis by Marco Buti, the Director General (DG) of the Economic and Finance Commission. He outlines a trilemma for the Eurozone: we cannot have the welfare state in a fixed monetary union that requires reducing fiscal deficits to 3 per cent of GDP. This is true. In order to keep the welfare state, he proposes a consistent policy ‘trinity’: banking union, symmetric adjustment (i.e. inflation in the core) and deep structural reforms. These, we are told, will generate the conditions for economic growth. In turn, with full employment, the welfare state is secure. This is the core idea behind the policy response to the Eurozone crisis and it is worth stating clearly if its merits can be tested against rational argument and empirical evidence…”
   

4. Laurence Ball and Sandeep Mazumder:
   Understanding Recent US Inflation:
   “Researchers have put forward two explanations for the failure of the US inflation rate to fall as far during the Great Recession as the Phillips curve would predict. Either expectations have been successfully anchored by the Fed’s inflation target, or the Phillips curve is focusing on the wrong thing–aggregate unemployment instead of short-term unemployment. This column shows that the two explanations are complementary; together, they explain the puzzle, but separately they cannot…”
   

5. BLS:
   Employment Situation Summary:
   “Total nonfarm payroll employment rose by 252,000 in December, and the unemployment rate declined to 5.6 percent…. The unemployment rate declined by 0.2 percentage points… and the number of unemployed persons declined by 383,000 to 8.7 million…. The civilian labor force participation rate edged down by 0.2 percentage point
   to 62.7 percent in December.”
   

Should Be Aware of:

• Chris Blattman:
  Please Don’t Write Well, Write Clearly
• Leah Goodman:
  David Miranda and the Human-Rights Black Hole

 

1. Neil Collins:
   Archaic BoE was ill-equipped to prevent financial crisis:
   “Spare a sympathetic thought… for the 15 non-executive directors of the Court of the Bank of England in 2007…. There… for the burnishing of their CVs, curiosity, and perhaps a sense of public duty… none is a central banker… all jolly busy with day jobs…. When it comes to the technical consequences of rescuing Northern Rock, they have little to add. Actually, it is worse than that. Their chairman, John Parker, reprimands them for leaking the appointment of a deputy governor (to the FT, naturally) and implies that if they cannot keep quiet, they will be told even less…. Given this environment, it is hardly surprising that the volumes covering the Great Banking Crisis portray Court members as flapping around like fish on a slab. Since even the technocrats were bewildered by the speed and novelty of the events… it seems particularly unfair to savage the non-execs. The whole set-up was archaic, but it suited the executives to keep it that way…”
   

Megan McArdle:
Republicans Are Making Obamacare Harder to Repeal:
“Weakening the employer mandate…

…is not going to get [Republicans] any closer to repealing Obamacare…. If they actually succeeded in getting this bill passed… they… further entrench the 2010 health-care bill…. A weaker employer mandate will push more people onto the exchanges. Many of those people would be receiving subsidies. The more people who receive subsidies, the harder repeal of the whole law will be…. It’s hard to see why Republicans want to push more people into that part of the system, and hasten the sclerosis that makes programs so hard to kill or change once they have accumulated a lot of users. We haven’t even discussed the extra cost of providing subsidies to millions more people. Republicans seem to like taking votes against Obamacare so much that they’ll vote for anything that undoes what Democrats put in place–even if that thing costs a bunch of money, and takes them further from their stated goal of repealing the whole bill. They need a better hobby…

Simon Wren-Lewis:
Sachs and the Age of Diminished Expectations):
“I am getting increasingly fed up with people…

…telling me that US growth disproves the idea that austerity is bad for you at the Zero Lower Bound (ZLB). Jeffrey Sachs just joins a long list…. With recent US experience, there is no case against Keynesian analysis to answer. This suggests to me two things. First, lots of people are desperate to show that critics of austerity at the ZLB are wrong, and are prepared to make nonsense arguments to that end. This may be particularly true if you very publicly proclaimed the need for austerity in 2010…. Second, it is a sad day when anyone thinks that 2.3% growth is ‘brisk’ when we are recovering from a deep recession and interest rates have remained at the ZLB. It is so very dangerous when these diminished expectations become internalised by the elite…