Good Macro Posts

Krugman and DeLong on cargo-cult macroeconomics

Krugman takes Kocherlakota to task and DeLong takes Williamson to task for mixing up cause and effect. As is often the case, nobody said it better than Milton Friedman:

"Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy... After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die."

We could say the same for Peter Boettke probably.

Cowen on savings and what to worry about

Tyler Cowen has lots of good points on savings rates that are all worth reading, but I especially like this point about where we should be focused now:

"I get nervous when I see Keynesian models emphasizing the short-term only or non-Keynesian approaches emphasizing the long-term only. The more insightful approaches see the short-term and long-term factors interacting in a not always so helpful manner."

I don't take it as a slight of Keynesians in general - after all, he quoted Keynes earlier in the post to help express his own concerns about the long run. I think this is basically right. The most sophisticated outlooks - the correct oulooks in my view - see in this crisis the same dynamics that we saw in the Great Depression and that we saw in Japan. These sorts of situations are legitimately medium-run sorts of crises, which means that they blend our short and long-run concerns. Inadequate short-run policies make the long-run worse. Concerns about long-run conditions influence behavior now in the short run. The Fed can't stick to paying attention to short-run rates only. The heart of a crisis like this is an immediate, short-run disruption of long-run expectations that we've been operating off of for a while. Demand expectations, inflation expectations, and policy expectations aren't as anchored as we usually expect them to be.

Reinhardt, Kling, and Thoma on how economists think and talk

- Uwe Reinhardt discusses how economists use and abuse the idea of "efficiency"
- Kling talks about the problems with relying too exclusively on GDP measures
- Mark Thoma talks about why economists abandoned the idea of price flexibility