Transcript DeLong`s Macroeconomics

DeLong’s Macroeconomics
Why write this book?
History of the market
Five innovative advantages
Head-to-head text comparisons
Q&A
Supplements
Why Write This Book?
• My experience at the Treasury
– Politicians read last generation’s textbooks
• Dissatisfaction with existing texts
– Teach wrong or irrelevant stuff
– Teach it in a student-hostile fashion
• $$$
• Belief I could do a better job
– Clean off the barnacles
My Experience at the Treasury
• The High Politicians’ views are shaped by
what their textbooks taught them
• The entire debate is shaped by the textbooks
– Treas, Secy. Summers on the range of options
– Trying to convince Treas. Dep. Secy. Frank Newman of
the importance of savings
• Hence the vital importance of having good,
honest textbooks
Dissatisfaction with Existing
Textbooks
• I’ve been teaching this off and on for more
than a decade and a half
• Current textbooks--Mankiw, Abel and
Bernanke, Blanchard--brilliant pieces of
work
• But too much of what they teach is wrong
or irrelevant
• Time to clean off the barnacles
History of the Market
• Dornbusch and Fischer
– The short run with an unstable Phillips curve
• Mankiw
– Start with growth
– A more “classical” treatment of the short run
• Abel and Bernanke
– A bigger book than Mankiw
– A less readable book than Mankiw
Five Innovative Advantages
•
•
•
•
Growth theory so students can understand it
Growth facts covered in depth
International economy from the get-go
Central banks control interest rates; they
don’t set money stocks
• Real-world Phillips curve, not abstract
aggregate supply-aggregate demand model
Growth Theory so Students Can
Understand It
• Mankiw took the bold step of adding growth to
macroeconomics
• He did so by taking the graduate student version
and dumbing it down
• As a result, often it doesn’t work very well
• Compare Mankiw vs. DeLong on how to calculate
steady-state output per worker levels
Mankiw: Calculating SteadyState Output per Worker
• Determine the value of capitalper-effective worker k for
which the equation:
s f(k) - (n+g+d)k = 0
is satisfied
• Call this value k*, the steadystate value of capital per
effective worker
• Use the production function f to
calculate output per effective
worker, y* = f(k*)
• Determine if the version of the
model is one with or without
technological change
• If the version of the model is
one without technological
change, then you are done:
output-per-worker is equal to
output-per-effective-worker
• If the version of the model is
one with technological change,
then multiply output per
effective worker by the
efficiency of labor E to get
output per worker.
DeLong: Calculating Steady
State Output-per-Worker
• Calculate the steady-state capital-output ratio k*
(=s/(n+g+d))
• Raise k* to the power of the growth multiplier l (=a/(1a))
• Multiply the result by the efficiency of labor E. You are
done.
Growth Facts Covered in Depth
•
•
•
•
•
The origins of modern economic growth
The population explosion and its likely end
Structural change and economic growth
Global divergence in productivity levels
Convergence within selected groups of
countries
• Microfoundations of rapid economic growth
International Economy from the
Get-Go
• 50 years ago the U.S. economy was effectively
“closed” to international trade
• 50 years ago textbooks taught about a closed
economy
• Now the U.S. economy is open to world trade: not
a single issue lacks an important international
dimension
• It’s time for textbooks to drop the “closed
economy case”
Central Banks Set Interest Rates
• Central banks set interest rates
– (and the money stock adjusts to be consistent)
• In textbooks, central banks set money stocks
– (and let interest rates adjust… blah, blah, blah...)
• This difference matters:
– Money stock targeting adds complexity in economic
theory
– Students who think central banks set money stocks
have a hard time understanding news about the Federal
Reserve
Real World Phillips Curve
• Macro textbooks spend a lot of time developing
the aggregate demand-aggregate supply model
• They then drop that model when it comes time to
talk about economic policy, and use the Phillips
curve instead
• Why not start by tightly linking the two together,
so you don’t waste time on analytical tools you
never use?
Head-to-Head Text Comparisons
• Growth theory: calculate steady-state
output-per-worker
• Aggregate demand: understanding a Federal
Reserve meeting
• Aggregate supply: the Phillips curve vs. ASAD
Growth Theory
• To come...
Aggregate Demand
• To come...
Phillips Curve
• To come...
Supplements
• Turn it over to Paul...