Transcript Document

ECN202: Macroeconomics
Introduction to Macroeconomics
Imagine no WW II
“Had the price of gold been
raised in the late 1920's, or,
alternatively, had the major
central banks pursued
policies of price stability
instead of adhering to the
gold standard, there would
have been no Great
Depression, no Nazi
revolution, and no World
War II.” Robert Mundell, the
recipient of the 1999 Nobel Prize in
Economics
Imagine no Communist Russia & China
“The Chinese Communist
Party never forgets it seized
power in 1949 following not
just military victory, but also
hyperinflation under the
Kuomintang government…”
DIDI KIRSTEN TATLOW, NYT 12/9/2010
Imagine no Yugoslavian genocide
"In October of 1993 the
created a new currency unit.
One new dinar was worth one
million of the old dinars. In
effect, the government simply
removed six zeroes from the
paper money. This of course
did not stop the inflation and
between October 1, 1993 and
January 24, 1995 prices
increased by 5 quadrillion
percent. This number is a 5
with 15 zeroes after it.”
Imagine no Arab Spring
“Critics argue that U.S. drone strikes are creating more
problems than they solve and are driving al Qaeda's
recruiting. But as much as the terrorist network plays up
civilian casualties and U.S. intervention in its
propaganda videos, the truth is that economic distress,
not resentment of U.S. strikes, is what's
pushing Yemenis into
the insurgency.”
Christopher Swift,
“The Drone Blowback Fallacy”,
Foreign Affairs 2012
Imagine no European Crisis
“The lack of opportunity is feeding a mounting alienation
and anger among young people across Europe —
animus that threatens to poison the aspirations of a
generation and has already served as a wellspring for a
number of violent
protests in
European cities
from Athens to London.”
Thomas, NYT 2012
Imagine no burning of witches in
Renaissance Europe
“violence and scapegoating
prompted by a deterioration in
economic conditions. In this
case, the downturn was
brought on by a decrease in
temperature and resulting
food shortages” Emily Oster,
“Witchcraft, Weather, and Economic
Growth in Renaissance Europe,”
Imagine no Roosevelt
“What do the people of
America want more than
anything else? To my mind,
they want two things: work,
with all the moral and spiritual
values that go with it; and with
work, a reasonable measure
of security--security for
themselves and for their lives
and children. Work and
security--these are more than
words. FDR 1933
Imagine no Kennedy
“get the economy moving again”
Imagine no Reagan
“Can anyone compare the
state of the economy when
the Carter administration
took office with where you
are today and say, 'Keep up
the good work'? Can you
look at our reduced standing
in the world and say, 'Let's
have four more years of
this'?" Ronald Reagan
Imagine no Obama
“HAD Barack Obama lost to
Mitt Romney yesterday, the
explanation would have
barely taken up a sentence:
the economy defeated him.
Political pros always
disparaged “it could have
been worse” as a winning
slogan “The macroeconomics
mandate,” The Economist
Is there a common denominator in these
stories of war and elections - and how is this
related to the course you signed up for?
Basic Premises of Macro Theory and
Policy
1. Economic well-being matters
You can get a sense of it from these headlines.
In the news: Macro matters
1. “Right-wing extremists’ popularity rising rapidly
in Greece”
2. “Violence and protest in Iran as currency
drops in value”
3. “Increase seen in U.S. suicide rate since
Great Recession”
4. “As economy dips, arrests for shoplifting soar”
5. “Recession election”
6. “Employment data may be key to the
president’s job”
And in this graph
What does this
graph tell us?
What does this
line suggest?
The Effect of the U.S. Economy on Presidential Elections: 1828-2008, Jill Gloekler
Basic Premises of Macro Theory and
Policy
1. Economic well-being matters
2. Economic well-being can be “estimated” with
macroeconomic variables – we can look at the
words, the images, or the data
The Great Depression: The Pictures
1940
Bread lines
Unemployment lines
Farm foreclosures
Hooverviles
The Great Depression: The Numbers
Unemployment rate
What do you
see here?
30
25
20
15
10
5
0
1900
1920
1940
1960
1980
2000
Basic Premises of Macro Theory and
Policy
1. Economic well-being matters
2. Economic well-being can be “estimated” with
macroeconomic variables
3. Stable relationships between macro variables
exist
In the news: Relationships exist
1. “Income surges, spending up”
2. “Lower interest rates spur construction”
3. “Low housing interest rates creates more
sales”
4. “low inflation rate leads to drop in dollar”
5. “Job numbers give inflation clue”
6. “How raising the minimum wage could reduce
gun violence”
In the data: Relationships exist
What is the relationship
between the two?
Basic Premises of Macro Theory and
Policy
1. Economic well-being matters
2. Economic well-being can be “estimated” with
macroeconomic variables
3. Stable relationships between macro variables
exist
4. Macroeconomic variables can be “managed”
by the appropriate policies
In the news: Macro policies in action
1. “Don’t tell anyone, but the stimulus worked”
2. “Fed’s quantitative easing improves fiscal
outlook”
3. “New austerity incites a bitterness the postwar
generation did without”
4. “Bombs, bridges, jobs”
In the words: Monetary policy
Macroeconomic Performance
(GDP, Inflation, Unemployment)
Monetary Policy
(Federal Reserve)
Interest rates/
Money supply
In the data: Monetary policy in action
What is happening
here – and why??
In the words: Fiscal policy
Macroeconomic Performance
(GDP, Inflation, Unemployment)
Fiscal Policy
(Congress & President)
Government spending
& Taxes
In the data: Fiscal policy in action
GS = (T-G)
What is happening
here – and why??
Course Themes
1. Ideology matters
Alternative ideologies
Conservatives / Liberals / Marxists (Socialists)
1. Ideology matters
Marxists
“Whereas the liberal mistake is to think that there
is a program or policy to alleviate every
problem in the world, the conservative flaw is
to be vigilant against concentrations of power
in government only – not in the private sector.”
2 Timing matters: VLR
What is the
Share of World GDP story here?
30%
27%
25%
25%
20%
20%
17%
15%
10%
5%
5%
0%
0%
1500
1950
2006
2 Timing matters: LR
GDP Per Capita Annual Growth Rate:
1980 - 2003
What is the
story here?
7%
6%
5.9%
5.1%
5%
4%
3.5%
3%
2.3%
2%
2.1%
1.9%
1.5%
1%
0%
2 Timing matters: SR
US employment: Post 1969 recessions
and Great Recession
1.12
Average Recessions
1.08
1.04
1.00
0.96
What is the
story here?
Great Recession
0.92
0
months
10
20
30
40
50
60
70
80
4 History matters
Know the important ideas and people
Evolution of Macro Theory and Policy
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1920s: The end of the beginning
1930s: A decade of transition
1960s: Experiments with fiscal policy
1970s: Experiments with monetary policy
1980s: A decade of transition
1990s-2000s: Government & the economy