Mankiw: Posts a lot of nothing

I've noticed over the past few months or so that Mankiw has cut down his more opinionated and meaty posts in favor of re-postings or just links gotten from others.

Here he mentions Modern Monetary Theory, which I've taken an interest in lately, but that's it.   He just...mentions it.  I'd LOVE to know what he thinks he knows about it, and what he thinks about it.  Alas he seems to have reduced his blog to a link-site.

Maybe he's just scared of posting too many of his own opinions.  Though, I have no idea what would make him hesitant to do so.  

My Teaching Philosophy

I teach macro somewhat different from a textbook one size fits all. 

For example, today's lesson was an introduction to the classical model, but I also discussed heterodox counterpoints from: Minsky, Austrian economics, and modern monetary theory - and in a future class we will discuss the mainstream Keynesian model.  I told the students that I don't have all the answers.  And macroeconomics doesn't either - the answers are not clear and they are debated vigorously.  The only thing I can teach is a diverse set of well-rounded viewpoints not to provide answers, but to provoke the right questions and a better understanding of the various assumptions each school of thought employs.  To me, it's more important that macro students don't come away with an understanding that economics is black and white Classical-Keynesian, but rather an ever-evolving study of complex behaviors.  

It's not a perfect method:  it leaves some of the less attentive students perhaps more confused that they might otherwise be, but to me, teaching them about a small set of textbook models without even acknowledging the growing disagreements in the field in the long-run will be more detrimental to their development.  I refuse to contribute to the robotic output of neo-classical drones.  

You Know Economics Is Changing When...

Gary Becker says:

The Great Recession reinforced the lesson of prior panics and financial crises, lessons forgotten during the Great Moderation from about mid 1980s to 2006, that the financial sector has a fundamental built-in instability.

I have a really hard time thinking he would have thought this, let alone said this, pre-2007

MMT Divergence

Going to start following this http://monetaryrealism.com/

They seem to be at a place and voicing concerns similar to mine regarding MMT.

Particularly the jobs guarantee stuff.

Why Do We Care So Much About Inflation?

Which would you rather have to deal with:

Having to pay 8 dollars more for your average grocery bill a year from now but having a good paying job, or having to pay 3 dollars more for your average grocery bill a year from now but be out of a job?

Mainstream economists, particularly those with a more right-wing bias, have typically preferred the latter to the former.  I've never really understood why.  Textbook economics tells us the costs of high and unstable inflation: including the non-pecuniary costs of more ATM visits, more visits to stores to compare prices, and, in monetary terms, extra travel costs.  Textbooks also speak of concerns of unstable inflation leading to hyper-inflation and unstable inflation leading to mismatched expectations which can redistribute wealth from lenders to borrowers (which might explain why economists and bankers don't like inflation).

But it's never been made clear, to me at least, from an opportunity cost perspective, how these costs are so much more problematic than the costs of under/unemployment.  I've never understood why inflation - a nominal variable - has such a deferential place whereas employment and real output are sacrificed.   It's gotten to the point where pundits raise eyebrows with even slight increases in inflation.  As if somehow that extra 0.2% inflation is going to wreak havoc on our economy compared to the 15% underemployment rate, stagnating wages, etc.   

Luckily some economists are being more vocal in their annoyance at the inflation hawk positions, example: IMF, and the blogosphere:(1) (2).  

More people are calling for the Fed to stop focusing so much tunnel vision toward inflation at expense of the big picture.  At a minimum, the Fed should be required, as the authors of the IMF reports say, to:

... watch many targets, including the composition of output, the behavior of asset prices, and the leverage of different agents

Despite these arguments, the inflation hawks are still winning the war.  

I do think mainstream economics can learn something else besides breaking out of it's obsession with inflation.  I think they can learn from the Modern Monetary Theory crowd that, at the end of the day, the Fed has no real control over inflation.  All one must do to see this fact is observe that the Fed has reduced it's effective rate to 0% from 2008 to the present and pumped reserves into the economy.  Mainstream theory suggests that, via a money multiplier process, this should lead to inflation.  Reality is that there is no such thing as the money multiplier, and that the reserves are just sitting on the balance sheet of the banks.  The real economy isn't seeing those dollars and so there is no real inflation.  The Fed can only control inflation when viewed in tandem with the legislative and executive branches of government regarding taxing and spending policy, or insofar as the private economy changes it's behavior in the face an altered interest rate policy.  Since the Fed has limited control on the legislative process and on the behavior of the private market particularly during financial crises, the Fed has limited/no control over inflation.

I've expressed my skepticism in the past as to the functionality of so-called 'functional finance' so I'm not going to comment further on the reliability of politicians to help our economy, but I will say the big takeaway here should be the Fed should focus on things it has a direct positive impact (like better-regulating the financial sector to prevent bubbles and bursts in the first place) and stop focusing on something which they have little control over (inflation).

IE. Monetarism is dead.

Clarification:
I've been focusing on my view of the Fed's power or lack thereof if response to demand shocks.  I suspect that in fact, when a boom or bust is not demand led but rather supply (commodity) led that in fact the Fed's traditional tools are more effective.  In fact, most of our inflation/deflation have been due to supply shocks and the Fed has had success in correcting them in the past.  I suspect the only reason a traditional Fed tool (rate) is effective in supply shocks is that the Fed can more easily alter the behavior of the private market on aggregate demand when the crisis itself is not a crisis of demand. One might imagine that the reason for the demand shocks (like a financial crisis) means the Fed has little control over mitigating, while a supply shock in an otherwise healthy-demand economy can be mitigated by the Fed.  Textbook economics, as it is taught to million of econ students, meanwhile generally assumes the Fed to be equally powerful no matter the origin of the shock.  I would hope future research breaks through this assumption.

Ha-Joon Chang's "23 Things..."

I just finished reading one of my favorite authors, Ha Joon Chang's, "23 Things They Don't Tell You About Capitalism."

I was going to write a review, but then I figured I'm sure any review I do would be inadequate and I'm already a member of a book club so I prefer to not have to discuss specifics in two separate forums.

So, for the purpose of this blog, I will point to a review that I agree with the most and generally say:
Thumbs Up - Recommend!


Ok Ok...maybe I'll comment too:

... All in all, the reviewer is correct in that, while Chang does a great job explaining the myths and our present day problems, he doesn't deliver on solutions.  He doesn't say how we can overcome our political failings to ensure the government can act in ways that don't do more harm than good.  His argument is largely that there are specific cases that show the government can do this, but there are numerous cases of failure as well.  He provides no analysis to show that, if every country adopted his philosophy, that worlds' governments would be able to provide a net gain as opposed to a net loss.

In some sense the problem with Chang's solution(s) are the same problems that plague solutions put forth by mainstream economists: it all sounds great in theory but in reality it is much more difficult.   How do "we" know what are 'good' regulations vs. 'bad' regulations?  How do we hope, even if we could identify these things, that ideologically driven politicians would keep their bias to a minimum?  What is there to prevent corruption and abuse until and unless we address our political system problem first? Until money and media abuse is outside of our political sphere, what hope is there of common-sense solutions for society at large as opposed to solutions for special interests?

That is my major beef with Chang's solutions.  Fixing capitalism cannot start with economics, it must start with politics - because politics is the institution in which economics exists in the real world.  One can argue that our politicians are driven by what they learn from our mainstream economics.  So I do think that one thing that we can immediately change in our economics is the way economics is taught in our schools today.  It's a lot of hogwash mixed in with good thoughts - culminating in the creation of bad Samaritans.   But again, economics departments today are in and of themselves, fraught with bad politics.

Do you see the problem?  I've never heard a good solution.

PS:
Were you to say the "Occupy" movement might propose a solution.  I would respond: no way in hell.

Mr. Chang ironically points out a main reason why.  They have already been branded as crazy anarchists.   It's too late for that brand to change, IMOP.  The media and mainstream detractors is a good deal at fault here.  But Chang I think incorrectly ignores that most of the blame lies with "Occupy" itself.  It has been, from its inception, a poorly planned, poorly led, poorly designed movement with far too much 'kernel of truth' to the detractors.  To be honest, Occupy does consist of a huge portion of anarchists or extreme Marxists.  Indeed their whole system of 100% consensus voting shows how completely unrealistic and anarchic they are.

Occupy could have been great.  Instead it has, in fact, made things worse by providing great fodder for the right-wing ideologues.

States are not like the Federal Government (part 2)

... yet....

If the tea party crazies AKA Austrian crazies have their way, maybe each individual will be able to make their own currency.  I hereby decree that Garth head hairs are legal tender.   BAM - I'm rich.

Deal with it.

Introducing the Mankiw Tax

I have done extensive research on the subject utilizing myriad assumptions that tend to align with my political ideology, and have come to the conclusion that our world suffers a 'social cost' due to the distorting and one-sided 'education' that Mankiw provides via his textbooks and his blog.

I have run the calculations in a complicated 'real world' simulator (ie. a fake world) and have determined the degree of the negative externality.  I have calculated that if the federal government were to institute a pigouvian tax on all Mankiw texts purchased, by approximately $40.23 per issue, the externality problem should be solved.

During the vetting of my research, some claimed that instituting such a pigouvian tax would unduly hurt the educational institutions and students that purchase Mankiw texts.   But as any economist knows, where you levy the tax has no affect on tax burden - it will likely impose a cost on both the consumers of Mankiw texts as well as Mankiw himself depending on elasticities.   But that's the point of trying to change behavior - the price mechanism is the best way of reducing use of Mankiw textbooks.  The entire cost will not be born by the consumers in any case.   I mean, after all, the economics textbook market is perfectly competitive because that's what my real model tells me, in addition to what relevant elasticities are.   My real model is based on sound knowledge that I gained from my principles economics course that I took at Harvard... I never did learn that teacher's name....