I have found my self-training on macro-economic issues greatly helped by the blogosphere, and in particular a set of American professors debating crucial issues in real time. Here are some I have recently enjoyed:
Scott Sumner: Why nominal GDP is what matters. Scott has made himself famous for his strong belief that monetary policy was way too tight in autumn 2008, and that this is the reason we fell into a recession. I don’t agree with every aspect of his macro-theories -I find it amazing that he thinks ‘rebuilding balance sheets’ will not affect the pace of recovery. But his insights on how to see monetary policy are genuinely brilliant and forthright. The expected total future path of rates relative to what people expect NGDP to do is what you need to focus on.
Scott Sumner again. This time taking on John Taylor about whether money was tight over the Crisis. What I find interesting is how the schisms within the Right are illustrated. Some on the Right have a neo-Austrian view, that Fiscal policy can’t work, and monetary policy is limited, worry about inflation, and we will have to take pain. Others – like Sumner – feel that fiscal policy is a waste of time, but that monetary policy can ease most of our problems.
They all would rather blame the Government for making the panic worse. But they disagree about what caused the panic – the odd view of Cochrane et al that Bush’s pronouncements destroyed a confident free market, other views that recapitalisations of banks sucked out vital money, John Taylor’s that confused behaviour post Lehman would have caused trouble. (Taylor is clearly mad if he thinks Lehmans failure was causing no distress to hedge funds: see Mark Thoma on this). Sumner’s is that they took the eye off the monetary ball.
The Economist discusses whether the Phillips Curve – which the IEA thinks should always be prefaced with ‘discredited’ – actually works when we are badly below capacity. There is strong evidence that higher inflation lowers unemployment in such situations.
Nick Rowe asks if all assets can be overvalued. This leads to a discussion of what the interest rate means.
I must draw people’s attention to this blog about China’s financial markets, suggested by a commenter here. Surely China can’t suffer from both inflation and overcapacity? David Pilling in the FT thinks not, but that does not mean steering between the two will be easy.