Tuesday, April 07, 2009

Two Questions about Macroeconomics

I am not a macroeconomist. One of the reasons for this, I suppose, is that I was taught a lot of rational expectations overlapping generations stuff in graduate school and while I found it elegant, I did not believe it. The reason I didn't believe it is because the models are rejected by data: for instance, when households get short term changes in income, they seem to change their consumption behavior somewhat.

Nevertheless, there are two macro issues that puzzle me. The first is how to think about the size of the money supply. For example, while M1 and M2 are increasing, the shadow bank sector (i.e., securities financed debt) has dramatically decreased. It seems to me that this effectively reduces the size of the money supply, although I am not sure by how much.

The second is that Ricardian equivalence types seem to have an underlying assumption that government can't invest in positive NPV opportunities. For instance, Robert Lucas argues that if the government borrows $100 million to build a bridge, household will know they have a future tax liability of $100 million, reduce their spending accordingly, and therefore offset the stimulative impact of the bridge.

But what if the cost to borrow for the bridge is 3 percent and the bridge's IRR is 5%? Then doesn't the bridge stimulate spending for the simple reason that it is a good investment? The federal government has made, it seems to me, some very good investments. Hoover Dam is one. Rural electrification is another. The interstate highway system. The Golden Gate Bridge. The New York City subway system. [update: yes, these last two were largely a local projects. But still...] I could continue...

I do worry about bridges to nowhere. But many macroeconomists seem to believe in the hearts that public goods don't exist, and that there is nothing government can do better than the private sector. I think it is here that macro takes its cues more from religion than science.


Uncle Billy, Mental Widget said...

To the layperson, it looks like the concept of money has become very murky. I haven't checked but the grapevine says that repurchase agreements which made up the bulk of M3 are way down.

gaohui said...

Unconventional women don't ed hardy often fit into more ed hardy shoes conventional sizes. Instead, they are ed hardy clothing faced with the challenge of finding comfortable ed hardy clothes and stylish plus size women's clothing. By and large, most ed hardy store store refuse to stock sizes in ed hardy Bikini excess of a size 14 ed hardy swimsuits or 16. This means they have ed hardy Caps to find the clothes they need in specialty buy ed hardy store that can be very expensive. What then ed hardy swimwear is a plus size ed hardy sale woman to do? She has to do ed hardy glasses her research and find the cheap ed hardy places, both online and Christian audigier off, that will accommodate her wardrobe

zhuzhulee said...

PDF Créateur
TIFF en PDF Convertisseur
Texte en PDF Convertisseur
PowerPoint en PDF Convertisseur
image en PDF convertisseur
Excel en PDF Convertisseur
CHM en PDF Convertisseur
Word en PDF Convertisseur
djvu to pdf
pdf to png