Courses

Introduction to Macroeconomics

SECTION 1, SPRING 2013

** Final course grade information is now available on the grades page of this site.  If students wish to see their graded exam 3 papers, they can be picked up in Seigle 305, the Economics Department office, during business hours.  The exams are in the top drawer of a file cabinet directly on the left as you enter the office suite.  Staff members in the office can direct you to the appropriate place.  **

This course covers basic macroeconomics, which emphasizes the study of fluctuations and growth in aggregate output and employment, the analysis of inflation, and issues in monetary economics and financial markets.  The course will also consider how economic policies affect macroeconomic stability, growth, and inflation.

Follow links on this page to find out more about the course structure and reading materials.  Detailed course information (the syllabus) is here.

The course meets Monday and Wednesday, 10:10 – 11:30 in Wilson Hall, room 214.

Key Dates:

Exam #1:  Wednesday, Feburary 13 in class

Exam #2:  Wednesday, March 27 in class

Exam #3:  Wednesday, April 24, in class

The link below will take you to a pdf file with detailed course information about Economics 1021, section 1.  All students must read this material carefully.  If you are enrolled in the course, Professor Fazzari assumes that you understand and accept the policies laid out in this document.

The link below takes you to the detailed course outline.  This resource is particularly good as a study guide.  When preparing for exams, go through the covered topics on this outline and ask yourself questions about each topic.  If you can answer your own questions, you are well prepared for the exam.  If you have doubts about any of the topics, refer to your own class notes and the online lecture notes.  (The online notes are organized in the same format as this outline.)

Use the links below to download the lecture note files for each major section of the course.  These notes will be updated as we cover the relevant material in class.  Therefore, you are discouraged from printing out the notes, at least until you are told that they are in final form before exams.  The date of most recent update appears in the table.  (If no date appears, the most recent update was during the previous offering of this course in 2011.)

The table below shows the topics planned for each class.  The roman numeral references refer to relevant reading in the lecture note files.  The pace of the course may deviate from this plan during the semester and the table will be updated as necessary.

Links to supplementary readings and graphical material used in course lectures will be posted here.

January 30, 2013:  News article about release of initial GDP statistics for the fourth quarter of 2012
    (New York Times)   Link Here

February 4, 2013:  Excel workbook with economic data charts to be used in a number of future classes:
   Link to Econ_data_1301.xlsx

March 14, 2013:  News article about the value of the dollar and its effect on the economy
(Wall Street Journal)   Link Here

March 18, 2013:  Excel workbook with data charts on government and the economy
   Link to Gov Data.xlsx
   Link to Gov_Dat.pdf

April 5, 2013:  News article about global monetary policy and quantitative easing
(Wall Street Journal)   Link Here

Homework assignments and solutions will be posted here.

Pretest, due in class Wednesday, January 23.                 Link to pretest-1301s.pdf
   Answers to practice multiple choice questions 1-8 for exam #1
   Answers to practice multiple choice questions 9-17 for exam #2
   Answers to practice multiple choice questions 9-17 for exam #3

Homework #1, due in class Wednesday, January 30.    Link to HW1.pdf
    Solutions for HW1 (Word file)

Homework #2, due in class Wednesday, February 6.     Link to HW2.pdf
    Solutions for HW2: HW2-sol.pdf

Homework #3, due in class Wednesday, March 6.     Link to HW3.pdf
    Solutions for HW3: HW3-sol.pdf

Homework #4, not to be turned in; complete prior to Exam #2.     Link to HW4.pdf
   Solutions for HW4: HW4-sol.pdf

Homework #5, due in class Wednesday, April 10.     Link to HW5.pdf
    Solutions for HW5: HW5-sol.pdf

Homework #6, due in class Wednesday, April 17.     Link to HW6.pdf
    Solutions for HW6: HW6-sol.pdf

Homework #7, not to be turned in; complete prior to Exam #3.     Link to HW7.pdf
    Solutions for HW7: HW7-sol.pdf

Excel spreadsheet with grade information sorted by course ID number here.
   (Final version including course letter grades, May 3, 2013)

Letter grades were determined based on total course points as follows:

A+:  323 – 337
A:    299 – 322
A-:  289 – 297
B+: 278 – 288
B:   247 – 277
B-:  233 – 246
C+: 222 – 231
C:   175 – 221
C-:  160 – 174

According to the policies discussed in the course syllabus, all grades are final unless a clerical error is found.

Exam #3 Solution notes here.

Median Score:  82   Average Score:  79.7

Exam #2 Solution notes here.

Statistics:  Median score 87  Average score 84.4  

>90    :  32       Approximate letter grade break points for exam #2 only:
80-89:  47                     A/B:  High 80s
70-79:  16                     B/C:  About 70
60-69:  16                     C/D:  About 50
50-59:    5                     D/NCR:  Fortunately irrelevant!
<50    :    0  

** For re-grade requests, see policies below (and read carefully).  All re-grade requests must be received in writing no later than Monday, April 15 in class  

Exam #1 Solution notes here.

Statistics:  Median score 76.  

>90    :  11       Approximate letter grade break points for exam #1 only:
80-89:  28                     A/B:  Middle 80s
70-79:  35                     B/C:  Upper 60s
60-69:  16                     C/D:  About 50
50-59:    8                     D/NCR:  About 40
<50    :    6

Grading Policies

There are no changes to homework grades except to correct addition or recording mistakes

The exams are graded very carefully and original grades are rarely changed.  If you believe a grading mistake has been made on your exam, however, you may submit a re-grade request to Professor Fazzari within one week of the time the exam is returned.  The request must be in writing.  No re-grades will be considered during office hours.  The written appeal should carefully explain the reason you believe a grading error has been made.  The graders will consider your request and re-grade the entire exam because errors can go either way.  One question might be graded too low (which students tend to point out) while another question might have received a score that was too high (which students tend NOT to point out). The total exam score may go up or down following a re-grade.  

Instructor: 

Professor Steven Fazzari
Office:  Seigle 185 (Enter through room 170)
Office Hours:  Tues. 2:15 – 3:30
                          Wed. 3:15 – 4:30
E-Mail:  fazz@wustl.edu
Telephone:  314-935-5693

Teaching Assistants:

Faisal Sohail
Office:  Seigle 355
Office Hours:  Monday 2:00-3:00
E-Mail:  sohailf@wustl.edu

Trevor Teason
Office:  Seigle 358
Office Hours:  Tuesday 3:30-4:30
E-Mail: tteason@wustl.edu

Yao Yao
Office:  Seigle 352
Office Hours:  Monday 4:00-5:00
E-Mail:  yaoyao@wustl.edu

S20-5018 (Social Work) – Economics 348 / Sociology 3910 (Arts and Sciences)

Spring Semester 2019 – Seigle Hall Room 305 – Mondays 4:00 – 7:00

This course explores from an interdisciplinary perspective the American Dream and its viability within the current economic realities of the United States.  The course is divided into four sections.  We begin by examining the components of the American Dream in today’s society, tracing the economic history of the concept, and exploring the extent to which social and economic justice play a role in the American Dream.                       

The second section of the course examines several traditional pathways to achieving the American Dream, including overall economic growth and rising standards of living, economic mobility, equality of opportunity, and the availability and creation of jobs that will adequately provide for individuals and families.

In the third part of the course we discuss some of the current obstacles that prevent the realization of the American Dream.  These include the prevalence and consequences of poverty and economic insecurity, unemployment, and challenges posed by income and wealth inequality across all of American society.

The final section of the class explores the future directions and possibilities for strengthening and/or modifying the American Dream with the objective to improve the lives of the American population.

Throughout the course, a variety of perspectives and viewpoints will be presented.  Research will be drawn from economics, sociology, social work, and other areas of social inquiry.  Emphasis will be placed upon the consistency between empirical data and different aspects of the American Dream.

The full course syllabus is available here. A lecture calendar and links to course readings can be found here.

Part I:  What is the American Dream?

• Week #1, January 14:  Introduction
• Martin Luther King holiday, January 21, no class
• Week #2, January 28:  Values and Components of the Dream 

1. ​”Introduction.” Rank, from Chasing the American Dream: Understanding What Shapes Our Fortunes, 1-11, 2014.    AD_1_1_Rank.pdf
2. “Introduction” and “The American Dream 1900-1916: The Spirit of American Dreams,” Churchwell from Behold America: the Entangled History of “America First” and “The American Dream,” pp. 1-5, 21-29, 2018.  AD_1_1b_Churchwell.pdf
3. “Introduction:  A Dream Country.” Cullen, from The American Dream:  A Short History of an Itea that Shaped a Nation, 3-10, 2003.     AD_1_2_Cullen.pdf
4. “The Slow Death of the American Dream.” Rifkin, from The European Dream: How Europe’s Vision of the Future is Quietly Eclipsing the American Dream, pp. 11-36, 2004.   AD_1_3_Rifkin.pdf
5. “Remarks by the President on the Economy in Osawatomie, Kansas.” Obama, pp. 1-14, 2011.   AD_1_4_Obama.pdf

• ​Week #3, February 4:  Economic History and the American Dream

1. ​The American Dream vs. the Gospel of Wealth:  the Fight for a Productive Middle-Class Economy. Garfinkle, 230 pages, 2006.  (Available in the bookstore!)

​ ** Essay Assignment Part 1, Distributed February 4 **

• ​Week #4, February 11:  Theories of Justice and the American Dream

1. “Fair Chances.”  Methaug, from Equal Opportunity Theory, 15-33, 1996.   AD_4_1_Methaug.pdf
2. “The Deep Story”  Arlie Hochschild, from Strangers in Their Own Land, 135-151, 2016.   AD_4_Hochschild.pdf
3. “Power of the Market.” M. and R. Friedman, from Free to Choose, 9-24, 1980.   AD_4_3_Friedman.pdf

• Optional reading (no reading notes required): “A Theory of Justice.”  Rawls, from A Theory of Justice, 385-401, 1971.   AD_4_Rawls.pdf

Part II:  Pathways to the American Dream

• Week #5, February 18:  Rising Economic Standard of Living  

1. ​“Economic Growth, Human Welfare, and Inequality,” Chapter 1 from Economics After the Crisis, Adair Turner, 2012.     AD_5_1_Turner.pdf
2. “Economics in a Full World.” Daly, Scientific American, 100-107, 2005.   AD_5_2_Daly.pdf  
3. “High Income Improves Evaluation of Life But Not Emotional Well-Being.” Kahneman and Deaton, Proceedings of the National Academy of Sciences, 16489-16493, 2010.   AD_5_3_Kahneman.pdf

                  ** Essay Assignment Part 1, Due February 18 **

• Week #6, February 25:  Economic Mobility and Equality of Opportunity 

1. “The Fading American Dream:  Trends in Absolute Income Mobility Since 1970.” Chetty et al., Science, pp. 398-406, 2017.  Course website.   AD_6_1_Chetty
2. “Chasing the Same Dream, Climbing Different Ladders:  Economic Mobility in the United States and Canada.” Corak, Economic Mobility Project, The Pew Charitable Trusts, 1-25, 2010.     AD_6_2_Corak.pdf
3. “King of American:  The Dream of Equality,” Cullen, from The American Dream: A Short History of and Idea that Shapted a Nation, 103-131, 2003.    AD_6_3_Cullen.pdf
4. “Inheriting Class.”  Reeves, from Dream Hoarders:  How the American Upper Middle Class is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It, pp. 59-76, 2018.  AD_6_4_Reeves.pdf

• Week #7, March 4:  Quality Jobs 

1. “Job Quality in the United States” and “Confronting Polarization and Precarity.” Kalleberg, from Good Jobs, Bad Jobs: The Rise of Polarized and Precarious Employment Systems in the United Sates, 1970s to 2000’s, pp. 1-18, 179-194, 2011.   
2. Rosenfeld, “Introduction,” from What Unions No Longer Do, 2014. 
3. “The Shareholder Value Society: A Review of the Changes in Working Conditions and Inequality in the United States, 1976 to 2000.” Fligstein and Shin, from Social Inequality, Neckerman (ed.), pp. 401-432, 2004.
4. “Boosting Wages Is Really Hard to Do,” Noah Smith from Bloomberg View blog, December 1, 2016. 

• Spring Break, March 11, no class

Part III:  Barriers and Challenges to the American Dream

• Week #8, March 18:  Poverty and Economic Insecurity
  1. “The Dynamics of Poverty in the United States: A Review of Data, Methods and Findings.” Cellini, McKernan, and Ratcliffe, Journal of Policy Analysis and Management, pp. 577-605, 2008.  AD_8_1_Cellini.pdf
  2. “Looking Backward: 1964-1991″ and “Life on the Mississippi: East St. Louis, Illinois.” Kozol, from Savage Inequalities: Children in America’s Schools, pp. 1-39, 1991.   AD_8_2_kozol.pdf
  3. “Preface, Introduction, and the New Economic Insecurity.” Hacker, from The Great Risk Shift, ix-xii and 1-34, 2006.   AD_8_3_Hacker.pdf
  4. “Economic Security.” Rank, et al. from Chasing the American Dream: Understanding What Shapes our Fortunes, pp. 29-50, 2014.   AD_8_4_Rank.pdf

We will view the BBC “Panorama” video on Poverty in America, 2012, in class. There is no need to watch the video before class.  This link will allow you to see the video later if you wish to review it. You also may be interested to check out the “poverty calculator” and other materials developed by Professor Rank and his collaborators through the Confronting Poverty website.

** Essay Assignment Part 2, Distributed on March 18 **

• Week #9, March 25:  Unemployment and Underemployment

1. ​​”Keynesian Basics” pages from the Muddy Water Macro website.     http://muddywatermacro.wustl.edu/keynesian-basics
2. “The End of the Consumer Age,” Cynamon and Fazzari, from Cynamon, Fazzari, and Setterfield (eds.), After the Great Recession: the Struggle for Economic Recovery and Growth, 27 pages, 2012.  AD_9_2_Cynamon.pdf

Slides presented in class

• Week #10, April 1:  Income and Wealth Inequality: Part 1
  1. Class War? What Americans Really Think About Economic Inequality. Page and Jacobs, 112 pages, 2009.  Available in bookstore.

** Essay Assignment Part 2, Due April 1**

• Week #11, April 8:  Income and Wealth Inequality: Part 2
  1. ​”The Rise and Consequences of Inequality in the United States.” Krueger, remarks presented to the Center for American Progress, January 12, 2012. AD_11_1_Krueger.pdf
  2. “Defending the One Percent.” Mankiw, Journal of Economic Perspectives, pp. 21-34, 2013. AD_10_1_Mankiw.pdf
  3. From Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, Dean Baker, published by Center for Economic and Policy Research, Washington D.C., 2016, chapter 1. 

Part IV:  The Future of the American Dream

• Week #12, April 15:  Policy Ideas
  1. “Reclaiming the Dream: A Domestic Marshall Plan: A Ten-Step Strategy” and “Politics: A Grassroots Response: Reviving the Moderate Center and Middle-Class Power.” Smith, from Who Stole the American Dream?, pp. 379-426, 2012.   AD_12_1_Smith.pdf
  2. “Keeping America’s Edge,” Manzi, National Affairs, 3-21, 2010.    AD_12_2_Manzi.pdf

Presentation slides from Ray Boshara

• Week #13, April 22:  Reshaping the Future
  1. From Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, Dean Baker, published by Center for Economic and Policy Research, Washington D.C., 2016, chapters 8 and 9.
  2. “The New Inequality Debate,” Robert Kuttner, The American Prospect, Winter, 2016.   

** Essay Assignment  Part 3, Distributed April 22; Due May 6 **

The concept of the American Dream is regularly mentioned in the media. The articles linked below offer some perspectives on the American Dream and related issues in current U.S. society that may be of interest to students.

The articles are roughly divided into major topics, although an individual article may touch on a variety of issues relevant to the course.

Concept of the American Dream

• February 3, 2019: The American Dream Is Alive and Well, Samuel Abrams, New York Times

​Interesting summary of survey results about the American Dream. Responders emphasize freedom and individuality more than economic success, or even mobility, as central to the Dream. The opimistic outlook component also comes through.

• January 3, 2019: Useless Knowledge Begets New Horizons, Bret Stephens, New York Times

This column by a conservative NYT writer is somewhat far afield from most topics in the course. But the ideas are interesting, there are some reflections of university life, and there is a major references to the American Dream in the middle of the column. What do you think of the “hedonic treadmill” of an “aquisitive” society discussed by Stephens?

• January 29, 2018: The East Germans of the 21st Century, David Brooks, New York Times

This interesting article explores dimensions of the immigration debate and discusses how immigrants and native-born Americans view the American Dream.  (Despite the title, the column makes only passing reference to divisions in Germany). Thanks to David Habif for sharing this article.

Justice and the American Dream

• October 29, 2018: What If We Are All Coming Back? Michelle Alexander, New York Times

​Reflections on Rawls’s theory of justice from a unique perspective. Note the importance of climate change and racial inequality in this column.

Economic Growth and Macroeconomic Context

• February 8, 2018: Stock Market Swings Tell You Everything You Need to Know About Our Rigged Economy, Kate Aronoff and Ryan Grim, The Intercept

In depth analysis of how monetary policy keeps wage growth low. The event that motivated the story was a modest uptick in wage growth from January 2018 that was at least partly responsible for triggering a big reduction in stock prices. But the article describes much broader economic structures that effectively make slow wage growth, and most likely rising income inequality, a systematic feature of the modern approach to monetary policy with inflation targeting.

Economic Mobility

• November 21, 2017: The American Dream is Alive, in China, New York Times

Some interesting data comparing economic growth, mobility, and inequality between China and the US along with some references to other countries. Note that the the third chart presented is an update of the “Great Gatsby Curve” discussed in the reading by Alan Krueger.

• October 27, 2017: Liberal Hypocrisy in College Admissions, Nicholas Kristof, New York Times

Legacy admissions and how elite colleges reproduce inequality and reduce social mobility

• June 21, 2017: This Is Not Your Parents’ Economy, Rebecca Beyer, Stanford Magazine

Summary of a prominent research project by Raj Chetty (now at Stanford) and various co-authors studying geographical and generational dimensions of economic mobility. One part of the project is called the “Fading American Dream.”

Quality Jobs

• June 7, 2018: Class Struggle According to Donald Trump, Thomas Edsall, New York Times

Summary of various perspectives on how changes in bargaining power of labor have affected compensation and job security in recent years. The rise in temporary “gig economy” jobs is of particular interest.

• April 28, 2017: The Rigged Labor Market, Alan Krueger, Milken Insttute Review

​Discussion of how the advantages firms have in bargaining power over workers (called “monopsony”) can depress wages and create what seem iike paradoxical effects. For example, in monopsonistic labor markets higher minimum wages can actually increase employment.

Poverty

• April 15, 2018: The Costs of Keeping Children Poor, Mark Rank, New York Times

An op-ed from an author you know well that analyzes the social costs of childhood poverty in the U.S. a striking bottom-line finding is that the estimated benefits of reducing child poverty exceed the costs by 7 to 1.

Inequality

• January 22, 2019: Alexandria Ocasio-Cortez’s Tax Hike Idea is Not About Soaking the Rich, Emmanuel Saez and Gabriel Zucman, New York Times

The authors (well-known economists studying inequality) argue the the main point of high tax rates on the rich is to reduce their economic and political influence and curtail the growth of oligarchy. They summarize some interesting historical evidence about how the US and Japan grew very quickly with high tax rates on the super-rich and how countries with low tax rates (Russia, in particular) did not thrive economically. 

• September 12, 2018: Recovery Threw the Middle-Class Dream Under a Benz, Nelson Schwartz, New York Times

Analysis of how the financial crisis and Great Recession has changed the way in which Americans attain economic success. Financial well-being has become less about work and wages and more about the returns to wealth. 

Policy Analysis

• April 22, 2018: A Time for Big Economic Ideas, David Leonhardt, New York Times

Interesting op-ed about significant policy changes to address social deterioration and rising inequality in the U.S. For more details about the policy proposals, follow the links in the column.

Steven Fazzari,  Bert A. and Jeanette L. Lynch Distinguished Professor of Economics
Office:  Seigle 185 (in the Weidenbaum Center suite, enter through Seigle 170)
Office Hours:  Tuesday 2:45 – 4:15
E-Mail:  fazz@wustl.edu
Office Telephone:  314-935-5693

Mark Rank Herbert S. Hadley Professor of Social Welfare
Office:  Brown 204
Office Hours:  Tuesday 2:00 – 3:30
E-Mail:  markr@wustl.edu
Office Telephone:  314-935-5694

Current Macroeconomic Issues

Updated for spring, 2019

This course has three broad objectives. First, we examine, in detail, the logic and evidence behind several approaches to understanding macroeconomic fluctuations and economic growth. This analysis builds upon the foundation laid in Economics 1021 and 4021. Second, we apply macroeconomic theory to evolving current events and policy debates. The focus is on issues facing the U.S. economy, but we also consider international trade and topics relevant to other developed countries. Third, this is a writing intensive course; students will improve their ability to communicate ideas in clear and coherent writing.

The backdrop for much of this course is the aftermath of the “Great Recession” that began in late 2007. This was the most significant U.S. macroeconomic event since World War 2. We will discuss in detail how various macroeconomic theories explain the Great Recession. In addition, the unusually slow recovery following the recession was unusual and played an important role in the 2016 national election. We will study how and why this recovery had differed from others and discuss what both the recession and subsequent stagnation teach us about the relevance of different macroeconomic theories. 

In early 2019, the U.S. economy is widely believed to be in good shape, near “full employment.” We will assess current conditions critically and also consider rumblings about a possible slowdown (even a recession) that emerged toward the end of 2018.

Based on a deep analysis of the forces driving the current U.S. economy we will also explore economic policy. The macroeconomics of fiscal policy (government spending, fiscal deficits, and tax policy) are important both for economic and political reasons. The effects of international trade policy on jobs and growth has become a prominent, and contentious, issue in the first two years of the Trump administration. Monetary policy is always a topic of interest, especially with recent questions about whether the U.S. Federal Reserve will continue a slow, but steady, increase of interest rates. 

There is no textbook for this course. Reading are drawn from academic articles, policy analyses, and newspaper articles.  You should purchase the excellent book on writing by Joseph Williams and Joseph Bizup, Style: Lessons in Clarity and Grace. 

Spring, 2019

Syllabus in pdf form

Instructor: Steven Fazzari

Office:  Seigle 185

Office Hours:  Tuesday 2:45 – 4:15; also often available right after class on Mondays and Wednesdays. 

E-mail: fazz@wustl.edu

Assistant in Instruction: Peter Koulogeorge available by appointment via e-mail: pkoulogeorge@wustl.edu

Readings and other course materials are posted on the course site for Econ.448W

This course has three broad objectives. First, we examine, in detail, the logic and evidence behind several approaches to understanding macroeconomic fluctuations and economic growth. This analysis builds upon the foundation laid in Economics 1021 and 4021. Second, we apply macroeconomic theory to evolving current events and policy debates. The focus is on issues facing the U.S. economy, but we also consider international trade and topics relevant to other developed countries. Third, this is a writing intensive course; students will improve their ability to communicate ideas in clear and coherent writing.

The backdrop for much of this course is the aftermath of the “Great Recession” that began in late 2007. This was the most significant U.S. macroeconomic event since World War 2. We will discuss in detail how various macroeconomic theories explain the Great Recession. In addition, the unusually slow recovery following the recession was unusual and played an important role in the 2016 national election. We will study how and why this recovery had differed from others and discuss what both the recession and subsequent stagnation teach us about the relevance of different macroeconomic theories. 

In early 2019, the U.S. economy is widely believed to be in good shape, near “full employment.” We will assess current conditions critically and also consider rumblings about a possible slowdown (even a recession) that emerged toward the end of 2018.

Based on a deep analysis of the forces driving the current U.S. economy we will also explore economic policy. The macroeconomics of fiscal policy (government spending, fiscal deficits, and tax policy) are important both for economic and political reasons. The effects of international trade policy on jobs and growth has become a prominent, and contentious, issue in the first two years of the Trump administration. Monetary policy is always a topic of interest, especially with recent questions about whether the U.S. Federal Reserve will continue a slow, but steady, increase of interest rates. 

There is no textbook for this course. Reading are drawn from academic articles, policy analyses, and newspaper articles.  You should purchase the excellent book on writing by Joseph Williams and Joseph Bizup, Style: Lessons in Clarity and Grace. 

CLASS ENVIRONMENT AND TEACHING STYLE

A central focus of this course is how well evidence aligns with different theoretical perspectives. We want to explain how modern developed economics, the U.S. in particular, operate in the reality of the early 21^stcentury. There is no consensus about the best way to understand real-world macroeconomics. There are a variety of different approaches and much controversy among prominent economists about which approach is most effective. Policy recommendations and political views often connect with different macroeconomic perspectives. 

There will be room for spontaneity in how our class discussions evolve. Although there is a clear plan for each class, the specific content discussed can vary based on observations of the instructor and comments or questions from students. For this reason, this class may seem less scripted than other economics courses. This teaching style can pose challenges for students. I will discuss many ideas and compare perspectives. I present content rapidly with quickly evolving logical threads. Students need to work hard to understand the material presented in class. Recognize that many important ideas will not be fully covered in reading material. Class attendance is very important in this course. Come to class ready to engage.

The challenge of explaining a complex and nuanced reality is not an excuse for lack of clarity. I ask a lot of my students, but I also strive to present concepts and evidence in ways that students who are fully engaged with the class can understand thoroughly. Students should feel free to ask questions at any time during class if something is unclear. You may certainly follow up outside of class, but do not be shy about raising questions in class. Most likely, if something is not clear to you other students will benefit from your effort to better understand what is going on.

In my opinion, this challenging teaching style is well suited to an advanced class that strives for deep understanding. Students who choose to take this class should be ready for this kind of approach.

This semester I hope to experiment with some new approaches in class to facilitate greater discussion and move the focus somewhat away from theoretical exposition to grappling with current, real-world issues. For this reason there may be more deviations than usual from the plan set out at the beginning of the semester.

WRITTEN ASSIGNMENTS 

Exercises

I may assign a few exercises that receive low weight in the course grade. While these assignments are similar to “homework” in other economics classes, grades will depend, to a greater extent than usual, on the clarity and coherence of writing.

Essay Assignments on Macroeconomic Issues

Essay assignments will be posted on the course website. The major essay assignments and planned due dates are:

1.     Classical model summary – This assignment is in two parts. The first part, due Monday, February 4, requires answers to a set of basic questions about the classical model. Based on your answers to these questions and feedback you receive on the first part, you will describe the basic theoretical results of the classical macroeconomic model in a compact summary essay, not to exceed a strict limit of 500 words in length. This second part of the assignment is due on Monday, February 20. Do not let the short length mislead you; this is a challenging assignment.  Expect to devote as much time to it as you would to a longer paper.

2.     A first draft of midterm essay #1 is due on Thursday, March 7 (right before spring break). This question will ask you to apply classical macroeconomics to a real-world issue in an essay of 1,000 to 1,500 words. You will receive a grade and comments on the first draft soon after spring break. You will then submit a revised version with essays #2 and #3 on Wednesday, April 3.

3.     Midterm essays #2 and #3 are due on Wednesday, April 3.These questions will ask you to compare and contrast the main theoretical paradigms that we explore in the first half of the semester in applications to two macroeconomic issues. Each essay will be approximately 1,000 to 1,500 words. 

4.     Final essays. You will write two compact, carefully polished essays on current macroeconomic issues facing the U.S. economy. The topics of the essays are your choice from a menu of options distributed inearly April. Each essay should be 1,500 to 2,500 words in length. The first essay is due on final day of the semester, Friday, April 26.The second essay is due during final exams on Monday, May 6.

Careful, thoughtful revision is absolutely necessary for effective writing. For the classical model summary and midterm essay #1, you will receive comments and a grade on your first draft and you will have an opportunity to revise your writing and submit it again for a new grade. Regardless of the revision system used for grading, the essays you submit in this course you should neverturn in work that you have not carefully revised. You need to complete a first draft of any assignment, no matter how short, somewhat before the deadline. After finishing the first draft, you should do something else for a while and then give the assignment a fresh look. When you read over your work, if you think there is some chance that one of your ideas is not clearly expressed, work on it aggressively until it seems crystal clear to you. In my experience, if the author thinks that there mightbe a problem of clarity in writing, the reader will almost certainly perceive a majorproblem.

CLASS PARTICIPATION

Although this course is “writing intensive,” I view its mission more broadly as improving communication, which includes spoken expression as well as writing. Class attendance is essential and required. I encourage you to demonstrate your engagement during class by asking questions, making comments, and answering questions that I ask. 

You will receive a grade for class participation. Attending class regularly sets a base to your participation grade of a low B (14 points on the scale presented below). Even small contributions will quickly raise your grade from this level. You do not have to talk extensively to receive a good participation grade. I will not keep track of every word that you utter. Rather, I look for evidence that you regularly ask questions or offer comments. Questions in my office hours, sessions with the course assistant, or e-mail questions may also contribute toward the participation grade. But there is a “positive externality” to class participation:  your comments benefit others when they are made during class time.  

GRADING

All grades in the course use a common 20-point scale. You can interpret grades with the following absolute scale:

·     20:  A+, truly outstanding work that far exceeds expectations

·     18-19:A, an excellent effort that is as good as I could reasonably hope for

·     17:  A-, almost an A, but with some room for improvement in the details

·     16:  B+, good grasp of the major objectives, but details need improvement

·     14-15:B, main ideas correct, but some significant things could be improved

·     13:  B-, some major problems with your understanding and/or communication; likely poor understanding of major ideas presented in class

·     10-12:C, shows effort and some understanding, but misses much of the main point and likely does not effectively link your analysis to course material

·     Below 10:       Unacceptable work for an advanced economics student.

Each assignment will receive a weight, and the final grade will be a weighted average of everything you produce during the semester. Although I will determine the detailed weights of each assignment at the end of the semester, I plan to conform roughly to the following plan:

Shorter exercises                     5%
Class participation                   10%
Classical Summary Essay       16%  (6% on first draft questions, 10% for essay)
Midterm Essays                      24%  (split credit for first draft and revision of #1)
Final Essays                            45% (split equally between the two parts)

The final essay assignments will receive, by far, the greatest weight in the course grade. This emphasis reflects the cumulative character of the course material. I also expect your writing to improve throughout the semester, so it is your interest to put more weight on the final assignments. The final essays give you the chance to demonstrate what you have learned throughout the semester and how well you can communicate your understanding with an original analysis of real-world macroeconomic issues in clear, interesting prose.  

Grading Guidelines for Writing

I modified (in minor ways) the following grading guidelines from the syllabus of a colleague who had experience with writing-intensive instruction in the social sciences.  I cannot promise to follow these guidelines strictly, but I believe they provide useful ways of thinking about the characteristics of good, mediocre, and poor writing.

A– An A paper shows a detailed understanding of your argument; demonstrates coherent organization; provides supporting evidence, used appropriately; and has few or no mechanical mistakes. The paper contains clear, unambiguous sentences, perhaps with a touch of elegance. In the best A papers, you write with a lively and intelligent voice, showing you have something interesting to say, and you can say it clearly and gracefully to an appropriate audience, while supporting it fully. 

B– A B paper has a clear thesis, organization, and continuity. It may have some minor mechanical errors, but no major ones. Your style may be slightly awkward at times. The ideas are anchored in theory and evidence, showing that you have thought enough about the topic but the clarity and logic of your argument could be improved substantially. You have a definite point to make and make it an organized and competent way.  

C–  A C paper has a weak, fuzzy thesis and perhaps illogical or confusing arguments to support it.  The writing may be sloppy, with many minor mechanical errors and perhaps some major ones (such as incomplete sentences). You give examples for their own sake or to show you have retained something from the course, not to prove a point. Organization sprawls; words are misused; diction is misused; proofreading is weak.

D–  A D paper has no thesis and/or major mechanical problems; poor organization; serious misunderstanding of the evidence; stretches in which you simply ramble on for no apparent purpose. 

F–  Either you’ve plagiarized, or you paper is an absolute mess. 

DEADLINES AND EXTENSION POLICIES

In the interest of good course organization and fairness to all students, I try to follow clear procedures for deadlines and extension requests. I hope that these procedures will give students some flexibility, while preventing anyone from getting too far behind, in a way that is fair to all students. Please read the following policies carefully and resolve any questions that you have early in the semester.

Every assignment has a due date. Students will submit their work via e-mail to Professor Fazzari by 11:59 pm of the due date. 

You may request extensions for assignments by e-mail to me. Any request should explain the reason for the extension and propose a date when the assignment will be submitted. (Please make sure to do this; students often request extensions without proposing an alternative due date.) Requests for extensions of up to a week will usually be granted, although requests from students who have already taken extensions during the semester will receive greater scrutiny. Requests for extensions must be made no later than 24 hoursbefore the class when an assignment is due (unless the problem is a severe health or family emergency).  

Grades on late assignments without an extension will be reduced one half point per day of delay (see the grade scale above) following the due date. For example, an assignment that was due on Monday would receive a half point penalty if it was turned in on Tuesday. The penalty would rise to one point on Wednesday, one and a half points on Thursday, etc. The same reduction will occur for assignments with authorized extensions if they are submitted later than the date agreed upon at the time an extension is granted.

Important Note for Graduating Seniors:Final grades must be turned in early for spring degree candidates. Extension requests on the second part of the final assignment for graduating seniors may not be granted, especially if they are made at the last minute. Plan accordingly!

ACADEMIC INTEGRITY IN ECON 448W

By this stage in your educational career, I expect you understand standards of academic integrity but this course is somewhat different from other economics classes. All written work is done outside of class. I encourage students to talk among themselves about the course material, a particularly effective way to learn from each other. Work that you submit under your name, however, must be your own. It would be inappropriate for you to ask a classmate to edit or otherwise comment directly on your written work. I also guide teaching assistants to turn down requests along the lines of “could you take a look at this essay to see if I am on the right track?” Whether you are talking with a classmate, a teaching assistant, or the instructor it would be better to ask about a specific concept if it is unclear.

TOPIC OUTLINE and READING (Subject to Revision)

The planned topics and dates we will address them in class are available on the course website here.

Revisions in the schedule may be necessary depending on how topics and discussion evolve over the semester. 

Readings are linked to the topics. They are all be available for download from the course site. I strongly encourage students to read the relevant material before the assigned class. Additional readings may be added during the semester. Also, news articles on current issues will be posted for you to read and us to discuss in class, especially during the second half of the semester. These articles will be particularly useful for your final essays. See the news article page here.

I have developed a web-based resource to explain basic macroeconomic concepts and current policy issues. This site is called “Muddy Water Macro.” You can read about the site at http://muddywatermacro.wustl.edu. I encourage you to look at the material on the site and, please, to share comments with me about anything that is unclear or further topics you would like to see developed.

There are detailed notes available for the class on Wednesday, January 16. We will cover this material in class rather quickly to save class time. Please read these notes in detail before classon January 16. We may use a similar approach for material on January 23 if I have time to prepare these note. More information will be given in class.

Click on the links below for access to course materials organized by major topic and class date. Details may be updated during the semester to reflect the actual progress of the class.

Click here to download course data and chart file (Power Point format). Data will be updated as the course proceeds. 

I. Introduction

We will cover course organization, teaching style, assignments and other key aspects of the course. This discussion complements the syllabus that all students should read in detail. 

Class #1 (Jan. 14): Review syllabus and overview of current US economic conditions and issues

• Reading: Williams-Bizup book, lessons 1 and 2. You should read these lessons prior to completing exercise #1, due on Wednesday, January 23. 

II. Paradigms in Macro Theory

This section comprises about 40 percent of the course. This material should help you understand the major schools of macroeconomic thought. We pay particular attention to comparison among the theories. These perspectives create the foundation for our analysis of current issues throughout the course.

Some of this material should be familiar from Economics 4021 (and even Economics 1021), but we will certainly develop new ideas that you most likely have not seen in other classes, especially when we discuss different approaches to Keynesian macroeconomics.

As we discuss different theoretical perspectives, we will apply the ideas to the analysis of some current issues as illustrations of the theories. In particular, we will apply the basic classical macroeconomic model to explain aspects of the Great Recession (2008-09) and anaylyze some controversies surrounding international trade. The most important objective of this part of the course, however, is to enhance students’ deep understanding of the major theoretical ideas in macroeconomics.

A. The Classical Model: Theory and Applications

Classical macroeconomic theory, often associated with “supply-side” economics, describes an economy that always operates at full employment and produces the potential level of output, at least in the absence of specific labor market “frictions.”  Changes in demand (spending) have no direct effect on real macroeconomic variables, although changes in some traditional demand factors (consumption or government spending, for example) can have indirect effects on output by changing the conditions of labor or capital supply.

Classes #2 through #4 cover basic theoretical results and  provide the basis for the first major assignment, the classical model summary essay. Classes #5 through #7 are devoted to some applications of the model to current issues.

Class #2 (Jan. 16): Tastes, Technology and Resources: the Production “Supply Side.”

• Reading: Classical Model Notes for 448W. It is important to read these notes prior to class #2.

MLK holiday (Jan. 21), no class

Class #3  (Jan. 23): The Classical “Demand Side” and Say’s Law, the Money Market

*** Exercise #1 Due ***

• Reading: On the Muddy Water Macro site, look at the Keynesian Basics pages (http://muddywatermacro.wustl.edu/keynesian-basics). Start with “Demand, Supply, and Unemployment” and then look at the “Interest Rates, Aggregate Demand, and the Paradox of Thrift” page up to the subsection entitled “The Paradox of Thrift: Keynesian Response to Say’s Law.” Note that these pages describe some Keynesian ideas that we will discuss later in the course, but they summarize key ideas about the classical model that will be useful at this stage.

Class #4 (Jan. 28): Money and Inflation, Summary of the Classical Model

Class #5 (Jan. 30): International Trade and the Classical Loanable Funds Market: Does Trade Cost Jobs?

President Trump has made reducing the US international trade deficit a major issue arguing that a big trade deficit (particulary with China) implies the US is “losing” the international competition at the cost of domestic jobs. We will critique thie perspective using the classical model loanable funds analysis.

• Reading: Notes on Say’s Law with International Trade

*** Classical Model Questions Due, Feb. 4 ***

Classes #6 and #7 (Feb. 4 & Feb. 6): New Classical Analysis of the Great Recession 

The Great Recession, the most severe economic crisis in the US and the world since the 1930s is usually understood from a Keynesian demand-side point of view (as we will discuss later in the course). Some new classical economists and conservative commentators on macro policy argue that the Great Recession can be understood as a supply-side phenomenon. We will explore how these explanations work and use their shortcomings as a motivation to begin study of the Keynesian model. These classes will provide the main materials you will need to write your midterm essay #1

• Reading: Ohanian, Lee. (2010) Understanding Economic Crises
• Vacancy and unemployment rate data and the Beveridge Curve
• Reading: Schierholz, Heidi, “Is There Really a Shortage of Skilled Workers?” Chapter 17 from Restoring Shared Prosperity.
• The following four short articles set up a debate on the extent to which government activities in the home mortgage market created the conditions that triggered the financial crisis and the Great Recession. There is some redundancy between articles #3 and #4, but #3 provides somewhat more depth and #4 links the discussion to more recent events, including a prominent 2016 presidential candidate

1. Wallison, Peter, “The True Story of the Financial Crisis,” from The American Spectator​, May 2011.
2. Wallison, Peter, “Bernanke and the Slow-Growth Crew,” American Enterprise Institute blog post, Nov. 5, 2015.
3. Konczal, Mike, “Bloomberg’s Awful Comment; What Can We Say For Certain Regarding the GSEs?” Rortybomb blog post, Nov. 1, 2011.
4. Konczal, Mike, “No, Marco Rubio, Government Did Not Cause the Housing Crisis,” Wonkblog, The Washington Post, Feb. 13, 2013.

B.  Writing About Macroeconomics

This topic is not about theoretical paradigms, but we will spend two classes after we finish with the classical model discussion to talk about writing style, particularly sentence structure.  These classes will apply the material from lessons 3 and 4 of the Williams-Bizup book to writing samples taken from our class material.

The focus of these lessons is basic sentence structure.  The remainder of the lessons in the Williams-Bizup book develop further valuable aspects of style.  I strongly encourage you to study them in detail.

Classes #8 and #9 (Feb. 11 & Feb. 13): Actions and Characters in Economic Writing 

•  Reading: Williams-Bizup book, chapters 3 and 4
•  Power point slides used in class

C. Conventional Keynesian Macro — the Neoclassical Synthesis

Conventional Keynesian analyzes how sticky wages or prices may create temporary unemployment after negative “demand shocks,” that is, reductions in spending by households, firms, and governments.  This second major theoretical paradigm is mostly equivalent to the “neoclassical synthesis,” according to which changes in demand have direct effects on output and employment in the short run (before wages or prices fully adjust), but results converge to those predicted by the classical theory in the long run (after nominal variables fully adjust to equilibrium values).

Classes #10, #11, & #12 (Feb. 18, Feb. 20,  & Feb. 25): Keynesian Macroeconomics and the Paradox of Thrift

*** Classical Model Essay Due, Feb. 20 ***

• Excel workbook with the simple paradox of thrift model discussed in class
• Reading: Muddy Water Macro (http://muddywatermacro.wustl.edu)  “Demand, Supply, and Unemployment” page and “Interest Rates, Aggregate Demand, and the Paradox of Thrift,” both accessed from “Keynesian Basics” on the main menu. (You should have looked at most of this material earlier, but read it again and continue on through the paradox of thrift.)
• Optional Reading: Fazzari “A Penny Saved May Not Be a Penny Earned: Thinking Hard About Saving and the Creation of Wealth“

Class #13 (Feb. 27): The Neoclassical Synthesis: Keynesian Short Run – Classical Long Run

• Reading from Muddy Water Macro: “Wage and Price Adjustment and Deflation” (first part, up to “Destablizing Effects of Deflation”)
• Reading: Fazzari, Ferri, and Greenberg, “Aggregate Demand and Firm Behavior …” Students should read through the first two lines of page 546 for this class (feel free to skip the material from the bottom page 537 to the bottom of page 540).

D. An Alternative Keynesian Model:  Ineffective Wage and Price Adjustment and the Persistent Effects of Demand

This third major theoretical paradigm provides an interpretation of Keynesian macroeconomics more consistent with what Keynes himself wrote. Keynes argued falling wages and prices would usually not solve macroeconomic problems of insufficient demand and unemployment.  The evidence and policy practices in modern economies provide support for this view, even though it lies somewhat outside of the mainstream of most modern academic approaches.  

Class #14 (March 4): Destabilizing Effects of Falling Wages and Prices on Demand”

• Reading from Muddy Water Macro: “Wage and Price Adjustment and Deflation” (second part, starting with   “Destablizing Effects of Deflation”) and The MWM Perspective on Macroeconomics
• Reading: Fazzari, Ferri, and Greenberg, “Aggregate Demand and Firm Behavior …” Students should read page 540 to the end of the article for this class.

Class #15 (March 6): Implications of Intrinsic Keynesian Macro: Effects of Demand “Beyond the Short Run”

          *** Midterm Essay #1 First Draft Due Thursday, March 7 ***

• Reading: Reading: Fazzari, Ferri, and Variato (2018). Demand-Led Growth with Accommodating Supply
• Class slides that summarize Fazzari, et al. paper

Spring Break: No class on March 11 and 13III.  Financial Instability, the Great Recession, and (Secular?) Stagnation

In the fall of 2007, the U.S. economy entered recession. At first, most economic forecasters predicted a mild recession by historical standards, much like the recessions of 1990-91 and 2001 (during a period often called the “Great Moderation” in U.S. macroeconomic history). But the job losses and the decline in output made this recession the worst macroeconomic event in the U.S. (and much of the rest of the world) since the Great Depression in the 1930s. There was also a widespread view that the recovery from such a deep recession would be robust (as it was, for example, from the deep downturn in 1982). But the recovery was disappointing, especially in terms of GDP and labor force participation.

Some classical model explanations for the Great Recession and its aftermath were covered earlier. This part of the course explores Keynesian explanations for this interesting and challenging period emphasizing unstable financial dynamics, particularly in the household sector of the economy. U.S. consumer spending grew quickly between the middle 1980s and 2007. Household debt also rose to unprecedented levels during this period. The “bubble” in residential real estate and the associated mortgage debt was the final phase of the consumer boom. Almost every explanation for the Great Recession begins from the bursting of this bubble and the implications that event had for household consumption, household debt, and aggregate demand.

There is more controversy about what caused the economy to under perform for many years following the trough of the recession. Some economists have labeled the persistent weakness “secular stagnation.” We will analyze the stagnant recovery and discuss whether the associated stagnation still affects the current economy.

An emerging theme in the research of a number of economists (including Professor Fazzari) is that rising income inequality since the early 1980s played an important role in creating the financial instability that triggered the Great Recession and the slow growth of demand in its aftermath. We will also consider this idea. 

Classes #16 & #17 (March 18 & March 21): Minsky’s Theory of Financial Instability and the Great Recession

• Watch Professor Fazzari’s “Minsky Lecture:” Link to video
• Reading: Cynamon, Fazzari, and Setterfield, “Understanding the Great Recession,” chapter 1 from After the Great Recession, 2013.
• News article readings:
  • Stephen Mihm, Boston Globe, Sept. 13, 2009: “Why Capitalism Fails”
  • John Cassidy, New Yorker, Feb. 4, 2008,“The Minsky Moment”
  • Edmund Andrews, New York Times, May 17, 2009: “My Personal Credit Crisis”

Classes #18 & #19 (March 25 & March 27): Rising Inequality and Secular Stagnation in the Aftermath of the Great Recession

• Reading: Summers, L.H. “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound,” from Business Economics, 2014.
• Reading: Cynamon and Fazzari. “Rising Inequality and Stagnation in the U.S. Economy,” European Journal of Economics and Economic Policies, 2015.

Class #20 (April 1): Catch up and discussion

IV.  Monetary Policy After the Crisis

Monetary policy is considered the primary tool to contain economic fluctuations according to mainstream macroeconomic thinking (the neoclassical synthesis), particularly prior to the Great Recession. The Federal Reserve was a central player in the response to the economic crisis of the Great Recession.  We will consider prevailing views on monetary policy prior to the crisis, and then discuss how perspectives have changed as the result of recent events. We will also discuss how “quantitative easing” policies work (or do not work) when the typical adjustment of short-term interest rates pushes up against the lower bound of zero without adequately stimulating the economy. 

Classes #21 and #22  (April 3 and 8): Monetary Policy: The Zero Bound, Quantitative Easing, and Secular Stagnation

*** Revision of Midterm Essay #1 and Midterm Essays #2 and #3 Due Thursday, April 4 ***

• Reading:  Review pages 8-10 of Cynamon, Barry Z., Steven M. Fazzari, and Mark Setterfield  “Understanding the Great Recession” (book chapter).
• Reading: Bernanke blog post, March 31, 2015: “Why Are Interest Rates So Low? Part 2: Secular Stagnation”
• Reading: Summers response to Bernanke, April 1, 2015: “On Secular Stagnation: A Response to Bernanke“

V.  International Trade, Aggregate Demand, and Jobs

A major theme in Donald Trump’s election victory in 2016 was a criticism of trade deficits. Candidate Trump argued that the rest of the world, especially China, “ripped off” the US, costing jobs and hurting wage growth for American workers.

While this perspective no doubt resonated with some voters, we will explore the economic foundations of this argument. As discussed earlier in the course, the idea that the trade deficit causes a net loss of US jobs is inconsistent with the simplest form of the classical model. The Trump argument is basically Keynesian, as we will analyze in detail.

This conclusion leads to a deeper understanding of policy responses to the trade deficit. If the deeper problem with trade deficits is insufficient demand, both domestically and globally, it is far from clear that protectionist trade policy or sanctions for companies that off-shore production is the most effective approach.

Class #23 (April 10): Perspectives on the Macroeconomic of US Trade Deficits

• Reading: “NAFTA and Other Trade Deals Have Not Gutted American Manufacturing–Period,” J. Bradford DeLong, vox.com, January 24, 2017.
• Reading:  “Trump’s Economic Analysis: Gets Symptoms Right, But Diagnosis Wrong,” Steven Fazzari, Huffington Post blog, November 8, 2016.

VI. Fiscal Policy, Part 1: Supply-Side Economics

Perhaps more than at any time since the 1980s, the debates between supply-side and demand-side macro were front and center in the economic policy debate about the big tax bill signed into law by President Trump in late 2017. This policy was, in part, a response to the stagnant recovery of the Obama years.

To what extent is the stagnant recovery from the Great Recession a supply-side vs. a demand-side problem? What do we know about the effects of the recent tax changes ? How does the effectiveness of different policy approaches depend on the underlying supply-side vs. demand-side source of current problems?

Class #24  (April 15): Supply-Side Economics: The Logic and Evidence for Tax Cuts as Economic Stimulus

• Reading: Phil Gramm, “What’s Wrong With the Golden Goose?” WSJ Op-Ed, April 20, 2015

VII.  Fiscal Policy, Part 2:  Government Stimulus, Deficits, and Austerity

The U.S. federal budget plunged into historic deficit in the Great Recession, in part due to the controversial “stimulus package” implemented by Congress and the Obama administration in early 2009. The rancorous argument over extension of the U.S. debt ceiling in the summer of 2011 was to some extent a continuation of the debate. The deficit declined substantially in the latter part of the Obama administration. But the big Republican-led tax cut passed in late 2017 has again increased deficit projections. Indeed, near-term projections of the federal deficit as a share of GDP are at historic highs for an economy operating in the neighborhood of full employment. Many analysts also worry about rising deficits to finance Social Security and Medicare spending for an aging population. 

What are the economic effects of fiscal stimulus and government deficits?  Where does the money come from to finance deficits?  Does the deficit “burden” future generations?  Are there good reasons for a government to run a deficit?  What policies, if any, should the U.S. pursue to close its budget gap? 

Class #25 & #26  (April 17 & 22): Keynesian and Classical Perspectives on Fiscal Stimulus, Deficits, and Crowding Out

• Reading: Muddy Water Macro, Fiscal Policy (and linked pages)
• Reading: Cynamon and Fazzari, No Need to Panic About U.S. Government Deficits, chapter 11 from After the Great Recession, 2013. 

Class #27  (April 24): Wrap-Up–Alternative Economic Policies for the Future U.S. Economy

• Reading: Cynamon, Fazzari, and Setterfield, Demand, Finance, and Uncertainty Beyond the Great Recession, chapter 13 from After the Great Recession, 2013.
• Reading: L. Randall Wray and Yeva Nersisyan, Understanding Money and Macroeconomic Policy, chapter 3 from Jacobs and Mazzucato (eds.) Rethinking Capitalism, 2016.

*** Final Essay #1 Due April 26 ***

*** Final Essay #2 Due May 6 ***

Links to course assignments and due dates appear below. All assignments should be submitted to Professor Fazzari via e-mail no later than 11:59 pm on the due date. Any extension requests must be completed as described in the syllabus.

Word files are preferred, but pdfs are acceptable. You may submit pictures of legible hand-drawn diagrams for some assignments that require graphics. See the information below about anonymous grading for information about file names of your submitted assignments.

Exercise 1 

Summarizing the State of the US Economy in Early 2019

Due Wednesday, January 23 (-ex1)

Classical Model Summary

Link to assignment here

Part 1 due Monday, February 4 (-cl1)

Part 2 due Wednesday, February 20 (-cl2)

Midterm Essay #1

Link to assignment here (now updated for spring 2019)

News article references in the assignment:

Why Economists Are Worried About International Trade, Gregory Mankiw, New York Times, Feb. 16 2018

How Trump Misunderstands Trade, Veronique de Rugy, New York Times, April 10, 2018

First draft due Thursday, March 7 (-mt1-1)

Revision due Thursday, April 4 (-mt1-2)

Midterm Essays #2 & #3

Link to assignment here (now updated for spring 2019)

Readings references in the assignment:

• Krugman, We’re Still in a Paradox of Thrift World
• Crutsinger and Manning, Productivity Gains May Be Bad News for Job Seekers
• Long, GOP Senator Suggests We Need Fewer Immigrants Because Robots are Coming

Due Thursday, April 4 (-mt2 & -mt3)

Final Papers

Two separate essays that analyze current macroeconomic issues.

Link to assignment here (now updated for spring 2019)Paper #1 due Friday, April 26 (-f1)Paper #2 due Monday, May 6 (-f2) Anonymous Grading Procedures

To allow anonymous grading please follow these procedures.   Send your assignment as an attached e-mail file to Professor Fazzari (fazz@wustl.edu) no later than 11:59 pm on the due date (Word files are preferred).  You will pick a 5-digit ID number (not necessarily your WU ID) early in the semester. You should name the file with your assignment with this ID number followed by a hyphen and the code listed in the assignment due date above.  For example, for exercise #1, if you picked the ID number 12345 you would send a file attachment named “12345-ex1.docx.”  You can include your name in the e-mail body, but do not put your name anywhere in the file with your assignment.  Professor Fazzari will save the files with the ID numbers for grading. Graders will not know the identity of the writer when the papers are read.

The news articles linked on the topic pages below are all relevant to topics covered in the course. They are listed in reverse chronoloical order so the most recent, current articles appear first. But do not ignore older articles, they can be quite helpful.

Students are encouraged to keep up with articles, especially recent posts, to remain current on economic events and analysis during the course. A deeper dive into topical areas will be important in writing final essays for the class.

Some articles appear in more than one category.

Categories

General Economic Conditions and Growth

These articles provide some overview of current or historical US economic performance, often with some indication about what causes changes in growth trends or the business cycle. Many of these articles touch on policy issues as well.

February 27, 2019: Powell Says Fed in No Rush to Raise Rates, Nick Timiraos, Wall Street Journal

Useful perspective on why the Fed is not planning to raise interest rates in early 2019 when just a few months ago further increases in rates were widely expected. Note the “neoclassical synthesis” perspective here with Keynesian as well as supply-side comments in the analysis.

January 27, 2019: The World Economy Just Can’t Escape Its Low-Growth, Low-Inflation Rut, Neal Irwin, New York Times

Description of how economies around the world are growing more slowly since the Great Recession. The acceleration (and optimism) of middle 2018 seemed transitory. Monetary policy is keeping interest rates much lower than prior to the 2008-09 crisis, but growth and inflation remain subdued. A good overall summary of global economic conditions in early 2019, but the key question is why this situation persists.

January 24, 2019: The Sum of Some Global Fears, Paul Krugman, New York Times

Summary of risks facing the US economy in early 2019 and constraints on macro policy in responding to a possible slowdown (even a recession).

January 21, 2019: The Economy Won’t Rescue Trump, Paul Krugman, New York Times

Criticism of Trump economic policies with interesting comparison with the Reagan years. This column takes a strong political stance (more so than most articles I post). But it has extensive, clearly explained macroeconomic content.

August 24, 2018: The Good Times Can Roll On, Edward Prescott and Lee Ohanian, Wall Street Journal

Prominent new classical economists analyze economic performance in the later Obama years and early Trump years. They argue that that the recovery from the Great Recession “stalled” because of higher tax rates and increased regulation. They propose that growth has accelerated after better supply-side policies implemented by President Trump and that this better growth is sustainable, although they also argue that the economy could do even better with free trade reforms.February 9, 2018: No, the Stock Market isn’t Throwing a Tantrum Because the Economy is Overheated, Josh Bivens, Economic Policy Institute Blog Analysis of economic conditions in early 2018 to support the argument that the economy is not growing so quickly that inflation is about to break out. Therefore, the author argues that it is not necessary for the Fed to clamp down tightly on the economy.  

January 8, 2018: Long-Term Slowing Seen Despite Spurt, Ben Leubsdorf, Wall Street Journal

Summary of various economists’ views about the rather slow long-term growth potential for the US economy. Note the complete focus on supply-side analysis here, consistent with a mainstream neoclassical synthesis theoretical framework.

September 11, 2017: Finding America’s Lost 3% Growth, Phil Gramm and Michael Solon, Wall Street Journal

This article argues that US growth should be higher than it has been in recent years and then ties the sluggishness of the economy entirely to bad supply-side policy. The assessment of weak recent growth is consistent with the ideas of “secular stagnation” but the source of the problem is on the supply side, not the demand side.

January 28, 2017: U.S. Economy Returns to Lackluster Growth, Ben Leubsdorf, Wall Street Journal

The government reported the first look at real GDP growth for the fourth quarter of 2016. This article goes into some detail about the report with lots of good historical data comparisons. Pay particular attention to the lower right graph under the heading “Clearing a Low Bar.” This shows how far actual GDP has been below the projections of potential output by the government and how those projections, especially, have been reduced over time. This information will be central to our discussion later in the semester about the possibility that the US is experiencing “secular stagnation.”  The statistics are stunning. They imply that current US GDP is 10% to 15% below what the CBO thought it would be by now, when forecasts were made prior to the Great Recession. Is this truly an economy operating close to its potential output (Y*)?

Monetary Policy

These articles provide commentary on how the Federal Reserve responds to the state of the overall economy and financial markets.

March 20, 2019: Fed Keeps Interest Rates Unchanged; Suggests No More Increases Likely This Year, Nick Timiraos, Wall Street Journal

Recap of outcomes from a major Fed meeting of it’s primary policy-making group (the FOMC). The plan to keep interest rates steady contrast strongly with the expectation few months ago that the Fed would be raising rates in 2019 due the predicted strong economy. There are more growth concerns now and inflation has been surprisingly low.

February 27, 2019: Powell Says Fed in No Rush to Raise Rates, Nick Timiraos, Wall Street Journal

Useful perspective on why the Fed is not planning to raise interest rates in early 2019 when just a few months ago further increases in rates were widely expected. Note the “neoclassical synthesis” perspective here with Keynesian as well as supply-side comments in the analysis.

November 16, 2018: Why Trump’s Tax Cut was a Fizzle?, Paul Krugman, New York Times

This column makes the case that business investment is not very sensitive to tax rates (the interest elasticity of business investment is low). This empirical point leads to a strong critique of the effectiveness of so-called “supply-side” tax policy. In addition, it suggests monetary policy will be less effective in a downturn because it does not stimulate much business investment.

June 11, 2018: The Fed Can’t Save Jobs From AI and Robots, Martin Feldstein, Wall Street Journal

This piece considers the real possibility of some kind of “technological unemployment” as innovation replaces jobs done by people with AI or robotics. He argues, however, that the Fed cannot  and should not address this kind of “supply shock” with expansionary monetary policy. How does this perspective fit with the various models we have studied?

April 9, 2018: Big Question for Markets: Is There a Kudlow or Powell Put? Neil Irwin, New York Times

Overall, this is an interesting article. The most relevant part may be near the end with the discussion of how difficult it would be for the Fed to offset both inflationary and contractionary effects of a trade war on the US economy.

March 9, 2018: Inflation, Bring it On. Workers Could Actually Benefit, Isabel Sawhill, New York Times

This article presents a somewhat non-standard view of monetary policy. The author argues that the Fed should perhaps allow unemployment to fall below conventional estimates of the “natural” full-employment rate and output to exceed conventional estimates of potential. If inflation rises, it may not be so bad, especially because workers benefit. It’s also not clear that conventional estimates of potential output and the associated unemployment rate are correct. This idea relates to secular stagnation that might draw down potential due to a weak demand side.

February 11, 2018: Trump Gambles on Deficits, Inflation, Nick Timiraos, Wall Street Journal

Another mainstream discussion of the rising deficit as the result of the big tax cut and the recent agreement to raise government spending with nice references to data. The analysis also makes useful links to the interaction between monetary policy and deficits.  Note the good summary of a mainstream Keynesian theoretical framework in the final couple of paragraphs.February 9, 2018: No, the Stock Market isn’t Throwing a Tantrum Because the Economy is Overheated, Josh Bivens, Economic Policy Institute blog Analysis of economic conditions in early 2018 to support the argument that the economy is not growing so quickly that inflation is about to break out. Therefore, the author argues that it is not necessary for the Fed to clamp down tightly on the economy. It is useful to like this article to the Feb. 8 Aronoff and Grim piece that explains more broadly how Fed policy can persistently keep the economy below full employment and reduce wage growth. February 8, 2018: Stock Market Swings Tell You Everything You Need to Know About Our Rigged Economy, Kate Aronoff and Ryan Grim, The Intercept

In depth analysis of how monetary policy keeps wage growth low. The event that motivated the story was a modest uptick in wage growth from January 2018 that was at least partly responsible for triggering a big reduction in stock prices. But the article describes much broader economic structures that effectively make slow wage growth, and most likely rising income inequality, a systematic feature of the modern approach to monetary policy with inflation targeting.

January 31, 2018: Trump Doesn’t Deserve Credit for the Economy, Neither Does Obama, Charles Lane, Washington Post

Balanced assessment of the influence of various political entities on economic outcomes. This column really captures the mainstream Keynesian idea that monetary policy is the key to a stable, growing economy by highlighting the contributions of Janet Yellen.

January 31, 2018: Long After Janet Yellen Leaves, Interest Rates Will Bear Her Mark, Greg Ip, Wall Street Journal

Nice overview of monetary policy under Janet Yellen. Interesting references to the “natural” or “neutral” rate of interest and how Yellen understood its evolution to lower levels during her term in office. Also note the link to the “secular stagnation” argument by Lawrence Summers (and others!). One minor criticism: Mr. Ip defines the neutral rate (same as the natural rate) as the interest rate that equates the suppy and demand for lending. That is not an adequate definition. The natural rate equates the supply and demand for lending when the economy operates at Y*. The bold phrase is important.

January 11, 2018: For Fed, Stock Boom Brings Bubble Deja Vu, Greg Ip, Wall Street Journal

This article draws analogies to the financial excesses that triggered the recession and more recent economic conditions. There are also interesting thoughts about monetary policy.

January 9, 2018: As the Economy Strengthens, Fed Ponders New Approach, Binyamin Appelbaum, New York Times

Interesting perspective on current monetary policy and why it may not be as effective as is widely portrayed in mainstream macroeconomics. Some discussion of alternative approaches to monetary policy.

Fiscal Policy Articles

Articles in this list relate to tax and government spending policies with macroeconomic significance.

March 21, 2019: The Debt Crisis is Coming Soon, Martin Feldstein, Wall Street Journal

A prominent economist discusses the case for “crowding out” of investment due to rising federal deficits and makes the case for decreases in spending, especially entitlements. Note the clear supply-side / classical perspective.

March 13, 2019: Is Modern Monetary Theory Nutty or Essential? The Economist

Brief summary of the strongly Keynesian macroeconomic theory behing “MMT” or modern monetary theory. These ideas have been referenced by progressive-left politicians in support of the view that government borrowing constraints do not limit Keynesian expansion. Instead, any limit on what the government can do with fiscal policy comes from the real resources in the economy.

November 16, 2018: Why Trump’s Tax Cut was a Fizzle?, Paul Krugman, New York Times

This column makes the case that business investment is not very sensitive to tax rates (the interest elasticity of business investment is low). This empirical point leads to a strong critique of the effectiveness of so-called “supply-side” tax policy. 

August 24, 2018: The Good Times Can Roll On, Edward Prescott and Lee Ohanian, Wall Street Journal

Prominent new classical economists analyze economic performance in the later Obama years and early Trump years. They argue that that the recovery from the Great Recession “stalled” because of higher tax rates and increased regulation. They propose that growth has accelerated after better supply-side policies implemented by President Trump and that this better growth is sustainable, although they also argue that the economy could do even better with free trade reforms.

April 18, 2018: How the Tax Cut President Trump Loves Will Deepen Trade Deficits He Hates, Greg Ip, New York Times

Analysis of how fiscal stimulus, like big tax cuts, causes incomes, interest rates, and imports to rise. The government deficit increase, the dollar strengthens, and the trade deficit (foreign saving) goes up. This is sometimes called the “twin deficit” problem. Note how the description of the effects follow the classical loanable funds analysis with an open capital market that allows foreign saving.

April 17, 2018: The National Debt is Worse Than You Think, William Galston, Wall Street Journal

Wide-ranging discussion of rising national debt in the aftermath of the 2017 Trump tax cuts and the 2018 agreement to raise federal spending. Some critical discussion of supply-side perspectives and on the reasons to expect slow growth (secular stagnation?) over the coming years.

April 16, 2018: For Tax Day, A Reminder that Economic Arguments for the GOP Tax Plan Have No Theoretical Basis, Josh Bivens, Economic Policy Institute blog post

This post has a provocative title and the author’s criticism of the Trump/Republican tax cuts of late 2017 is clear. That said, the post does a nice job of laying out demand-side and supply-side analysis of tax cuts. From the demand side, the 2017 cuts are weak because they do not go to units that will increase spending (at least not very much). The supply-side critique is more subtle. Bivens recognizes that the tax cuts will work, according to supply siders, by lowering the cost of capital and stimulating capital investment. But since the tax cuts also raise the deficit, there would be an offsetting rise in interest rates according to basic classical loanable funds theory. So, in either case, the tax cuts are not likely to be very effective.

March 30, 2018: How To Think About Corporate Tax Cuts, Justin Wolfers, New York Times

Useful analysis of the way mainstream economics understands the effect of corporate tax cuts with reference to the recent Trump cuts.

February 18, 2018: Do Deficits Matter We May Be About To Find Out, David Nicklaus, St. Louis Post Dispatch

This column surveys key issues about how federal deficits and debt can effect the aggregate economy. The author received some help from one of your favorite (I hope!) local economists. The substance of this article is good and it also provides an excellent example of how complicated, multi-dimensional analysis can be summarized and simplified for a general audience.

February 11, 2018: Trump Gambles on Deficits, Inflation, Nick Timiraos, Wall Street Journal

Another mainstream discussion of the rising deficit as the result of the big tax cut and the recent agreement to raise government spending with nice references to data. The analysis also makes useful links to the interaction between monetary policy and deficits.  Note the good summary of a mainstream Keynesian theoretical framework in the final couple of paragraphs.

January 31, 2018: Why Now Is the Wrong Time to Increase the Deficit, Alan Blinder, Wall Street Journal

Centrist analysis of the proper role fiscal deficits play in stabilitizing the economy: good in recessions with lots of economic slack; bad when the ecobnomy is close to full employment and potential output. The author is a highly respected mainstream academic economist with substantial policy experience.

January 22, 2018: Bonuses Aside, Tax Law’s Trickle Down Not Clear, Jim Tankersley, New York Times

Interesting article that basically describes a classical model channel of causation from lower corporate taxes to higher real wages. The article raises questions about whether this will happend and how it can be assessed. It also suggests that one-time wage bonuses announced by companies like Apple weeks after the tax law was passed are not evidence of the kind of long-term trickle down effects the classical model predicts. Rather, they may be public relations actions designed to curry favor with the Trump administration.

December 30, 2017: Confessions of a Columnist, Russ Douthat, New York Times

This column is an interesting account of the author’s change of views about the problems created by the federal deficit. The ideas do not really have a strong analytical foundation; they are based more on sensible observations. Think about how the observations Douthat makes relate to our analysis of the macro effects of deficits in class. Consider whether this self-described conservative is basically becoming a Keynesian!

December 8, 2017: Living With the Republican Tax Plan, Russ Douthat, New York Times

An assessment of the big tax bill signed into law in late December from a center-right perspective. The author often takes conservative positions, but he is neither a strong Trump supporter nor an avid supply-side cheerleader.

November 16, 2017: Everybody Hates the Trump Tax Plan, Paul Krugman, New York Times

Criticism of the view that corporate tax cuts spur growth. Discussion of how tax cuts relate to government deficits and the consequences of higher deficits on future poliices.

October 9, 2017: “Why Corporate Tax Cuts Won’t Create Jobs,” Marcus Ryu, New York Times

Interesting analysis of the motivation of successful entrepreneurs to create new businesses and how that motivation relates to various tax policies. This discussion is related to Professor Fazzari’s theoretical point that  pure profits taxes have little, if any, impact on capital investment and job creation.

October 8, 2017: “The GOP’s Tax the Rich Temptation” Phil Gramm, Wall Street Journal

Prominent conservative commentator and former member of Congress argues that tax cuts have to benefit the rich because the rich pay most of the taxes.

September 11, 2017: Finding America’s Lost 3% Growth, Phil Gramm and Michael Solon, Wall Street Journal

This article argues that US growth should be higher than it has been in recent years and then ties the sluggishness of the economy entirely to bad supply-side policy. The assessment of weak recent growth is consistent with the ideas of “secular stagnation” but the source of the problem is on the supply side, not the demand side. Highly critical of Obama-era policies and asserts effectiveness of traditional supply-side tax cuts and deregulation.

August 4, 2016: Why This Recovery is So Lousy, Phil Gramm and Michael Solon, Wall Street Journal

Supply-side perspective on what drives growth. The authors explain the slow recovery from the Great Recession as the result of excessive government taxes, regulation, and spending.

Inequality and Macro

These articles analyze various channels through which income or wealth distribution affects macroeconomic activity. Most articles imply that rising inequality slows the economy from the demand side, but there are exceptions. Some articles argue that higher inequality (at least indirectly) is necessary for better growth (usually from a supply-side perspective).

February 8, 2018: Stock Market Swings Tell You Everything You Need to Know About Our Rigged Economy, Kate Aronoff and Ryan Grim, The Intercept

In depth analysis of how monetary policy keeps wage growth low. The event that motivated the story was a modest uptick in wage growth from January 2018 that was at least partly responsible for triggering a big reduction in stock prices. But the article describes much broader economic structures that effectively make slow wage growth, and most likely rising income inequality, a systematic feature of the modern approach to monetary policy with inflation targeting.

February 2, 2018: Why Pay Has Been Lagging As Job Growth Continues, New York Times

Data-driven analysis of various reasons for slow growth in wages and salaries despite the fact that the unemployment rate is low. Cites research by WU sociologist Jake Rosenfeld on the way unions affect wages. The final segment is particularly interesting because it suggests that the labor market is not really as tight as the unemployment rate suggests.

October 9, 2017: “Why Corporate Tax Cuts Won’t Create Jobs,” Marcus Ryu, New York Times

Interesting analysis of the motivation of successful entrepreneurs to create new businesses and how that motivation relates to various tax policies. This discussion is related to Professor Fazzari’s theoretical point that  pure profits taxes have little, if any, impact on capital investment and job creation.

October 8, 2017: “The GOP’s Tax the Rich Temptation” Phil Gramm, Wall Street Journal

Prominent conservative commentator and former member of Congress argues that tax cuts have to benefit the rich because the rich pay most of the taxes.

The Great Recession

These articles provide some perspective, from a retrospective point of view, on the causes and consequences of the severe Great Recession (2008-2009) and its aftermath.

• September 14, 2018: Days of Fear, Years of Obstruction, Paul Krugman, New York Times

Overview of the Great Recessioin crisis near the tenth anniversary of its worst moments. Discussion of how policies could have made the recovery faster.

• March 14, 2018: A Decade After Bear Stearns Collapse, the Seeds of Instability Are Germinating Again, Greg Ip, Wall Street Journal

Some retrospective analysis of the events of financial instability that triggered the Great Recession (on the tenth anniversary of a major investment bank failure, Bear Stearns). The second half of the article comments on how crises come from unanticipated events. This perspective links to the kind of uncertainty that is important for Minsky’s theory of financial instablility. Also note the clever writing in the title.

• January 11, 2018: For Fed, Stock Boom Brings Bubble Deja Vu, Greg Ip, Wall Street Journal

This article is not really about the Great Recession, but it draws analogies to the financial excesses that triggered the recession and more recent economic conditions. There are also interesting thoughts about monetary policy.

Secular Stagnation

In a departure from mainstream macroeconomic theory, a number of economists (including Professor Fazzari) argue that the US economy in the aftermath of the Great Recession has persistently grown more slowly than it could have. That is, the economy does not quickly bounce back to “potential output” as defined by the basic classical model. This interpretation of the sluggish growth years from 2009 through (at least) the first part of 2017 is known as “secular stagnation.”

• March 10, 2019: Experts Keep Getting the Economy Wrong, David Leonhardt, New York Times

​This article starts by showing the significant errors Federal Reserve economists have made when forecasting the economy two years in advance. Since the peak before the Great Recession, these forecasts have almost always been too optimistic. This means the economy has persistently underperformed. The author then goes on to discuss possible causes of secular stagnation.

• January 27, 2019: The World Economy Just Can’t Escape Its Low-Growth, Low-Inflation Rut, Neal Irwin, New York TimesDescription of how economies around the world are growing more slowly since the Great Recession. The acceleration (and optimism) of middle 2018 seemed transitory. Monetary policy is keeping interest rates much lower than prior to the 2008-09 crisis, but growth and inflation remain subdued. A good overall summary of global economic conditions in early 2019, but the key question is why this situation persists.
• September 14, 2018: Days of Fear, Years of Obstruction, Paul Krugman, New York Times

Overview of the Great Recessioin crisis near the tenth anniversary of its worst moments. Discussion of how policies could have made the recovery faster.

• August 24, 2018: The Good Times Can Roll On, Edward Prescott and Lee Ohanian, Wall Street Journal

Prominent new classical economists analyze economic performance in the later Obama years and early Trump years. They argue that that the recovery from the Great Recession “stalled” because of higher tax rates and increased regulation. They propose that growth has accelerated after better supply-side policies implemented by President Trump and that this better growth is sustainable, although they also argue that the economy could do even better with free trade reforms.

• April 17, 2018: The National Debt is Worse Than You Think, William Galston, Wall Street Journal

Wide-ranging discussion of rising national debt in the aftermath of the 2017 Trump tax cuts and the 2018 agreement to raise federal spending. Some critical discussion of supply-side perspectives and on the reasons to expect slow growth (secular stagnation?) over the coming years.

• March 9, 2018: Inflation, Bring it On. Workers Could Actually Benefit, Isabel Sawhill, New York Times

This article presents a somewhat non-standard view of monetary policy. The author argues that the Fed should perhaps allow unemployment to fall below conventional estimates of the “natural” full-employment rate and output to exceed conventional estimates of potential. If inflation rises, it may not be so bad, especially because workers benefit. It’s also not clear that conventional estimates of potential output and the associated unemployment rate are correct. This idea relates to secular stagnation that might draw down potential due to a weak demand side.

• January 31, 2018: Long After Janet Yellen Leaves, Interest Rates Will Bear Her Mark, Greg Ip, Wall Street Journal

Nice overview of monetary policy under Janet Yellen. Interesting references to the “natural” or “neutral” rate of interest and how Yellen understood its evolution to lower levels during her term in office. Also note the link to the “secular stagnation” argument by Lawrence Summers (and others!). One minor criticism: Mr. Ip defines the neutral rate (same as the natural rate) as the interest rate that equates the suppy and demand for lending. That is not an adequate definition. The natural rate equates the supply and demand for lending when the economy operates at Y*. The bold phrase is important.

• January 8, 2018: Long-Term Slowing Seen Despite Spurt, Ben Leubsdorf, Wall Street Journal

Summary of various economists’ views about the rather slow long-term growth potential for the US economy. Note the complete focus on supply-side analysis here, consistent with a mainstream neoclassical synthesis theoretical framework.

• March 21, 2017: You Want Faster Productivity Growth? then Run a High-Pressure Economy, Interview of Josh Bivens by Jared Bernstein, Washington Post

Interesting article that effectively analyzes the link between the strength of the demand side and spillovers to the demand side. The argument here is largely that demand drives supply, the reverse of Say’s Law. (The full paper that is linked from the interview is quite worthwhile for people who want to go into more depth.)

• January 28, 2017: U.S. Economy Returns to Lackluster Growth, Ben Leubsdorf, Wall Street Journal

The government reported the first look at real GDP growth for the fourth quarter of 2016. This article goes into some detail about the report with lots of good historical data comparisons.

Pay particular attention to the lower right graph under the heading “Clearing a Low Bar.” This shows how far actual GDP has been below the projections of potential output by the government and how those projections, especially, have been reduced over time. This information will be central to our discussion later in the semester about the possibility that the US is experiencing “secular stagnation.”  The statistics are stunning. They imply that current US GDP is 10% to 15% below what the CBO thought it would be by now, when forecasts were made prior to the Great Recession. Is this truly an economy operating close to its potential output (Y*)?

• August 4, 2016: Why This Recovery is So Lousy, Phil Gramm and Michael Solon, Wall Street Journal

Supply-side perspective on what drives growth. The authors explain the slow recovery from the Great Recession as the result of excessive government taxes, regulation, and spending.

Macroeconomics of International Trade

Articles on this page explore aspects of international trade and its effect on national economies.

March 7, 2019: Trade Deficit Freak Out, editorial, Wall Street Journal

The conservative opinion page of the Wall Street Journal argues that the success of supply-side policies in fueling growth is the primary cause of the trade deficit and the deficit is not a cause for concern, largely contradicting the Trump administration perspective on trade deficits.

March 4, 2019: Trade Gap Defies Efforts to Shrink It, Josh Zumbrun, Wall Street Journal

President Trump made closing the US trade gap a policy priority, but the the trade gap has been rising not falling, despite dramatic anti-trade efforts by the administration. 

April 18, 2018: How the Tax Cut President Trump Loves Will Deepen Trade Deficits He Hates, Greg Ip, New York Times

Analysis of how fiscal stimulus, like big tax cuts, causes incomes, interest rates, and imports to rise. The government deficit increase, the dollar strengthens, and the trade deficit (foreign saving) goes up. This is sometimes called the “twin deficit” problem. Note how the description of the effects follow the classical loanable funds analysis with an open capital market that allows foreign saving.

April 10, 2018: How Trump Misunderstands Trade, Veronique deRugy, New York Times

A defense of free trade, and a criticism of Trump policy, from a clearly classical macro perspective. Note the argument that trade deficits lead to foreign capital inflows that raise investment. There is no mention of job loss due to weaker demand or the need for monetary policy or other macro policy tool to address a demand shortage. The author does briefly recognize the micro dislocations caused by trade.

April 9, 2018: Big Question for Markets: Is There a Kudlow or Powell Put?, Neil Irwin, New York Times

Overall, this is an interesting article. The most relevant part may be near the end with the discussion of how difficult it would be for the Fed to offset both inflationary and contractionary effects of a trade war on the US economy.

March 22, 2018: Bumbling Into a Trade War, Paul Krugman, New York Times

Discussion of the actual problems of uneven trade between the U.S. and China and a critique the Trump administration’s policy approach.

March 23, 2018: Trump vs. Krugman on Trade Wars, Dean Baker, “Beat the Press” blog.

This is a blog post that provides a thoughtful critique of the March 22 column by Paul Krugman.

March 18, 2018: Trump and the Trade Zombies, Paul Krugman, New York Times

This column touches on a variety of topics on trade (as well as a few digs against supply-side economics and gold-standard based monetary policy). Krugman discusses why the trade deficit is not a good policy target and the problems that can be created by a strong dollar. He notes the inconsistency of calling simultaneously to reduce the trade deficit and keep the dollar strong.

March 14, 2018: This is Exactly How Trade Wars Begin, Alan Blinder, Wall Street Journal

Mainstream criticism of the protectionist trade policy by a well known economists with extensive academic and policy experience.

March 11, 2018: Trump Tariffs Based on Flawed View of Trade, David Nicklaus, St. Louis Post Dispatch

Discussion of how the trade deficit depends on a wide variety of macro conditions and the implications of this complexity for evaluating the Trump tariff policies. (Warning: this column quotes an economist you should know!)

February 16, 2018: “Why Economists Are Worried About International Trade,” N. Gregory Mankiw, New York Times

Summary of the basic comparative advantage argument for free international trade and critique of recent Trump administration policies. Note, in particular, the interesting thought experiment about golf in Scotland at very end of the article.

January 24, 2017: NAFTA and Other Trade Deals Have Not Gutted U.S. Manufacturing–Period, J. Bradford DeLong, Vox

This article provides a detailed perspective on the interaction between macroeconomics and foreign trade. DeLong considers the effect of trade agreements on the trade deficit and manufacturing jobs. He argues that despite problems with trade agreements, they had little effect on American jobs, especially in manufacturing. He also talks about other problems with the way US policy has affected international macro relations.

Steven Fazzari
Bert A. and Jeanette L. Lynch Distinguished Professor of Economics
Office: Seigle 185 – 935-5693
Office Hours: Tuesday 2:45-4:15
fazz@wustl.edu

Peter Koulogeorge
Course instructional assistant
Appointments available by e-mail
pkoulogeorge@wustl.edu

Professor Fazzari is honored to deliver a pre-conference mini course entitled “Keynesian Macroeconomics for the 21st Century” as part of the academic festival of the Young Scholars Initiative (YSI) sponsored by the Institute for New Economic Thinking (INET).

The lectures were delivered on October 18, 2017 in Edinburgh, Scotland. Power Point slides for the three lectures appear below, along with some associated background readings.

Summary document for the three lectures

Lecture 1 Slides: Foundations

Lecture 2 Slides: Intrinsic Keynesian Dynamics–Sowing the Seeds of Crisis

Lecture 3 Slides: Demand Dynamics, Inequality, and Secular Stagnation

Background readings from Professor Fazzari’s co-authored research

The items below are listed in chronological order by publication date, which is somewhat different from the order of the topics covered in the lectures.

• This article from the 1998 Journal of Post Keynesian Economics summarizes much of the material in the “Foundations” lecture and provides further references to original sources for a variety of ideas, specifically further references on the point that nominal adjustment of wages and prices are likely not stabilizing in modern economics with extensive debt contracts. Link to article
• These chapters from a co-edited Cambridge University Press book, published in 2013, that explores the causes and consequences of the Great Recession:
  • Chapter 1: overview that describes the Keynesian interpretation of events leading to the crisis
  • Chapter 6: analysis of household behavior and rising financial fragility
  • Chapter 11: fiscal policy in the context of the crisis
  • Chapter 13: conclusion and thoughts about the recovery
• This theoretical paper published in the 2013 Review of Keynesian Economics is an example of an “intrinsic Keynesian” demand-led growth model. It also contains references to other approaches to explain demand-led growth. Link to article.
• This 2015 empirical paper in the Cambridge Journal of Economics connects rising income inequality to the demand dynamics that led up to and triggered the Great Recession. Link to article.
• The role of inequality in demand generation is extended to aftermath of the Great Recession in this 2015 paper published in the European Journal of Economics and Economic Policy. Link to article.
• Much of the empirical work presented in the lectures is based on cash flow measures of household demand that eliminate imputations and government-financed components of the standard personal consumption expenditure measure from the US national accounts. This 2017 article from the Review of Income and Wealth describes the methods used for these calculations and draws out some of the economic implications. People interested in using the data for research should go to this website for updated information and further details.
• This recent (early draft) working paper presents a model of demand-led growth (following up on the 2013 ROKE paper mentioned earlier) in which supply dynamics adjust to accommodate demand growth. Link to paper.
• This is a very preliminary draft of the paper Professor Fazzari will present at a plenary session of the 2017 Edinburgh INET conference on secular stagnation in the US economy. Link to paper.