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‘ If you live long enough, and haven’t been lobotomized…’

Only if you have a frontal lobe to start with. Today’s political class and Socialists are born without one.

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" Fiscal policy is contractionary, as the COVID stimulus wears off." -- No.

Going from very, wildly expansionary (Biden) to very expansionary (pre-Covid Trump) is still not absolutely contractionary, tho one might call it relatively contractionary. Like calling a Zuckerberg or Musk whose market wealth has dropped by tens of billions "now poor".

If a fiscal policy is at the non-inflationary maximally expansionist, as I feel Trump's was (prove me wrong!), than any more gov't spending / fiscal policy will be inflationary (by post hoc definition). So Biden's excessive stimulus was too much.

The memoir looks interesting. I'll be especially interested in the thoughts about Japan. I used to believe Friedman more, but now believe that, while printing money is a necessary condition for inflation, it's not always sufficient.

The 70s US & global inflation was part of the Baby Boomers economically being adult consumers faster than they became experienced & highly productive producers: - so a LOT more goods were being bought, including on new credit cards, with "working poor" folk wanting to become middle class consumers. And more workers, including more women, increased supply (production), but at lagged rate until high school graduation rates plateaued.

This demographic increased demand shock caused a lot more factories to be made and to expand to supply the desired products (at prices buyers would pay for).

There was also increased US money creation, especially after Nixon ended the final gold standard -- this was necessary, but not sufficient.

The HUGE increase in oil prices as OPEC became an effective cartel, resulted in big incomes shifts away from oil-importing countries, like the US was and became more so, even as oil import prices increased. Energy price increases look a lot like inflation, because everything sold includes some energy cost component.

Demographics, US policy, oil/energy shock -- all three were important in the 70s Stagflation.

(This week, but not tonight, I'll read more...)

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There is a new factor impacting wester economies and that is "permissions" and that drastically changes economic growth. We now live in a "vetocracy" where where the "tragedy of the anti-commons" results in no real progress with every nut case or bureaucratic turf fight or extortion demand results in delays or project blocks. The best example being in the energy sector, where activists with narrow self-interest have shut down the nuclear reactors in the West and now we are worried about lack of carbon free energy. Meanwhile the time to obtain "permissions" for off shore wind farms is beyond a decade and fracking for lower carbon natural gas (available all over the world) has become impossible.

The economics profession has also forgot about dynamics where printing money and inflation have time delay and demand changes require time for supplies to respond.

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Regarding your memoir, I'm surprised that the only substantive advice to a young macroeconomist is to focus on economic history and financial institutions. Yes, both are important but you are ignoring other relevant issues to understand "the economy", starting with how politics and governments work.

Also, I'm NOT surprised that you rely on Blinder's old macro to analyze what is going on. Your points, however, are wrong. First, the textbook's fiscal policy is not contractionary (remember that the G of the old model refers only to direct purchases of goods and services, not to transfer payments). Second, the textbook's monetary policy has nothing to do with what the Fed is doing (a little player in the world economy's financial markets trying "to fine tune" the prices and returns of a very large number of assets). Third, the textbook's supply shocks which could explain most of what is happening are not related to the war (by itself a minor issue in relation to the world economy) and China's recent grotesque responses to a fake pandemic (some day we should review seriously what has happened in China since January 2020). The relevant supply shocks are related to politics and government (at the national and especially at the international level) because of the uncertainty about emerging commitments to big "structural" changes (yes, the old macro is useless to analyze the consequences of the senile world "leaders" actions).

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I'm puzzled by "Monetary policy is contractionary (by traditional measures)". I thought economists considered the Taylor Rule to be one of the best of the traditional measures. It seems to be saying interest rates would need to get above around 9% to be contractionary. (I prefer to use the TIPS spread, which says policy is moderately inflationary).

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I no longer believe that deficit spending causes higher interest rates. My belief in the merits of supply side economics has been fortified.

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founding

Arnold,

As you once did, I teach economics to high school students. I like and have used your "Specialization and Trade" in my classes.

This is a specific history question you may be able to answer.

In Advanced Placement Economics, we make extensive use of the Aggregate Demand/Aggregate Supply Model. It's the introductory version of the "IS-LM-AS" model you mention. I studied economics in 1968 and 1969, then again from 1977-1979. My old Samuelson textbook used the expenditure-output model, or Keynesian Cross. Macro emphasis in graduate school (UChicago MBA) was mainly on money, and I don't recall any AD/AS; we had the 2nd edition of David Laidler's "The Demand for Money" which uses IS/LM and makes no mention of AD/AS. His 4th edition (1993) does include an excellent description of the IS/LM model and its relation to the AD/AS model.

Almost universally, it seems to me, current discussions use a now-standard AD/AS model (price level on vertical axis, real GDP on horizontal, downward sloping AD, upward sloping short run AS, vertical long run AS; equilibrium at intersection of AD & SRAS).

I have looked for but been unable to find the source of this AD/AS model. It seems odd to me that such a pervasive model would have no identifiable source in economic journals. Perhaps it appeared in a '70s or '80s textbook and caught on that way.

Do you know the source?

Thanks for everything you do.

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