Three Important Differences

1
Three Important Differences

• between DeLong, Macroeconomics, and other
  intermediate macro textbooks

2
Three Important Differences

• An internationally-oriented textbook from page 1.
• Pay more attention to long-run economic growth.
• Keep discussions of monetary policy relevant to
  the real world interest rates, not money stocks.

3
International From Page 1

• Necessary to keep book in contact with real
  world.
• Even in the U.S., every policy issue and news
  event has an important international dimension.
• To wall international trade and finance off in a
  few by the way chapters is unwise.

4
Reasons to do International From Page 1

• Time spent on the closed-economy no trade case
  is time that cannot be spent talking about
  current policy or news issues.
• Time spent on the closed-economy no trade case
  is time that gives students a lot of wrong
  impressions--about the size of the Keynesian
  multiplier, about the freedom countries have to
  conduct independent monetary and fiscal policies,
  about the relationship between savings and
  investment.
• These wrong impressions need to be unlearned
  later in the "open economy macro" chapters--but
  often are not.
• Integrating international issues from the
  beginning allows for considerable streamlining.
  All of the "in the closed-economy chapters we
  said this... but its not true, whats really
  true is that..." passages can be deleted.
• The time and space thus saved can be used for
  other interesting, relevant, material. Students
  learn less that they later have to unlearn. And
  so they learn more.

5
Reasons Not to do International From Page 1

• Its a change.
• It makes the course too hard.
• Response it doesnt make it harder, it makes it
  different the beginning has a few more concepts
  the end has much less to unlearn.

6
Focus on Economic Growth

• Teach students growth theory in an approachable
  way.
• Teach students the worldwide and historical
  patterns of growth and development.
• Not a quick theoretical survey give them some
  meaty facts and analytical tools to sink their
  teeth into.

7
Reasons to Focus on Economic Growth

• Todays leading textbooks water down the graduate
  student-level presentation of growth theory?
• Thus undergraduates have learn concepts --
  capital per effective worker -- that are next
  to impossible to visualize, or apply to the
  world.
• A better way of doing growth theory would focus
  on quantities that are observable.
• A better way of doing growth facts would be to
  pay more attention to growth facts.
• Leading modern macroeconomics textbooks teach a
  relatively complex theory of economic growth,
  glance quickly at a few facts, and then hurry on
  to business cycles.
• I believe that the subject of economic growth is
  worth more space not one but two chapters -- and
  two large chapters.
• No one should finish intermediate macro without
  knowing more of the facts about the causes and
  consequences of long-term economic growth than
  they learn in standard macro textbooks.
• No one should finish intermediate macro without
  knowing the cross-time and cross-country
  patterns the industrial revolution, the spread
  of industrialization, the East Asian miracle, and
  the American century.

8
Reasons Not to Focus on Economic Growth

• Its a change

9
Keep Monetary Policy Close to the Real World

• Current leading macro textbooks pretend that
  central banks fix the level of the money stock.
• But central banks dont they fix short-term
  interest rates.
• To make a -- false -- assumption at the start of
  the monetary policy section that complicates the
  algebra is a bad idea.

10
Reasons to Focus on Interest Rates, Not Money
Stocks

• There are many reasons why the presentation of
  monetary policy should stick close to the real
  world, and focus on interest rates, not money
  stocks.
• The textbook presentation then is much closer to
  what people find when they open the Wall Street
  Journal.
• The algebra of the formal models is much simpler
  when the dicussion of monetary policy focuses on
  interest rates, not money stocks.
• The space saved by this simplification can be
  used for a serious discussion of the term
  structure of interest rates.
• The Federal Reserve, after all, controls
  short-term, nominal, safe interest rates while
  the principal determinants of aggregate demand
  are long-term, real, risky interest rates. The
  slippage between these two is an important
  limitation on the government's ability to
  stabilize the economy, and one to which money
  stock-oriented textbooks give short shrift.

11
Reasons Not to Focus on Interest Rates, Not Money
Stocks

• It is a change.
• Focusing on money stocks allows you to teach the
  Keynesian-Monetarist debate of the 1970s as a
  debate over the slope of the LM -- the money
  market-equilibrium -- curve.