Comment by soVeryTired
6 years ago
I recommend against Mankiw, and to be honest, macroeconomics as a whole. But particularly undergrad macroeconomics.
Undergrad macro textbooks are more or less designed to teach you how to work a model, and how to prove theorems about a model. But when all is said and done, macro tends not to go the distance and demonstrate how the model relates to the real world. They also get important details wrong. Most of the west doesn’t work on a fractional reserve system anymore, and the main constraint for money creation is not the reserve ratio.
Honestly you’d be better off learning very basic accounting, then learning about bank balance sheets, then learning about basic financial plumbing like the repo market, money market funds, and the fed’s operations.
I like Bruce Tuckman’s book ‘fixed income securities’ for the latter. It’s very practical, without any of the theoretical nonsense you sometimes encounter in advanced texts.
I agree but painting the whole of macro with the same brush as undergrad is a mistake.
Yes, undergrad textbooks are tedious and the content varies between the misleading and wrong (and I definitely agree about learning accounting and how the plumbing works).
But it is also true that past the level of undergrad, it does get more useful. There is still a lot of dubious stuff going on, and you have zealots engaging in the holy war over which useless model is least useless. But there is also some pretty good research that helps you understand the economy.
> But there is also some pretty good research that helps you understand the economy.
I'd love to see some. I looked quite hard into two topics, gravity models of trade and the Philips curve, and I never found much I thought was convincing.
I think the culture of academic macro doesn't appreciate just how hard it is to thoroughly test a model. It's not as simple as writing down some dynamics, estimating via maximum likelihood, and drawing conclusions based on the parameters that pop out.
...yep, I mean the gravity model of trade is just a regression. It is very unlike pretty much everything else in macro because its validity is statistical rather than theoretical (and more models that are justified by theory often perform worse...although this is kind of complex).
The Philips curve changes over time. It is, however, quite easily testable so it either applies or doesn't. If you are looking for some hard rule that applies every time then you should take an interest in something else (indeed, this was my initial point...the issue is that economists believe that the economy are a set of equations to be solved...in reality, the nature of the economy is changing constantly).
I don't think that is the case. Economists are confronted with the difficulty of tests everywhere (the issue is that they often don't handle this well), it is why econometrics is distinct from statistics. As an example, interest rates and growth are positively correlated (i.e. higher rates appear to cause higher growth)...we know this isn't the "true" relationship (interest rates are a function of expected growth) but there has been a ton of work done to separate these effects (this isn't only in macro, controlling for confounders/ommitted variables is really what econometrics is about). Econometrics is really the best part of economics.
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I think macroeconomics helps learn about what’s going on in general, but it’s important to keep in mind it’s dealing with very complicated systems and largely not directed to fully explain three systems involved. It’s too far to discount the whole discipline and too open for political spinning.
Galbraith’s book on 1929 is still considered a great account of what went wrong in 1929. It surely has lessons to be learned today.
The way the news cycle runs though we no longer need to hem and haw over whether policies that benefit business over individuals do better or more for the economy. Yesterday (March 13 2020) the Fed dumped 1.5 trillion in easy funding into the stock and financial market. The SP 500 saw historic increases for one day of trading. And people are still facing the trade off between going to work sick or failing to be able to pay rent. The 1.5T sent to the financial sector had no impact and is expected to not have any impact to help the individual households living paycheck to paycheck.
Edit-the hospitality industry has companies laying off employees because of diminished business. This is after the 1.5T from the fed. Probably at least one of those companies will benefit from the fed decision and buy back stocks to increase their valuations. Won’t do a lick of good for any of the former employees out of work and pay.
I think Mankiw covers pretty well how banking system works in real life. Open market operations etc.
I'm referring to the book: 'N. Gregory Mankiw, Laurence Ball - Macroeconomics and the Financial System-Worth Publishers (2010)
How is Tyler Cowen's textbook? I figured that'd be better.
Jesus fuck I’d stay away from anything that man writes. Honestly my advice is not to bother with academic macro at all. Or if you must, read it like a scientist. Demand evidence for every statement. Ask how one would actually measure whatever quantity is in question (e.g. a supply curve, when most of the time only price is observable).
There are a few financial journos that I have time for though. Matt Levine is good, though he has a particular domain of expertise and tends not to stray from it. Michael Pettis is good on all things China. But as others in the thread have also noted, the industry is so full of bullshit that it’s hard to separate the good from the bad.
I’d keep in mind that both Mankiw and Cowen are on the right, politically. Cowen in particular, Neo-Classical/libertarian, while Mankiw is often considered Neo-Keynesian, but still conservative. So, balance this with Paul Krugman, Larry Summers, Robert Reich, or so.