Category Archives: N. Gregory Mankiw

N. Gregory Mankiw Regarding The Phillips Curve

N. Gregory Mankiw wrote an article for the Sunday New York Times, 8/11/19, entitled Ties That Bind Inflation and Unemployment.  His final paragraph states:

The Fed’s job is to balance the competing risks of rising unemployment and rising inflation.  Striking just the right balance is never easy.  The first step, however is to recognize that the Phillips curve is always out there lurking.  

We have emphasized that the Fed’s responsibilities are a.) to be admonitory and supervisory to the banking system, and b.) to supply the economy with the quantity of money needed for orderly execution of the magnitudes and frequencies of operative payments.  And it is the responsibility of the enlightened private and government sectorsnot the Fed, because it does not possess sufficiently effective tools –  to manage production, employment, and philanthropy properly.  By so doing, enterprise and government can effect production, pricing, interest rates, and dividend rates consistent with the opportunities and risks in the system; and they can achieve the full productivity made possible by  the invention, gumption, and hard work of free people, yet properly constrained by the state of technology, culture, and resources.  Contrary to what Mankiw seems to be approving in his conclusion, it is wrong to assign responsibility to the Fed for adjusting inflation and unemployment in the economic process by artificially manipulating the interest rate.  And, despite all the hype about the effectiveness or ineffectiveness of manipulating the rental price of money (i.e. the interest rate), no one has yet developed the ability to separate the effect of self-healing from the positive or the negative, counterproductive effect of interest-rate manipulation. For further perspective, click here for critical treatment of the IS-LM, AD-AS, and Phillips Curve Models, including notes explaining stagflation and the need to transition from a single-circuit analysis to a double-circuit analysis; here, for Notes Regarding FRB Monetary Policy and a Theoretic of Credit; and here for Practical Precepts for Free People – Consumers, Entrepreneurs, Bankers, Investors.  Also see Summary of the Argument (CWL 15, 5-6) and The Cycle of Basic Income (CWL 15, 133-44).

Larry Summers; The Foundations for Macroeconomics

Larry Summers is the esteemed former Vice President of Development Economics and Chief Economist of the World Bank, (1991–93), senior U.S. Treasury Department official, ultimately Treasury Secretary (1999–2001), former director of the National Economic Council for President Obama (2009–2010) and former president of Harvard University (2001–2006).

Larry’s Blog of 9/13/2018  asked questions and gave suggestions regarding establishing new foundations for macroeconomics.

As we did in our blog of 9/11/2018 regarding Ray Dalio, let us say in the beginning what we say near the end:

Finally, Larry states that “the arguments that Gennaioli and Shliefer make need to be debated in the profession.” Let us suggest that, before Larry calls for debates among macroeconomists about the obvious inadequacy of present foundations, the entire macroeconomics profession must study carefully Bernard Lonergan’s Macroeconomic Dynamics.  That book has already brought insights from mathematics, physics, and scientific method to the discovery of a radically new foundation. Also, let us advise them how not to react in their reading.  Initially they will find Lonergan’s Functional Macroeconomic Dynamics radically different from the static Walrasian structures they have long espoused and depended upon; they might be inclined gradually to rationalize against its method and tenets; then, instead of embracing it, they might seek arguments to defend themselves against it; finally, having mistakenly persuaded themselves that it is a waste of their precious time, they might put it aside. However, if they courageously and carefully power through Lonergan’s dynamics 3-5 times, they will find themselves saying, “Whoa!  Bernard Lonergan operated from a more profound point of view and discovered a deeper unity in macroeconomics.  With his understanding of what constitutes science and explanation and with his employment of the technique of implicit definition, this polymath has successfully applied his expertise in math, physics, and scientific method to discover a new field theory of macroeconomics, a new paradigm, a whole new theoretical combination of foundation and superstructure which explains both the normative equilibria and maladaptive disequilibria of the intrinsically cyclical, dynamic economic process. This is something of a Copernican Revolution.” Then, rather than calling for debates, let Larry call for elucidation, elaboration and implementation of Functional Macroeconomic Dynamics at the Bureau of Economic Analysis, the Federal Reserve Board, textbook publishers, colleges, and universities. Continue reading

Textbook Flaws and Deficiencies

The popular textbooks of Macroeconomics – by N Gregory Mankiw, Paul Krugman and Robin Wells, Olivier Blanchard, Andrew B. Abel and Ben S. Bernanke, William J. Baumol and Alan S. Blinder – suffer in common from several flaws.  Our subheadings immediately below and the pointers thereafter point out flaws and deficiencies in textbooks commonly used in higher education. Though the treatments in this section are not exhaustive, they are sufficiently provocative; they should stimulate careful scrutiny of, and skepticism regarding, many traditional and conventional tenets.  Finally, though the treatments in this section are relatively brief and often primarily referential, there is a lot of ground to cover; so, we will underline and publish as time allows.

  1. This Introduction
  2. The nature of the current, purely dynamic economic process
  3. Scientific macroeconomics explains rather than merely describes
  4. A theory of macroeconomics must be independent of human psychology and anthropology
  5. The author of a textbook must employ a scientific and dynamic heuristic
  6. Real Analysis (read more)

Wouldn’t It Be Good If There Were A Scientific, Functional, Macroeconomic Dynamics On Which All Could Agree?

Wouldn’t it be good if there were a scientific Functional Macroeconomic Dynamics on which all could agree?

http://ricardo.ecn.wfu.edu/~cottrell/ecn272/cochrane.pdf

https://gregmankiw.blogspot.com/2017/12/paul-krugmansigh.html

Also, see on this website under Five Images: Sublationhttps://functionalmacroeconomics.com/table-of-contents/five-images/sublation/

Also see Subsumption and Sublation of Keynes, Kalecki, Solow and others:   https://functionalmacroeconomics.com/table-of-contents/subsumption-and-sublation-of-keynes-kalecki-solow-and-others/