Three Important Differences between DeLong, Macroeconomics, and other intermediate macro textbooks

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.

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.

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 it’s not true, what’s 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.

Reasons Not to do International From Page 1 It’s a change. It makes the course too hard. –Response: it doesn’t make it harder, it makes it different; the beginning has a few more concepts; the end has much less to unlearn.

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.

Reasons to Focus on Economic Growth Today’s 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.

Reasons Not to Focus on Economic Growth It’s a change

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 don’t: 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.

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.

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.