The Economist recently posted a “Brief History of Macro: How we got here.” It contains a link to a nifty graphic put together by Brunnermeier and Olivan of Princeton, which starts with Keynes. While starting with Keynes makes perfect sense, there was plenty of important work on macroeconomic issues long before Keynes.
Hayek argued that Hume (and Richard Cantillon) initiated the development of modern monetary economics, which is certainly a fair assessment. Milton Friedman wrote this of Hume:
We have advanced beyond Hume in two respects only: first, we now have a more secure grasp on the quantitative magnitudes involved; second, we have gone one derivative beyond Hume.
Cantillon was also an impressive economist, introducing the concept of “Cantillon effects” and offering early insights into business cycles. His Essay on the Nature of Commerce is available in its entirety here.
There were, of course, others. The Physiocratic Tableau Economique was a depiction of the circular flow that is now so ubiquitous in elementary macroeconomics textbooks. It can also be interpreted as a Leontief-type input-output model, as Ronald Meek explained here.
Keynes himself praised Malthus’ work on aggregate demand, and the important Ricardo-Malthus debates over underconsumption and Say’s Law of Markets occurred in the early 19th century. And, John Stuart Mill made important contributions to that debate later in the same century.
Eighty-four percent of economists surveyed by the IGM Forum agree with the following statement:
Because all federal spending and taxes must be approved by both houses of Congress and the executive branch, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.
That notwithstanding, political expediency again trumps sane economic policy, as James Hamilton explains:
The real purpose of the debt ceiling is political– it gives the minority party an opportunity to grandstand as if they’re somehow holding the line on the deficits that are the necessary mathematical result of previous spending and tax legislation.
Nobody has a plan on the table to cut spending by 26%, so nobody has any legitimacy pretending they’re against an increase in borrowing. Congress needs to propose specific plans for spending and taxes and simultaneously authorize the borrowing that would be necessary to implement that legislation.
By the way, anyone interested in the history of public debt limits should take a look at this 1954 paper by Cooke and Katzen.
Sad news – Nobel laureate James Buchanan passed away today. Here’s the Wikipedia page on him. And this from the Library of Economics & Liberty, which has his collected works available online here. William Shughart has a good overview of the field of Public Choice, which Buchanan helped create, here.
From the Washington Times:
A new poll shows that Congress is less popular than carnies, root canals and colonoscopies, but more popular than the ebola virus, meth labs and gonorrhea.
Those findings are in a Public Policy Polling (PPP) survey released Tuesday showed that 9 percent of the respondents held a favorable opinion of Congress, while 85 percent held an unfavorable view.
“We all know Congress is unpopular,” said Dean Debnam, PPP president. “But the fact that voters like it even less than cockroaches, lice and Genghis Kahn real shows how far its esteem has fallen with the American public over the last few weeks.”
Which makes one wonder why people of any political persuasion would ever seek to join Congress…oh, wait, maybe it’s the 1,452% pay raise?
Mark Thoma presented a paper at this year’s ASSA meetings in which he pointed to the importance of economic history:
But why did so few economists warn about the bubble? And more importantly for the model presented in this paper, why did so many economists validate what turned out to be destructive trend-chasing behavior among investors?
One reason is that economists have become far too disconnected from the lessons of history. As courses in economic history have faded from graduate programs in recent decades, economists have become much less aware of the long history of bubbles. This has caused a diminished ability to recognize the housing bubble as it was inflating. And worse, the small amount of recent experience we have with bubbles has led to complacency. We were able to escape, for example, the stock bubble crash of 2001 without too much trouble. And other problems such as the Asian financial crisis did not cause anything close to the troubles we had after the housing bubble collapsed, or the troubles other bubbles have caused throughout history.