Section IV Extra Credit Sources (for Tufte's ECON 2020, All Sections, Spring 2022)

For 4/4 

We have an inflation problem. 

It is new-ish, but its roots go back about 2 years to around the time the initial national lockdowns ended.

It is not minor. The last time we had an inflation problem, it took about 17 years to run its course. It ended with the highest unemployment rate since the Great Depression, and home mortgage interest rates of 16%.

And we were warned. Lots of macroeconomists, including me, told students for decades to not push the economy too hard with policy. In 2020 it felt like we were told to get lost.

Do note that we were not against using fiscal policy to help out people who were hurting due to COVID-19, lockdowns, and the associated recession. This was an argument about degree not direction. And for macroeconomists, we weren't sure the second Trump stimulus was warranted, and after it passed we were even more certain the Biden stimulus package was unwarranted.

(If this sounds self-serving, and you don't believe me, you can go back and check out the posts on SUU Macroblog from 10-18 months ago).

Anyway, the most strident voice about this position came from the leading Democratic economist of the last 30 years, Larry Summers. He served in the Clinton White House, was chief economist of the World Bank, President of Harvard University, then on Obama's transition team, and then in the Obama White House. The Democratic resume does not get stronger than that.

And here's he's being interviewed by a well-known progressive journalist, Ezra Klein, in the New York Times, about what's gone wrong. It's long, but I've highlighted passages, and added little comments (mouse over the icons). The linked article is not highlighted and commented, but the PDF copy  in Module 4 in Canvas is.

For 4/1

Covered parts of the "Why Is Macro So Hard?" powerpoint lecture, which is available in Module 4 in Canvas

For 3/28 and 3/30

I cancelled the 9 am class, but they are still responsible for this (which was covered in the 10 and 11 am classes, and for which there is a video in Module 4 in Canvas. 

Federal deficit information is easy to come by, so I just Googled in class, and selected this article from near the top of the first page of results. It's from the magazine U.S. News and World Report, and is entitled "US Budget Deficit Hits $2.77 Trillion in 2021, 2nd Highest". The sub-headline notes that the biggest deficit was in 2020.

I started out by explaining the fiscal year for the federal government, which begins on October 1st. While that makes us 6 months into the 2022 fiscal year, the last fiscal year for which we have complete data is 2021.

It's fairly obvious why these are the two biggest deficits: COVID-19. 

In class, I did not link that to the last topic of the day, structural vs passive deficits. Structural means the deficit changed because outlays and receipts were changed actively and on purpose. The response to COVID-19 was something people wanted, so politicians carried it through, making these biggest deficits ever largely structural. Some of it is always passive though: in this case, while the lockdowns were intentional, much of the supportive unemployment and welfare spending was already in place and allowed to react to the events passively (Congress did pass new stuff, but to add to the old stuff). In general, changes in government spending, tax revenue, and deficits/surpluses are always a mix of structural and passive parts, but the proportions change.

Because that motivation isn't going to last forever, the deficit is expected to go down again from 2021 to 2022. This is mentioned further down in the article. The estimate is that it will go down to $1.15T. If the economy is strong, it will be even more towards the surplus side (but far from crossing over into one), and if it's weak it will be more towards the deficit end of a number line.

Also mentioned specifically is that federal spending for 2021 was $6.82T. Tax revenue isn't mentioned specifically but we can subtract the deficit from that to get $4.05T.

For 3/25

No current event sources for today.

Began the "Why Is Macro So Hard?" powerpoint lecture which is available in Module 4 in Canvas. Note that we will use it for Module 5 too.

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