Macroeconomic Policy in the Global Economy Issue Paper
ITRN 503: Macroeconomic Policy in the Global Economy Spring 2020 ver. 1/11/2020 course credit: 3 location: VM 308 meeting time: Thursday, 7:20-10:00PM 1st Day: January 23, 2020
email (preferred contact): auerswald@gmu.edu office hours: Thursday, 3:30-4:30PM (VM 664) tel: 202-378-6438 (cell)
Description of the Course
LEARNING OBJECTIVES This course is a workshop in using analytic techniques to answer difficult questions about macroeconomic performance and risks. Its purpose is to provide students with a sense of confidence in understanding
1) How individual decisions lead to macroeconomic outcomes and vice versa, and 2) How public policies of various types affect both decisions and outcomes.
AUDIENCE ITRN503 is for students with little prior background in economic analysis, but who are, at minimum, comfortable with algebra. Students who enroll in this course should be able to use Excel (or a comparable program) and download datasets from the Internet.
Note: This course will require you to develop basic literacy in the use of calculus. You are not required to have taken a calculus class before taking this course. However, you will be required to understand and to use calculus in this course. In advance of the course, you should understand the material covered in the GMU Schar School Math Camp (PUBP 555) and the GMU Schar School math tutorials (http://schar.gmu.edu/current-students/masters-advising/masters-101/topic-6-quantitative- skills/math-for-economics-tutorials/). Math Camp is a free workshop offered to all students the week before each semester (http://schar.gmu.edu/wp-content/uploads/2015/10/Heffelmire- PUBP-555-001-Spring-2016.pdf).
STUDENT EXPERIENCE We will be using class time in this course to do work together. Students must come to class every session prepared—which means in particular that you must have done the readings and viewed any lectures for that class session. This will allow us to spend class time answering questions such as:
• Is macroeconomics just politics with equations? • Is life generally getting better or worse? • What caused the 2007 housing market crash? (… and why did most economists miss it?) • Why are some nations rich and others poor?
ITRN 503: Investment and Macroeconomics Spring 2020
• Do economies compete? • Is China cheating? (Is the US cheating?)
EXPECTATIONS The expectations in this class reflect those that exist in the workplace for policy analysts. Students are expected to be engaged contributors to every aspect of the work of the class. Students must create first-rate work of their own and must also contribute actively to collaborative efforts.
EVALUATION Students’ grades in this course will be determined as a combination of
• Issue Paper: 30% • Midterm Exam: 15% • Final exam: 25% • Data assignments (2): 10% • In-class participation, including three one-page response papers: 20%
COMMUNICATIONS
Cellphone and Email
The best way to reach me is either by email (auerswald@gmu.edu) or cellphone (202-378-6438). If you email a question to me that may require more than a yes/no answer (in particular, any questions regarding assignments), please include in the message a phone number at which you can be reached during the day.
COURSE MATERIALS
If you don’t already have it, you should purchase The Economist Staff, 2010. Guide to Economic Indicators: Making Sense of Economics, New York: John Wiley & Sons. ISBN-10: 1576603679; ISBN-13: 978-1576603673 [Hereafter “The Economist Guide to Indicators”]
This is for your own reference; it is not an assigned text. The textbooks for this course are:
Tyler Cowen and Alex Tabarrok, Modern Principles: Macroeconomics, New York, NY: Worth Publishers. [Fourth Edition: ISBN-13: 978-1319098773] (looseleaf fine; second or third editions also fine) [note: you are required to buy this book only if you have not taken an undergraduate course in macroeconomics; otherwise optional (you can likely share or use library copy)] https://www.amazon.com/Modern-Principles-Macroeconomics-Tyler- Cowen/dp/1429278404/ref=sr_1_1
ITRN 503: Investment and Macroeconomics Spring 2020
Keneth Reinert, An Introduction to International Economics: New Perspectives on the World Economy, New York: Cambridge University Press [Second Edition: ISBN-13: 978-0521177108] http://www.amazon.com/An-Introduction-International-Economics- Perspectives/dp/0521177103
Additional required texts
• Sylvia Nasar (2012), Grand Pursuit: The Story of Economic Genius, New York, NY: Simon & Schuster
Optional book
• Philip Auerswald (2017), The Code Economy: A Forty-Thousand-Year History, New York, NY: Oxford University Press.
For all books I suggest you search Amazon (including used books) for the least expensive options.
Assignments from this book in the course outline below are required. If you have not done so already, please familiarize yourself with the library’s online resources (particularly JSTOR), and make sure that you have access to Adobe Acrobat Reader.
Social Media I recommend that, while you take this course, you follow these additional blogs and Twitter accounts:
• Marginal Revolution: http://marginalrevolution.com/ (Twitter: @MargRev @TylerCownen @ATabarrok )
• Modeled Behavior: http://blogs.forbes.com/modeledbehavior/ (Twitter: @ModeledBehavior )
• Conscience of a Liberal: http://krugman.blogs.nytimes.com/ (Twitter: @NytimesKrugman )
• Greg Mankiw’s Blog: http://gregmankiw.blogspot.com/ • Brad DeLong’s Blog: http://delong.typepad.com/ (Twitter: @delong)
• + MasonEcon (my teaching account): @masonecon Familiarizing yourself with social media tools and with these resources in advance of class will be your best way of preparing for the course in advance of the start of class.
Professional Ethics
HONOR CODE1 GMU shares in the tradition of an honor system that has existed in Virginia colleges since 1842. The Honor Code is an integral part of university life. Students are responsible for understanding the provisions of the code. In the spirit of the code, a student's word is a declaration of good faith
1 Description thanks to Professor Steve Ruth.
ITRN 503: Investment and Macroeconomics Spring 2020
acceptable as truth in all academic matters. Therefore, attempted cheating, plagiarism, lying, and stealing of academic work and related work constitute Honor Code violations. All work must be your own. Inappropriate use of the work of others without attribution is plagiarism and a George Mason University Honor Code violation punishable by expulsion from the University. All students should familiarize themselves with this honor code provision (http://www.gmu.edu/facstaff/handbook/aD.html).
POLICY ON PLAGIARISM The profession of scholarship and the intellectual life of a university as well as the field of public policy inquiry depend fundamentally on a foundation of trust. Thus, any act of plagiarism strikes at the heart of the meaning of the university and the purpose of the School of Policy, Government, and International Affairs. It constitutes a serious breach of professional ethics and it is unacceptable.
Plagiarism is the use of another’s words or ideas presented as one’s own. It includes, among other things, the use of specific words, ideas, or frameworks that are the product of another’s work. Honesty and thoroughness in citing sources is essential to professional accountability and personal responsibility. Appropriate citation is necessary so that arguments, evidence, and claims can be critically examined. Plagiarism is wrong because of the injustice it does to the person whose ideas are stolen. But it is also wrong because it constitutes lying to one’s professional colleagues. From a prudential perspective, it is shortsighted and self-defeating, and it can ruin a professional career.
The faculty of the School of Policy, Government, and International Affairs takes plagiarism seriously and has adopted a zero-tolerance policy. Any plagiarized assignment will receive an automatic grade of “F.” This may lead to failure for the course, resulting in dismissal from the University. This dismissal will be noted on the student’s transcript. For foreign students who are on a university-sponsored visa (eg. F-1, J-1 or J-2), dismissal also results in the revocation of their visa.
To help enforce the SPGIA policy on plagiarism, all written work submitted in partial fulfillment of course or degree requirements must be available in electronic form so that it can be compared with electronic databases, as well as submitted to commercial services to which the School subscribes. Faculty may at any time submit student’s work without prior permission from the student. Individual instructors may require that written work be submitted in electronic as well as printed form. The SPGIA policy on plagiarism is supplementary to the George Mason University Honor Code; it is not intended to replace it or substitute for it.
Course Outline Session 1. Introduction to the Course and Math Fundamentals (January 23) Required readings:
• Cowen and Tabarrok, chapters 1-5 • Nasar, chapters 1-4 • F.A. Hayek (1945), “The Use of Knowledge in Society”
http://www.econlib.org/library/Essays/hykKnw1.html • Paul Krugman (2009), “Why Economists Got It So Wrong”
http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html
ITRN 503: Investment and Macroeconomics Spring 2020
Required audio: • EconTalk Interview of Nassim Taleb by Russ Roberts
http://www.econtalk.org/archives/2012/01/taleb_on_antifr.html
PART I: CONCEPTS Session 2. Economic Growth I: GDP and the Wealth of Nations (January 30) Policy topic: (How) Does economic growth make people better off? Required readings:
• Cowen and Tabarrok, chapters 6 and 7 • John Maynard Keynes (1930) “On the Economic Possibilities for our Grandchildren,”
http://www.econ.yale.edu/smith/econ116a/keynes1.pdf • Robert M. Solow (1957), “Technical Change and the Aggregate Production Function,”
Review of Economics and Statistics, 39:3 (August); pp. 312-320. http://www.jstor.org/stable/1926047 [access full text via GMU Libraries, JSTOR]
• Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi, Report of the Commission on the Measurement of Economic Performance and Social Progress, Paris: Commission on the Measurement of Economic Performance and Social Progress, 2009. [read for basic understanding, not details] http://ec.europa.eu/eurostat/documents/118025/118123/Fitoussi+Commission+report
Required video: • The Future of Economic Growth, Panel 1: “Forecasting the Long-Term Growth Outlook,
December 4, 2014” http://www.cato.org/events/future-us-economic-growth
• Hans Rosling, 200 Countries, 200 Years, 4 Minutes http://youtu.be/jbkSRLYSojo
Optional reading • Nasar, chapters 5-10
Session 3. Economic Growth II: Ideas and Investment (February 6) Policy topic: Is economic growth slowing down? Required readings:
• Cowen and Tabarrok, chapters 8-10 • Erik Brynjolfsson and Andrew McAfee, Race Against the Machine [eBook]
http://ebusiness.mit.edu/research/Briefs/Brynjolfsson_McAfee_Race_Against_the_Machine.pdf • Robert Gordon, “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six
Headwinds,” NBER Working Paper 18315, August 2012. http://www.nber.org/papers/w18315 [accessible via GMU Library]
Required video • The Future of Economic Growth, Panel 2: “The Future of Innovation: Stagnation,
Singularity, or Something in Between?” December 4, 2014 http://www.cato.org/events/future-us-economic-growth
Optional audio • Erik Brynjolfsson, “In a race with machines, can we keep up?”
http://www.npr.org/2017/04/21/524700928/erik-brynjolfsson-in-a-race-with-machines-can-we-keep-up
Session 4. Economic Growth II: Ideas and Investment, continued (February 13) ISSUE PAPER: 30-second pitch and 1-paragraph description of topic DUE
ITRN 503: Investment and Macroeconomics Spring 2020
Session 5. Economic Growth II: Ideas and Investment, continued; Introduction to data analytics (February 22)
Session 6. Inflation and Business Fluctuations (February 27) Policy topic: What caused the Great Depression? (How) Did the New Deal help to end it? Required readings:
• Cowen and Tabarrok, chapters 11-14 • Nasar, chapters 11-15 • J. M. Keynes et al and F.A. von Hayek et al (1932), Letters to The Times
http://journal.apee.org/index.php?title=Fall2011_4 Required video:
• Econstories.TV (2011), “Fight of the Century, Keynes v. Hayek” http://econstories.tv/2011/04/28/fight-of-the-century-music-video/
DATA ASSIGNMENT 1: DUE
Session 9. Midterm Exam (March 5) • THE MIDTERM EXAM IS TAKE HOME. I WILL SEND IT TO YOU BY 6PM
ON WEDNESDAY, MARCH 4. IT WILL BE DUE BY EMAIL OR FAX (202-330- 5478) NO LATER THAN 9PM ON SATURDAY, MARCH 7.
• WE WILL NOT MEET IN PERSON ON THIS DAY
SPRING BREAK: March 9-13
Session 7. Macroeconomic Policy: Monetary Policy (March 19) Policy topic: What caused the 2007 housing crisis and why didn’t the Fed do anything about it? Required readings:
• Cowen and Tabarrok, chapters 15-16 required • Alan Greenspan (2005), Testimony to Congress
https://www.federalreserve.gov/boarddocs/hh/2005/february/testimony.htm • Bernanke, Ben (2007), “Housing, Housing Finance, and Monetary Policy,” Testimony
before At the Federal Reserve Bank of Kansas City's Economic Symposium, Jackson Hole, Wyoming. http://www.federalreserve.gov/newsevents/speech/Bernanke20070831a.htm
Required video • The Big Short
https://www.youtube.com/watch?v=xbiDrzTd8fE
Required audio • This American Life, “355: The Giant Pool of Money”
https://www.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money
Optional reading • Nasar, chapters 16-17
Session 8. Macroeconomic Policy: Fiscal Policy (March 26) Policy topic: 1) What’s more patriotic, spending or saving? 2) Was the 2009 stimulus too Big, too small, or just right?
ITRN 503: Investment and Macroeconomics Spring 2020
• Cowen and Tabarrok, chapters 15-16 required • Paul Krugman (2009), “How Did Economists Get it So Wrong?” New York Time
Magazine, September 2. http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=all&_r=0
Required videos: • Russ Roberts, Keynote Address (2011), Mercatus Holiday Dinner, December 7 http://mercatus.org/podcast/2011/12/07/russ-roberts-delivers-keynote-address-mercatus-center-holiday-dinner • PBS Newshour (2012), “'Tis the Season, But Should We Save or Spend? A Holiday
Money Conundrum,” December 20. http://www.pbs.org/newshour/bb/business-july-dec12-makingsense_12-20/
ISSUE PAPER: 5-page draft or detailed outline DUE
Session 10. International Finance I: Open Economy Macroeconomics and Balance of Payments Accounting (April 2) Policy topic: Are natural resource endowments a blessing or a curse? Required readings:
• Reinert, chapters 13-16 • Cowen and Tabarrok, chapter 20 • Jeffrey Frankel (2010), The Natural Resource Curse: A Survey, Harvard Kennedy School
Working Paper Series RWF10-005 (February) [read for basic understanding, not details] http://www.nber.org/papers/w15836
• The Economist, “What Dutch Disease Is and Why It’s Bad” http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-2
• Reuters, “Why Record U.S. Oil Exports Are Poised for Even More Growth,” July 27, 2017 https://www.nytimes.com/reuters/2017/07/27/business/27reuters-usa-oil-exports-analysis.html
• Clifford Kraus, “Venezuela Staves Off Default, but Low Oil Prices Pose a Threat,” April 12, 2014 https://www.nytimes.com/2017/04/12/business/venezuela-oil-debt-payment.html
Optional Readings • Discover Magazine, “Isaac Newton: World's Most Famous Alchemist”
http://discovermagazine.com/2010/jul-aug/05-isaac-newton-worlds-most-famous-alchemist • NPR, The Stone Money of Yap
http://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money • India: Three Months Since Modi’s Demonetisation
http://linkis.com/themarketmogul.com/iRGiN • Philip Auerswald (2007), “The Irrelevance of the Middle East,” The American Interest,
Spring. http://www.the-american-interest.com/article.cfm?piece=269
• James Hamilton, “Causes and Consequences of the Oil Price Shock of 2007-2008,” Brookings Papers on Economic Activity, Spring; pp. 215-283. http://econweb.ucsd.edu/~jhamilto/Hamilton_oil_shock_08.pdf [read for basic understanding, not details]
• Boston Globe (2011), “Crude Reality,” February 13 http://www.boston.com/bostonglobe/ideas/articles/2011/02/13/crude_reality/
… and just for fun (particularly for Neal Stephenson fans) • Digital Currency: ten years before Bitcoin, Neal Stephenson's Cryptonomicon
ITRN 503: Investment and Macroeconomics Spring 2020
http://www.laurelzuckerman.com/2013/03/digital-currency-ten-years-before-bitcoin-neal-stephensons- cryptonomicon-.html
ISSUE PAPER: First full draft DUE
Session 11. Peer-to-peer comment session (April 9)
Session 12. International Finance II: Exchange Rates and Purchasing Power Parity (April 16) Policy topic: What’s better for the economy, a strong currency or a weak currency? Required readings:
• Reinert, chapters 17-19 • Ben Bernanke, “The Global Saving Glut and the U.S. Current Account Deficit,” Remarks
by Ben S. Bernanke at the Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia, March 10, 2005 http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/
• The Daily Telegraph (2014), “Japan to keep printing money for years to come, so learn to enjoy it” http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10893607/Japan-to-keep-printing- money-for-years-to-come-so-learn-to-enjoy-it.html
• Brookings, “Monetary Policy at the Zero Lower Bound” https://www.brookings.edu/research/monetary-policy-at-the-zero-lower-bound-putting-theory-into- practice/ [short version] https://www.brookings.edu/wp-content/uploads/2016/06/16-monetary-policy-zero-lower-bound- williams.pdf [full version]
• Marketplace, “So what's Quantitative Easing anyway?” https://www.marketplace.org/2013/09/18/economy/so-whats-quantitative-easing-anyway
• The Economist, “The Big Mac Index” http://www.economist.com/content/big-mac-index
Optional readings • New York Times (2015), “Bargain Hunting with a Strong Dollar in Europe”
https://www.nytimes.com/2015/03/27/business/bargain-hunting-with-a-strong-dollar-in-europe-but- finding-a-mixed-bag.html?_r=0
• The Economist (2015), “The promise of the blockchain: The trust machine” http://www.economist.com/news/leaders/21677198-technology-behind-bitcoin-could-transform-how- economy-works-trust-machine
• Wikipedia, “Bitcoin network—Bitcoin Mining” https://en.wikipedia.org/wiki/Bitcoin_network - Bitcoin_mining
• Callen, Tim, “PPP Versus the Market: Which Weight Matters?” Finance and Development. 44, 2007. http://www.imf.org/external/pubs/ft/fandd/2007/03/basics.htm
• Heakal, Reema, “Understanding the Current Account,” Investopedia. http://www.investopedia.com/articles/03/061803.asp
• Stein, Herbert, “Balance of Payments,” The Concise Encyclopedia of Economics. http://www.econlib.org/library/Enc/BalanceofPayments.html
DATA ASSIGNMENT 2: DUE
Session 13. Demographics and Migration (April 23) Policy topic: Does immigration help or hurt the economic prospects of native-born people? Required readings:
• Reinert, chapter 12
ITRN 503: Investment and Macroeconomics Spring 2020
• Nasar, chapter 18 • John Tanton (1975), “International Migration as an Obstacle to Achieving World
Stability” http://www.johntanton.org/articles/mitchell_essay_immigration.html
• Michael A. Clemens (2011), “Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?” Journal of Economic Perspectives, 25(3): 83-106. https://www.aeaweb.org/articles.php?doi=10.1257/jep.25.3.83
• Steven A. Camarota (2017), “The Case Against Immigration” https://www.foreignaffairs.com/articles/united-states/2017-03-31/case-against-immigration [register for free or access via library.gmu.edu]
• Niraj Chockshi (2016), “Growth of U.S. Population Is at Slowest Pace Since 1937” https://www.nytimes.com/2016/12/22/us/usa-population-growth.html
• Binyamin Appelbaum (2017), “Fewer Immigrants Mean More Jobs? Not So, Economists Say” https://www.nytimes.com/2017/08/03/us/politics/legal-immigration-jobs-economy.html
Optional Reading • Philip Auerswald and Joon Yun (2015), Depopulation: An Investor’s Guide to Value in
the 21st Century [eBook] https://www.amazon.com/Depopulation-Investors-Guide-Twenty-First-Century-ebook/dp/B00SW9JAHU
Session 14. Political Economy and Public Choice: Institutions and Inequality (April 30) Policy topic: Why are some nations rich and others poor? required readings:
• Cowen and Tabarrok, chapter 2 1 required • Daron Acemoglu and James Robinson (2012), Why Nations Fail (preface)
http://whynationsfail.com/preface/ • McCloskey, Review of Piketty
http://www.deirdremccloskey.org/docs/pdf/PikettyReviewEssay.pdf required video:
• Paul Romer, “The World’s First Charter City?” TED Talk, March 2011 http://www.ted.com/talks/paul_romer_the_world_s_first_charter_city.html
DATA ASSIGNMENT 3: DUE
Final exam (May 7, 7:30 pm – 10:15 pm) [TO BE CONFIRMED] ISSUE PAPER: Final paper DUE