Plain Sense Economics

At about the 6th or 7th week of my Principles of Macroeconomics class we have a kind of broad (though not deep) understanding of how the economy works, how we measure it, and some of the things government does to influence it. We’ve learned about fiscal policy and monetary policy; we have a rough idea [...]

There has been a rash of speeches, articles, and op-ed pieces exploring the origins of the housing bubble and trying to place the blame on the actions of the Federal Reserve. Some of these efforts are honorable – recognizing that we have a responsibility to understand what when wrong and how to avoid repeating those [...]

I’ve heard of lipstick sales being counter-cyclical (more sales when times are tough), but Gregory Mankiw’s blog posted a link to this item on MSN Money.
The central quote…
In fact, right now men’s underwear sales suggest that things have bottomed but not started to recover.
I dare you not to read more.

State and local governments have a particularly hard time during economic downturns. The Wall Street Journal, in this article on June 3 reminds us how state tax revenues decline quickly and recover slowly during recessions. This graphic from the article shows that it can take as long as five years for revenues to reach pre-recession [...]

As David Leonhardt, of The New York Times, acknowledges, it is sometimes uncomfortable to draw comparisons with economic policies of the past. From his article on April 1.
Every so often, history serves up an analogy that’s uncomfortable, a little distracting and yet still very relevant.

In the summer of 1933, just as they will do on [...]

Robert Frank, Cornell economist and co-author of the principles textbook that we use in class, wrote in the New York Times this past Sunday:
The consensus is that short-run deficits help end recessions, and that whether long-run deficits matter depends entirely on how government spends the borrowed money. If failure to borrow meant forgoing productive investments, [...]

The National Bureau of Economic Research announced on Monday that we are in a recession and that this recession started back in December 2007. As we discuss in class, the common rule of thumb about recessions is that they represent at least two quarters of declining real GDP. Officially, however, NBER and their Business Cycle [...]

From the New York Times, May 1, 2008
After the terrorist attacks of 2001 deflated the economy, Mr. Lauder [Chm of the Estée Lauder Companies] noticed that his company was selling more lipstick than usual. He hypothesized that lipstick purchases are a way to gauge the economy. When it’s shaky, he said, sales increase as women [...]

The Federal (Reserve) Open Market Committee (FOMC) announced last week that it was lowering its main interest rate target, the Fed Funds Rate, by one quarter of a percent. You can read the statement they released here.
Part of their statement and deliberations include concern about inflationary pressures. So they have to balance the need to [...]

April 3 congressional testimony – as presented by the Wall Street Journal. As my students agreed, he won’t win American Idol, but if you listen closely you’ll hear all the various, important pieces of the current economic situation.
Click to see 3′30″ video clip