From Keynes to Akerlof: How I would teach Macro
By Arnold Kling
While I was considering an offer to teach intermediate macro, I thought about how I would do it. I would teach it in history-of-thought terms, showing how ideas grew out of the context of their times.
1. 1920’s Hyperinflations–the first big macro problem. Stanley Fischer on the how recent hyperinflations were ended.
2. The Great Depression, Keynes, and the Multiplier. Modern arguments about what caused the Depression, Roosevelt’s policies, and how we got out of it. Friedman’s monetarist story. Bernanke’s story of real effects of financial firms’ failures.
3. Elaborations on Keynes: Friedman’s and Modigliani’s consumption functions; Baumol’s and Tobin’s money demand functions; Tobin’s “widow’s cruse” money multiplier; Tobin’s q and investment demand; E Cary Brown, the full employment surplus, and built-in stabilizers. Hicks’ IS-LM model. Lawrence Klein and Multi-equation macroeconometric models
4. The Phillips Curve and its evolution. Expectations-augmented Phillips Curve. Friedman-Phelps.
5. The 1970’s. The Phillips Curve becomes the aggregate supply curve. Incomes policies tried and failed. Oil shocks. Lucas and rational expectations. Barro and Ricardian equivalence.
6. The 1980’s. The Fed tries monetarism. real business cycle theory. Sims, Granger, and issues with stationarity, causality, and time aggregation in macro data (in an intermediate undergraduate course, you could give at best a superficial treatment of this topic). International macro emerges (even though Mundell-Fleming was earlier)
7. New Keynesianism, the Taylor rule, central bank credibility, Fischer Black’s general equilibrium.
8. Shiller, Greenspan, and irrational exuberance. The Internet Bubble. The levitating dollar and Bernanke’s savings glut hypothesis.
9. George Akerlof on norms and the five neutralities.
It would be a fun course to teach at Swarthmore. Probably not so much at George Mason.