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An aside on the term ‘macro’

A few years ago, when Ben Bernanke’s appointment was ushered through the US Senate with hardly a murmur, Michael Evans—author of a once widely-used textbook called Macroeconomic Activity—quipped, ‘Macroeconomics, unless it messes up, doesn’t matter very much any more’.  Macro is no longer passé, however, so TCD’s Antoin Murphy is lucky in the timing of his The Genesis of Macroeconomics (just out, Oxford University Press). 

 

As Antoin points out the term ‘macroeconomics’ was coined by Ragnar Frisch in 1933.  Frisch also invented ‘microeconomics’ and ‘econometrics’, as well as some other terms that never caught on.   But ‘macroeconomics’ was still unfamiliar enough in 1945 for an article in the American Economic Review  to use it with the ‘macro’ bit in inverted commas.  It might never have caught on but for the Great Depression and Keynes’s General Theory.  Ironically, though, Keynes himself does not seem to have keen on the term.  Who was the first Irish economist to use it?

 

If JSTOR is to be trusted, the first use of the term in an academic journal was by Jan Tinbergen in 1936 (in ‘Sur la determination statistique de la position de l’équilibre cyclique’, Review of the International Statistical Institute, 4(2) (1936): 173-188).  Tinbergen, by the way, shared the Nobel Prize with Frisch in 1969.  The term was slow to catch on: one JSTOR ‘hit’ before 1940, three in 1940-44, and forty-four in 1945-49.  The story thereafter, as reflected in JSTOR, is summarized in the accompanying table.   Will these ‘interesting times’ reverse the apparent downturn in usage?

 

Year          ‘Hits’
1935-9 1
1940-4 3
1945-9 44
1950-4 149
1955-9 217
1960-4 436
1965-9 959
1970-4 1639
1975-9 2806
1980-4 4429
1985-9 6385
1990-5 7368
1995-9 8028
2000-4 7186

 

 

 

 

 

Avoiding confusion on the structural deficit

It appears the government will formulate its fiscal adjustment plan around a target path for the structural deficit.  This is a good idea in principle.  But unless carefully managed it could be a recipe for confusion in practice, especially if assumptions differ from those in the Commission’s Stability Programme (March 2009). 

At present, there are differences in estimates of the structural deficit between the Department of Finance’s Addendum (January 2009), the Commission’s Stability Programme Opinion (March 2009) and the recent ESRI analysis.   Such discrepencies are not surprising given the difficulty of measuring potential output and the rapidly evolving revenue estimates.  Although the Commission’s estimates of potential output strike me as overly pessimistic, it would be wise to use Commission’s figures (suitably updated to incorporate revised tax projections) to anchor the fiscal plan.

The important point is that the government should try to achieve as much clarity as possible on its analysis of and projections for the structural deficit.  

Illustratrive contours of a possible plan:  The Commission projected a deficit of 9.5 percent of GDP for 2009.  They also estimated a structural-cyclical split of 8.1-1.4.  I assume the recent disappointing revenue numbers have added 2.5 percentage points to the ’09 projection.   In addition, the real GDP growth forecast for ’09 has been revised from -4 percent to -6.5 percent.  Using the standard methodology, the new structrual-cyclical split is 9.6-2.4. 

It is useful to distinguish between two elements in the fiscal plan.  First, the adjustment required to correct for the slippage in the structural deficit from the 8.1 percent target.  This is 1.5 percent of GDP.   Second, the plan for reducing the structural deficit from the 2009 target of 8.1 percent to 3 percent by 2013.

Brian Lucey honoured

Brian made it into the global Top 200 Young* Economists according to IDEAS/RePEc

*Active for less than 10 years

Name a famous Belgian

As I was reading this excellent post by Brad Setser, I found myself thinking of Robert Triffin. And then I followed Setser’s link and found that that governor of the People’s Bank of China was explicitly stating that “The Triffin Dilemma, i.e., the issuing countries of reserve currencies cannot maintain the value of the reserve currencies while providing liquidity to the world, still exists. ”

The Chinese are clearly getting worried, which is an important fact in itself. And what a world we live in, when a Communist central banker can come out so clearly in favour of Bancor!

Now, I guess you could argue that the role of China in the past few years has been much less passive than the Triffin analogy would suggest. Setser obviously thinks so. But it is good to see China putting proposals on the table whose ambition and multilateral orientation are appropriate to the scale of the current crisis. At one level, Zhou seems to be saying “give us some other reserve currency to hold, and the dollar can depreciate as much as it wants.” At another level, there is the proposal to partially pool reserves in the IMF, which would be “more effective in deterring speculation and stabilizing financial markets”. I would be fascinated to hear what people think.

Olivier Blanchard in Les Echos

Olivier Blanchard does not pull his punches here. European governments were too slow to realise how serious this crisis is, and they are not doing enough. Thanks to Eurointelligence for the pointer.