Created 4/2/1998
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J. Bradford DeLong
Professor of Economics


April 2, 1998; revised September 10, 1998


Dear XXXX,

First, let me apologize for getting this to you at the end of this week, rather than at the beginning: Labor Day weekend turned out to be much less productive a time for thinking than I had believed it would be. So this is getting to you on Thursday morning rather than Tuesday morning. I hope there is still enough time for you to turn this over in your mind before lunch tomorrow.

My thinking about writing a macroeconomics textbook over the summer has led me to the following three conclusions: (I) I could do a better job than is currently done in Mankiw or in Abel and Bernanke or in Dornbusch, Fischer, and Startz. (II) It would be intellectually challenging. And (III) it is something that I do want to do--I have discovered that doing these CD-ROM projects for Cogito has not alleviated but has instead irritated the itch, and I would have a very hard time keeping from scratching it.

There are, however, big uncertainties: (I) How much support--both in writing the book and then in marketing it--would XXXX provide? (II) How much fun would writing a textbook be? (III) How much money would I make? (IV) When would XXXX expect the manuscript, for as I said before it is unlikely that I would be able to deliver chapters in appreciable numbers before late next spring, and unlikely that I would be able to deliver an entire manuscript before some time late next summer.

With my uncertainties out on the table, let me try to reduce your uncertainties by sketching out what I think that I would do in a macroeconomics textbook.

First, I would keep in mind Tim Taylor's principle that no textbook that wishes to sell in any volume whatsoever dares deviate more than 15% from the previous models--in this case Mankiw and Abel and Bernanke. People who have taught from the old dominant textbooks have to be able to easily teach (or at least to think in advance that they will be able to easily teach) from the new. The new has to be different enough and better enough to be exciting, but also largely the same.

Second, I believe that Greg Mankiw did not go far enough (possibly because he was constrained by the 15% rule) in shifting the balance of macroeconomics away from short-term fluctuations in unemployment and toward long-run issues. So I would place more stress on long-run growth--try to do a more serious job (and spend more of the semester) on long-run growth than in today's textbooks.

After an introductory chapter, a chapter on how the modes of thought common to economists are different from those found in everyday life, and a chapter on the way that we find out about and organize our data on the macroeconomy, I would go straight into long-term growth, looking first at economists' theories of growth, and then at the patterns of long-term growth that we see in the world.

I would significantly reorient the presentation of the theory. The pattern that has become standard since Mankiw is essentially to take the graduate student-level presentation of Robert Solow's growth model and to present it to the undergraduates at a glacial pace, in the hope that the slow pace will keep students from getting lost. This seems to me to be a pedagogical disaster. The key variable in the Solow formulation is k*, the level of the economy's capital stock per "effective worker." Even here at Berkeley, no more than one out of three undergraduate students understands when the final exam comes around what capital per "effective worker" means.

I think a much more understandable and robust version of the same theoretical material could be presented by focusing not on k* but on the capital-output ratio. Ask what needs to be going on in the economy for the capital stock to be a constant multiple of output, and point out that the capital-output ratio tends to converge to its steady state level.

I also believe that economists can do a much better job of presenting the facts about the causes and consequences of long-term economic growth than they do in standard macro textbooks. First there is the fact that our standard measures of GDP per capita--Simon Kuznets's measures--were designed to be underestimates of economic growth. Simon was in the business of constructing underestimates of growth and pointing out that modern economic growth was still, even when underestimated, very rapid. We can do better.

Second, a lot more can be done to make sense of cross-country patterns: the industrial revolution, the spread of industrialization, the twentieth-century lag of Latin America, the East Asian miracle, the African catastrophe, slow growth in India, and the American century can all be taught to undergraduates in a way that will make them sit up and understand why growth went right in some places and wrong in others. I think it is worth spending the time to do this.

After covering long-run growth, I would move into full-employment macroeconomics: the division of potential output between consumption, investment, government spending, and net exports when prices are equal to previously-expected prices, and when national product is equal to potential output. Here I think that the pattern established by Mankiw is very good and hard to improve upon with one exception. The international economy--cross border capital flows, the determinants of net exports, the level of the real exchange rate, and so forth--should be integrated into the standard framework from the very beginning. Even the United States is no longer a closed economy. Even in the United States, every single economic policy issue and news event already has an important international dimension. To try to push international off to selected international chapters is unwise. And it truly is not that difficult to cover international as part of the main narrative thread.

After long-run growth, I would move into first short-run fixed-price aggregate-demand macroeconomics and then into the medium-run topics inflation, unemployment, and output relative to potential. As noted above, I would take the international context much more seriously and integrate imports and exports into the basic multiplier model from the very beginning of the business cycle section. More important, I would simply drop the LM curve. Central banks set interest rates, not money stocks. Dropping the LM curve greatly reduces the algebraic complexity of the determination of aggregate demand, and brings the textbook presentation much closer to what people will find when they open the Wall Street Journal.

I would use the space saved by dropping the LM curve for a serious discussion of the term structure of interest rates. The Federal Reserve controls short-term, nominal, safe interest rates. The principal determinants of aggregate demand are long-term, real, risky interest rates. The slippage between these two is a principal limitation on the government's ability to stabilize the economy. Treating this topic seriously allows us to teach the importance of expectations and the limits of policy in a serious way relatively early in the subject.

The medium-run topics of inflation expectations, inflation, price adjustment, and return to equilibrium would follow fixed-price macroeconomics. I would downplay the aggregate demand-aggregate supply framework: the fact that the price level is central to aggregate supply causes students confusion because the entire discussion of macroeconomic policy is carried out in terms of the inflation rate. Moving from one to the other is not obvious. Thus I would spend much more time on the Phillips curve and the output gap than on aggregate demand and aggregate supply, which I would treat as an alternative framework that carries essentially the same information as the expectational Phillips curve (but that does so in a more convoluted way that is harder to immediately relate to what you read in the newspaper).

Policy chapters (15-19, perhaps), two chapters on the future of the macroeconomy and the future of macroeconomics (20-21 perhaps) and a conclusion would finish off the book.

To summarize, I would:

Take the empirics of economic growth seriously--much
more seriously than is usually done in intermediate
macroeconomics textbooks.

Reorient the presentation of economists growth models:
focusing on the steady-state level of the capital stock
per effective worker (as is done in graduate courses) is
a disaster in undergraduate courses. It seems to me that
focusing on the steady-state capital-output ratio in the
presentation of growth theory would be a significant

Take the international context much more seriously. It should
be integrated it into the basic multiplier model from the
beginning of the business cycle section.

Drop the LM curve: central banks set interest rates, not
money supplies. Dropping the LM curve makes the structure
of the argument much clearer and brings the model into
closer correspondence with reality.

Take the term structure of interest rates--short vs. long,
real vs. nominal, safe vs. risky--seriously. The fact that
investment and aggregate demand depend mostly on long, real,
risky interest rates while the Federal Reserve can control
only short, nominal, safe interest rates is the source of
much of the uncertainty in economic policy, and is the
principal factor limiting governmental power to stabilize
the economy.


Sincerely yours,


Brad DeLong


Chapter 1: Introduction
1-1: What is macroeconomics?
1-2: Why would you want to learn about macroeconomics?
1-3: What is the macroeconomy doing?
1-4: How macroeconomists try to understand the macroeconomy

Chapter 2: How Economists Think
2-1: Economists use metaphors
2-2: Economists use models
2-3: Analytic geometry
2-4: Microfoundations
2-5: Adjustment and "equilibrium"
2-6: "Long run," "short run," and "expectations"

Chapter 3: Measuring the Economy
3-1: Gross domestic product
3-2: The circular flow of economic activity
3-3: Measuring the international economy
3-4: Measuring prices
3-5: Measuring unemployment
3-6: Measuring long-run economic growth
3-7: Measuring economic welfare


Chapter 4: Theories of Economic Growth
4-1: Production, productivity, and capital
4-2: The steady-state capital-output ratio
4-3: Population growth and output growth
4-4: Technological progress and the steady-state growth path
4-5: Understanding technological progress

Chapter 5: The Process of Economic Growth
5-1: From stone tools to agriculture
5-2: From agriculture to the industrial revolution
5-3: The industrial revolution
5-4: Patterns of divergence
5-5: Policies and economic growth
5-6: Hopes for convergence
5-7: Into the next millennium


Chapter 6: National Income and Product
6-1: Production
6-2: Distribution
6-3: Changes in the long-run income distribution
6-4: Demand for goods and services
6-5: The interest rate and long-run equilibrium
6-6: Changing production and changing jobs
6-7: Savings, investment, and international transactions
6-8: The exchange rate in the long run

Chapter 7: Inflation in the Long Run
7-1: Liquid assets--"money"
7-2: The quantity theory of "money"
7-3: The nominal interest rate and the demand for liquidity
7-4: Inflation and interest rates
7-5: The costs of inflation
7-6: Hyperinflation


Chapter 8: Consumption and the Multiplier
8-1: Sticky short-run prices
8-2: The income-expenditure diagram
8-3: Getting to short-run equilibrium
8-4: The multiplier
8-5: The government and the multiplier
8-6: International trade and the multiplier

Chapter 9: Investment and the IS Curve
9-1: Determinants of investment
9-2: The interest rate, the stock market, and investment
9-3: Investment and aggregate demand
9-5: The IS curve
9-6: Shifting the IS curve: policy
9-7: Shifting the IS curve: expectations of future growth

Chapter 10: The Money Market and Aggregate Demand
10-1: The Federal Reserve sets the interest rate
10-2: Interest rates and the exchange rate
10-3: How the Fed changes interest rates
10-4: Financial crises
10-5: The term structure of interest rates
10-6: Monetary policy and the IS curve


Chapter 11: Explaining Fluctuations with the IS Curve and Monetary Policy
11-1: Changes in other determinants of spending
11-2: Changes in monetary policy
11-3: Changes in expectations
11-4: Changes in the rest of the world
11-5: Production and unemployment
11-6: The costs of high unemployment
11-7: U.S. history: the Great Depression
11-8: U.S. history: since World War II
11-9: Western European history: since World War II


Chapter 12: The Phillips Curve
12-1: Bottlenecks and bargaining power
12-2: The natural rate of unemployment
12-3: The Phillips curve under static expectations
12-4: The Phillips curve under adaptive expectations
12-5: The Phillips curve under rational expectations
12-6: What type of expectations do we have?
12-7: Stopping moderate inflation
12-8: Changes in the natural rate of unemployment

Chapter 13: Supply Shocks
13-1: "Real" business cycles
13-2: OPEC and oil shocks
13-3: Shocks from the international economy
13-4: Supply shocks and the Phillips curve

Chapter 14: From the Short to the Long Run
14-1: Price adjustment and long-run equilibrium
14-2: Trying to delay return to long-run equilibrium
14-3: Changes in the type of expectations


Chapter 15: Making a Better Economy
15-1: Making a better multiplier
15-2: Making a better financial system
15-3: A better Phillips curve: expectations
15-4: A better Phillips curve: structural unemployment
15-5: A better Phillips curve: price adjustment

Chapter 16: Fiscal vs. Monetary Policy
16-1: The 1946 Employment Act
16-2: Automatic stabilizers
16-3: Discretionary fiscal policy
16-4: Long and variable lags
16-5: Guidelines for countercyclical fiscal policy

Chapter 17: Making Monetary Policy
17-1: Limits of stabilization policy
17-2: Monetarism
17-3: Instruments, indicators, targets, and objectives
17-4: Credibility and dynamic inconsistency
17-5: Politics
17-6: Central bank independence
17-7: Guidelines for countercyclical monetary policy

Chapter 18: The Government Debt
18-1: Deficits and debts
18-2: Deficits and intergenerational transfers
18-3: Tax levels and potential output
18-4: Deficits and national saving
18-5: The Baby Boom generation retires
18-6: Financing the social insurance system

Chapter 19: The Exchange Rate Regime
19-1: The classical gold standard
19-2: The gold standard and the Great Depression
19-3: The Bretton Woods system and its breakdown
19-4: Floating exchange rates
19-5: Fixed exchange rates and optimum currency areas
19-6: Fixed exchange rates and currency crises
19-7: European monetary union


Chapter 20: The Future of the Macroeconomy
20-1: The decline of the multiplier
20-2: The rise in international trade
20-3: Instability in money demand
20-4: The peculiar persistence of the business cycle

Chapter 21: The Future of Macroeconomic Policy
21-1: Lessons unlearned: European unemployment
21-2: Lessons unlearned: Japanese stagnation
21-3: Lessons unlearned: deposit insurance and bank failures
21-4: Lessons half-learned: "new eras" and asset price bubbles
21-5: Lessons half-learned: international financial crises
21-6: The market for policy advocates
21-7: The future of macroeconomic policy

Chapter 22: The Future of Macroeconomics
22-1: Challenges to orthodoxy: Ricardian equivalance
22-2: Challenges to orthodoxy: real business cycles
22-4: New approaches to aggregate supply
22-5: Macroeconomics and the changing macroeconomy


Chapter 23: Conclusion
23-1: What we know: long-run growth
23-2: What we know: controlling inflation
23-3: What we know: stabilizing aggregate demand
23-4: What we know: costs of business cycles
23-5: What we don't know: the costs of inflation
23-6: What we don't know: the details of aggregate supply
23-7: What we don't know: institution design

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley, a Research Associate of the National Bureau of Economic Research, and Co-Editor of the Journal of Economic Perspectives. From 1993 to 1995 he served the Clinton Administration's Treasury Department as Deputy Assistant Secretary for Economic Policy. He is the author of, among other things, "The Case for Mexico's Rescue" (Foreign Affairs, 1996) and The Marshall Plan: History's Most Successful Structural Adjustment Programme (1993).


Start: January 1999


1st draft: September 1999


2nd draft: March 2000


Production: March-September 2000  
Publication Date: October 1, 2000  

Mankiw 3e (Worth 1997)

Hall and Taylor 5e (Norton 1997)

Froyen 5e (PH 1996)

Blanchard 1e (PH 1997)

Dornbusch 7e (IMH 1998)

Abel/Bernanke 3e (AWL 1998)

Farmer 1e (1998)

The Science of Macroeconomics Economic Growth and Fluctuations Introduction A Tour of the World Introduction Introduction to Macroeconomics  
The Data of Macroeconomics Measuring Economic Performance Measurement of MacroeconomicVariables A Tour of the Book National Income Accounting Measurement and Structure of National Economy  
National Income: Its Production, Distribution, and Allocation Economic Growth Classical Macro (I): Equilibrium Output and Employment The Goods Market Growth and Accumulation Productivity, Output, and Employment  
Economic Growth Fiscal and Monetary Policy in the Growth Model Classical System (II): Money, Prices, and Interest The Goods Market: Dynamics Growth and Policy Consumption, Saving, and Investment
Unemployment Unemployment, Job Creation, and Job Destruction The Keynesian System (I): The Role of Aggregate Demand Financial Markets Aggregate Supply and Demand Saving and Investment in the Open Economy  
Money and Inflation Short-Run Fluctuations The Keynesian System (II): Money, Interest, and Income Goods and Financial Markets: IS/LM Aggregate Supply Long-Run Economic Growth  
The Open Economy Financial Markets... Aggregate Demand The Keynesian System (III): Policy Effects in the IS/LM Model Expectations: The Basic Tools The Tradeoffs Between Inflation and Unemployment The Asset Market, Money, and Prices  
Introduction to Economic Fluctuations The Adjustment Process The Keynesian System (IV) Aggregate Supply and Demand Expectations, Consumption, and Investment The New Macroeconomics Household Decisions to Consume, Save, and Work: A More Formal Treatment  
Aggregate Demand I Macroeconomic Policy The Monetarist Counterrevolution Financial Markets and Expectations Income and Spending Business Cycles  
Aggregate Demand II Consumption Demand Output, Inflation, Unemployment: Monetarist and Keynesian Views Expectations, Policy, and Output Money, Interest, and Income The IS/LM AS/AD Model: A General Framework for Macroeconomic Analysis  
Aggregate Demand in the Open Economy Investment Demand New Classical Economics Openness in Goods and Financial Markets Monetary and Fiscal Policy Classical Business Cycle Analysis: Market-Clearing Macroeconomics: Monetarist and Keynesian Views  
Aggregate Supply Foreign Trade and the Exchange Rate New Classical and Keynesian Directions The Goods Market in an Open Economy International Linkages Keynesianism: The Macroeconomics of Wage and Price Rigidity  
The Macroeconomic Policy Debate Spending, Taxes, and the Budget Deficit Macroeconomic Models: A Summary Output and Interest and Exchange Rates Consumption and Saving Unemployment and Inflation  
Recent Developments in the Theory of Economic Fluctuations The Monetary System and the Fed's Policy Rule Consumption and Investment Expectations, Exchange Rate Movements, and Exchange Rate Crises Investment Spending Exchange Rates, Business Cycles, and Macro Policy in the Open Economy  
Consumption Microeconomic Foundations of Price Rigidity Money Demand The Labor Market The Demand for Money Monetary Policy and the Federal Reserve System  
The Debates Over Government Debt Inflation and Output Fluctuations The Money Supply Process Putting All Markets Together The Fed, Money, and Credit Government Spending and Its Financing  
Investments Designing and Maintaining a Good Macro Policy The Supply Side: Intermediate and Long-Term Economic Growth The Phillips Curve Financial Markets Appendix: Some Useful Analytical Tools  
Money Supply and Money Demand The World Economy Fiscal Policy Inflation, Disinflation, and Unemployment Stabilization Policy, Prospects, and Policy Glossary and Index  
Epilogue: What We Know, What We Don't Glossary and Index Monetary Policy Inflation and Interest and Exchange Rates Money, Deficits, and Inflation    
Glossary and Index   Exchange Rates and the International Monetary System High Unemployment Budget Deficits and the Public Debt    
    Monetary and Fiscal Policy in the Open Economy High Inflation International Adjustment and Interdependence;    
    Glossary and Index The Facts of Growth Index    
      Saving, Capital Accumulation, and Output      
      Technological Progress and Growth      
      Technological Progress, Unemployment, and Wages      
      Transition in Eastern Europe      
      Should Policymakers Be Restrained?      
      Monetary Policy: A Summing Up      
      Fiscal Policy: A Summing Up      
      The Story of Macroeconomics      
      Where to Find the Numbers      
      An Intro to NIA and PA      
      A Math Refresher      
      Symbols Used in This Book      
      Glossary and Index      


by J. Bradford DeLong


Chapter 1: Introduction

Chapter 2: How Economists Think

Chapter 3: Measuring the Economy



Chapter 4: Theories of Economic Growth

Chapter 5: The Process of Economic Growth



Chapter 6: National Income and Product

Chapter 7: Inflation in the Long Run



Chapter 8: Consumption and the Multiplier

Chapter 9: Investment and the IS Curve

Chapter 10: The Money Market and Aggregate Demand



Chapter 11: The Phillips Curve

Chapter 12: Shifts in and Dynamic Return to Full-Employment



Chapter 13: Fiscal vs. Monetary Policy

Chapter 14: Making Monetary Policy

Chapter 15: The Government Debt

Chapter 16: International Economic Coordination

Chapter 17: Making a Better Macroeconomy



Chapter 18: The Future of the Macroeconomy

Chapter 19: The Future of Macroeconomic Policy

Chapter 20: The Future of Macroeconomics



Chapter 21: Conclusion

Professor of Economics J. Bradford DeLong, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax

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