Typography

Paul Krugman points to Japan's apparent resurgence in GDP and asks: "There seems to be some kind of lesson here about macroeconomics, but I can’t quite put my finger on it …" My comment: The lesson here is that one needs to be careful when trying to understand natural disasters using flow-based identities like Y=C+I+G. The latter fails to account for large draw-downs in national wealth due to, say, tsunamis. Using a stock identity, and stock related data like national net worth, will be more helpful in this situation. For a proper accounting treatment of Japan's experience, Krugman should refer to the 722 page UN System of National Accounts Manual ( pdf ). Krugman wants to use the production accounts for his analysis, which are represented as flows. He should be using the wealth account, in particular new worth , which is a stock. The tsunami will have resulted in a large fall in Japan's net worth. This is elementary, so I don't know why a Nobel-prize winnin...

In an older post , Scott Sumner had an interesting comment: The most recent inflation rate in Greece is 1.7%, whereas Spain has 1.9% inflation. I don’t know about you, but I find those figures to be astounding. That’s not deflation, and yet Tyler’s clearly right that they are being buffeted by powerful deflationary forces. I’d make several observations: 1. This shows the poverty of our language. Economics lacks a term for falling NGDP, even though falling NGDP is arguably the single most important concept in all of macro, indeed the cause of the Great Depression. So we call it “deflation” which is actually an entirely different concept. I wouldn’t be the first to find connections between the poverty of our language and the poverty of our thinking. He's right that deflation is sort of catch-all phrase, and this imprecision in our language doesn't help out our thinking. By catch-all, deflation can simultaneously mean falling prices, falling NGDP, or most commonly, a  fall ...

I didn't comment much on the great debt debate, stirred up a Krugman post called Debt Is (Mostly) Money We Owe to Ourselves , but followed it quite closely. Nick Rowe taught me ( here , here , here , and here ), and Bob Murphy clarified ( here , here , here , here , here , here , here , and here ), that present generations can indeed take resources from future generations via debt issuance. I also learnt via Daniel Kuehn here and here that if you use a very unintuitive definition of "generations", than this is not the case. Basically, you can swap the meanings of terms to argue your way out of a tight spot. My comment is from a Murphy post : I’ve learnt that the method by which one aggregates individuals into groups, and the labels that one attaches to such groups, can have an important influence on a debate’s ability to reach resolution. If people are aggregating differently, and using non-standard words for their categories, then the debate will degenerate into shouti...