Short-term macroeconomics



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Is this the best basic undergraduate micro- and macro- textbooktext around? It’s dear (£55 in the UK for the excellent Third International edition), though much more in the USA. To read reviews there are nine on, but if you want to buy it go to or find a cheaper US site (eBay?). It explains all the most useful concepts really easily, with great color graphics on almost every one of its thousand pages, and modern international examples. Also, unlike most of its rivals, we couldn’t find any major mistakes. Congratulations to Krugman and Wells: the one to beat.

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How monetary policy contributed to the debt crisis – and delayed the recovery

UK monetary policy 2003-12
The chart shows how the Bank of England and the Treasury allowed bank lending to fuel UK economic growth from 2003 (probably earlier, but the statistics are not reliable) until the 2008 debt crisis, by pushing loans into the corporate and personal sectors at a growth rate 7% higher than the growth rate of nominal GDP. Other wealthy countries, led by Alan Greenspan’s Fed, did exactly the same. Instead of creating inflation, as suggested by the quantity theory of money, it fuelled real economic growth and a big pile of corporate and personal debt. But if we can blame Gordon Brown for presiding over this debt binge in the UK, the post-2010 Coalition government’s monetary policy was just as bad: although some reining in of excessive corporate debt may have been warranted at the height of the financial crisis, the need after 2010 was to stimulate the economy through corporate sector investment. Instead firms were forced to save, and many Small and Medium Enterprises (who effectively have no source of funds besides the banks) found their bankers refusing to roll over existing loans, instead demanding that the banks be paid back (the very opposite of what was needed macroeconomically). Many good SMEs went to the wall, lowering the UK’s long term productive capacity and leaving the British economy to stagnate unnecessarily for 3 years. Quantitative Easing was supposed to help firms obtain credit, and maintain investment, or at least output, but most of it never got outside the banks, who used it for their own benefit – to strengthen their desperately stretched balance sheets. Even when ‘Project Merlin’ did finally target lending outside the banking sector, the banks did the obvious and easy thing: they lent it to the large firms, who already had access to funds in many ways that small firms cannot. Thousands of good SMEs, and tens of thousands of jobs, went under between 2010 and 2013.

Obviously the most contentious issue in economics today: have a look at this debate –


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