Macroeconomics

THIS IS an excellent account of recent Conservative economic policy, which has consisted largely of inflicting huge deflationary shocks on the economy, and then standing back to admire the results. Government ministers say that they have been defending the pound, but this always seems to have been at the expense of the real economy. It has of course amounted to nothing but a savage attack on the working class.

Stephens sensibly relates the politics of the pound to events in the European Union. He reminds us that in 1978, the Callaghan Government had the sense to reject entering the European Exchange Rate Mechanism. Callaghan rightly warned that the ERM "would place obligations on us that might result in unnecessary deflation and unemployment." Manfred Lahnstein, head of the West German finance ministry, had tactlessly revealed that his Government expected the ERM to cap the Deutschmark's value against other member currencies, giving Germany a sustained competitive edge.

In 1979-81, Thatcher used high interest rates to force up the pound's value by 30 per cent. This caused the biggest deflationary shock since 1925, when the Conservatives returned to gold at a ludicrously overvalued price. The next worst shock was Major's 1990-92 slump. Between them, these two recent Conservative slumps cost us about £200 billion in lost output.

When Major forced Britain into the ERM, only twelve Conservative MPs voted against. The Labour opposition followed the Government. The Government went in to the wrong thing, at the wrong time, at the wrong rate, and for the wrong reasons. Apart from that, it was a brilliant decision. The rigidity of a single system imposed crushing deflation. As Stephens writes, "Holding sterling to a Deutschmark parity which had been established in entirely different circumstances closed off the option of lower interest rates."

The high interest rates imposed by the ERM made our manufacturing output fall by five per cent in nine months. Excluding North Sea oil, our national output fell for twenty-one successive months. The housing market collapsed, leaving hundreds of thousands of people trapped in negative equity; consumers were forced into unprecedented levels of debt.

After this abrasive experience of a trial monetary union, what did the Government decide to do? It spent most of 1992 forcing the Maastricht Treaty on Economic and Monetary Union through Parliament. Major said, "The ratification and implementation of the Treaty is in our national interest."

But Monetary Union would have disastrous consequences for jobs, incomes and growth. As Stephens warns, "A single currency, however, cannot be used as an instrument to force convergence among disparate economies."

This is the most unique macroeconomics text I have seen. In concise 350 pages it not only provides students with the theory behind business cycles, growth, unemployment, inflation and such things. It also introduces all the macroeconomic issues important in connection with European integration, not only in theory, but with many applications and case studies. It is accompanied by a killer site, undoubtedly the best such place currently on the web, where you may watch macro concepts explained as cartoons or play and learn with interactive applets.

You're absolutely correct!! I was a student of Prof. Gottheil the first year he released this book. The teachings of the book make Macro-Economics both easy to understand and enjoyable. I've recommended this book to both undergrads and MBA students alike, and have not received a single complaints (but have received much praise).

For the first time in four decades comes a fiscal history aimed at the masses. "Vito Tanzi and Ludger Schuknecht have directed their analysis and their provocative hypotheses to a general audience, all the while detailing interesting numbers for the most part by comparing the average percentage of gross domestic product (GDP) attributed to government of seventeen wealthy countries -- the United States, the United Kingdom, Germany, Switzerland, and so forth -- from the 1870s until today. Their finding that government's share in GDP has quadrupled in that time immediately catches the reader's attention, and they delve sufficiently deep into data of key subperiods to draw some interesting and unusual references. Unlike previous analysts, Tanzi and Schuknecht place a great deal of weight on ideological factors in conditioning public choice, but they are wholly aware of the more garden-variety factors such as "Baumol's cost disease" and Wagner's law."

"Probably the most intersting point made in the book is that although government's growth relative to the economy as a whole has been dramatic since the late Victorian era, the fraction of GDP absorbed by government has almost stopped growing since 1980 both in the United States and in other wealthy OECD countries."

Tanzi and Schuknecht "seem to be familiar with the entire range of the analytic literature, though none of the "techy" modelings underlying this literature are revealed in any detail. This sort of exposition is probably wise because such inclusions would cause the nontechnical reader's eyes to glaze over and are unnecessary for those already anointed. Tanzi and Schuknecht do develop the theoretical notions intuitively, however, which is more important, and their bibliography will be particularly helpful for the neophyte scholar. Their index is quite comprehensive, and both lay and professional readers might start their study there after a quick reading of the initial and final chapters."

Tanzi and Shuknecht wonderful explication of fiscal policy should make "Public Spending in the 20th Century" a "must read" book for anyone interested in the growth of government. "The wealth of descriptive data and the authors' fresh and lively style make this book very readable...A copy of Tanzi and Schuknecht's work should be on the desk of all policymakers who believe...that the institutions of fiscal choice really matter."

The Sheffrin's book is excellent introduction to Rational Expectations Theory, I reviewed all the book in the PhD, the book is very clear. The book was written in non-technical language and reveals both the power and the limitations of the expectations assumption. I recommend the book.

Oh, how things have changed. In the mid-1950s to be a free market economist in Britain was a lot like being a leper. Considered a reactionary by peers and politicians alike, the free marketeer was seen as an anachronism and not relevant to the modern world. In the midst of the Keynesian Empire, the Institute of Economic Affairs was established, a solitary outpost of freedom. The story of the Institute has been told elsewhere (Thinking the Unthinkable by Richard Cockett), and in today's world it is hard to imagine the difficulties faced by the founders in the face of the intellectual adversity which existed.

The Journal of Economic Affairs, later just Economic Affairs, was first published in the late 1970s. More topical than the other series of IEA publications, the journal offered the opportunity of shorter articles, as always characterised by the sharp editing skills of the redoubtable Arthur Seldon, on any and every aspect of life which may be subject to the influence of the state.

As always the Institute and it's journal were concerned with the central role of markets. Whereas the books and papers were largely directed at academics and policy-makers, the journal was directed at a wider audience and in particular, students. The format changed over the years but generally was a mixture of long and short articles written by academics and professionals with academic rigour but written in terms that could be understood by the layman. In short the purpose of the journal (I hate to call it a magazine) was to bring the sometimes esoteric arguments about markets to the wider public. And it succeeded. As I write this review in early 2002 the Institute has a substantial student outreach programme, and Economic Affairs, in a rather revised format is required reading for students.

This book is a collection of articles taken from Economic Affairs over a period of about ten years which just happens to coincide with the Thatcher administrations terms of office. Within it's pages can be found papers which cover almost all of the ground that was the subject of intense debate as Britain finally came to terms with the dreadful impact of the lost years of Keynesian rule. Many of the papers continue to have validity today as the world economy, already beaten by economic slowdown, is battered by the impact of September 11. Keynesianism once again is rearing it's head, not a moment too soon for it's devotees. Other papers will still have relevance for the serious student of public policy. At the heart of all of the argument still lies the central issue of the relevance of markets in today's world and as such, the book like the magazine is still mightily relevant.

It shows how an economy can have: Growth, Low Inflation and Full-Employment, all at the same time!

If only our politicians would listen.

Dia Dhuit, ofarrell@iol.ie

The paradigm of development economics has shifted from per capita gross national product or per capita gross domestic product to human well-beings. The level of development a country reaches or would reach in the targetted date depends on the available social services in a country. Health and educaltion level of the inhabitants of a country are the major determinant factors of the rate of growth of the country. The policies regarding the social sector of an economy are to be formulated very carefully. South-East Asia is growing very fast - consequently it is of importance to observe the state and policies regarding the social sector of these countries. This book meets this need and a must reading for the researchers and the policymakers of these countries and others interested in the social sector issues.

As a Political Science student at Trinity College, I have long been interested in political affairs. Mainly in theories, governments, wars, international security and the like. Then I took an insuperable International Political Economy course, the backbone of which was an unprecedentedly amazing teacher and this book! A book with words like Von Thunenization, with similes such as the state as mafia, and with an incredibly comprehensive insight into why things are going on in the way the are nowadays. A must for everyone who has ever been concerned with inequality, hegemony, but just very simply with economic issues.

Very recommendable either for a Ph.D. student interested in the history of emerging markets crisis or the scholar aiming to tell her students how modern theory and empirical tests are applicable to some stories like the Argentine one.

Not only is this book a magnific contribution to understand the monetary and banking history of Argentina, but also a contribution that informs present-day debates in macroeconomics (e.g. the choice of optimal exchange rate regime, various generations of financial and currency crisis, bank runs). The authors make a significant effort to formalise major stylised facts across different crisis episodes, through the lens of modern monetary and banking theory. Moreover, they offer a fresh look at issues concerning crisis management and resolution and policy evaluation in the "first" era of economic globalisation (1880-1914) as well as during the interwar period all the way down to the 1930's depression.
Modern tools help test the hypothesis laid out generally at the beginning of the theoretical framework introduced in each chapter. Ranging from accounting exercises (fiscal solvency, banking balance sheets, as a few examples)to cutting-edge time series econometric modelling, the evidence found by the authours sheds light on crucial empirical issues. Some examples may illustrate this point:
a) The Purchasing Power Parity assumption (PPP, in a single equation cointegrating framework);
b) Money supply and demand, and exchange rate determinants in 1884-1913;
c) The Internal-External Convertibility dynamics (phase diagram, Vector Error Correction Model estimation)

Finally, the lessons drawn by Della Paolera and Taylor are, in my view, very telling to the way Argentina got into the path to the collapse of the currency board 1991-2001.