“Very often, the judgments by ordinary citizens may be better than those by professional economists, being more rooted in reality and less narrowly focused.” Ha-Joon Chang
A New Macroeconomics to Explain Wealth Inequality
Here is a short introduction to the main essay on this website: “A New Macroeconomics to Explain Wealth Inequality”. It explains why I believed a new macroeconomics was needed to explain how wealth inequality develops, and how it damages our economy. It gives a brief description of its advantages compared to the present macroeconomics. It summarizes the three important logical steps that structure the essay. The full essay is available below. Five Page Introduction to Main essay
Here is the main 62 page essay: A New Macroeconomics to Explain Wealth Inequality. The first 50 pages or so have been extensively edited. The next 10 pages need more editing. I invite constructive positive or negative critical comments (email below). A short introduction to the essay can be accessed just above. A new macroeconomics8-30-21
A four page description information about how Social Security actually works. There is a right way to criticize Social Security and a wrong way. This essay describes those two categories. A lot of misdirected criticism is the result of surprisingly common misunderstanding about how it works. Read more.
These first two are particularly important for the main economic essay on this site.
(1)The Secular Rise of Debt: A great one hour interview by Moritz Schularick with Laura Carvalho, Matthew Klein and Amir Sufi hosted on Institute for New Economic Thinking. I’m calling it “great” because it must be right because their views fit so compatibly with those expressed in my main essay (above) on macroeconomics. https://www.ineteconomics.org/events/debt-talks-the-secular-rise-of-debt
(2)A conversation with Atif Mian and Heather Boushey of Washington Equitable Growth: This interview with Heather Boushey on June 21, 2018 was a wonderfully helpful discussion of debt and inequality. Mr. Mian’s views are, not surprisingly, very closely aligned with the views of Amir Sufi (in the interview just above) with whom he has written many economic papers on the topic of debt. They are also very close to my own views, and remarkably compatible with the macroeconomic analysis that is on this site. I expect to soon write a commentary for this interview in a pdf file which I will put on this site. I hope to contribute by explaining how our money system works to provide a strong source of both supply and demand for credit, which provides natural conditions for the debt that Mian has so well described. https://equitablegrowth.org/in-conversation-with-atif-mian/ ,
Six facts about inequality in the US—from Brookings. A well presented, non confusing site with important summary on inequality.
Economics data about the 1930’s Great Depression—I used this site to access data from the 1930’s, some of which are hard to find. From San Jose State University
Commentary by blogger Wolf Richter about finance topics
and sometimes even economics. A prolific blogger with smart, often provocative, not necessarily politically correct opinions. He has drawn a vast supply of smart commenters to his site that Wolf keeps disciplined to limit the crazies and the bomb throwers.
Books I’ve Referenced and Found Helpful
UNBOUND; How Inequality Constricts our Economy
and what we can do about it.
A very informative book about income and wealth inequality in the US. Of particular current interest to me.
HOUSE OF DEBT
Atif Mian and Amir Sufi
A book of great current interest to me written in 2014, that describes the dangers of high debt, and cause of the Great Recession, and their suggestion for how we can prevent it from happening again.
The General Theory of Employment, Interest, and Money.
John Maynard Keynes
The classic book by Keynes which few have read, and much I find difficult to penetrate. However the last part from chapter 22 and beyond is very useful and readable history over a few centuries of economic depressions.
Welcome to Question Economics Website.
Home for: A New Macroeconomics to Explain Wealth Inequality updated Sep 9, 2021.
On this page I’ve shown some essays that describe a new proposal for macroeconomics. Are you wondering why would anyone be crazy enough to try that??
Here’s how I developed this approach, and also some of my background. My purpose and background.
My purpose in establishing this web site is to present a somewhat different way (not radically different!) to describe macroeconomics, which originally began as my effort in the 1950’s to understand the cause of the 1930’s depression. Another unexpected result was to explain why wealth inequality is a common tendency of modern economies. I explain how wealth inequality can start by being given a gentle shove by “The fundamental monetary constraint.” This constraint has existed since the invention of money, but has for some reason has been ignored. Some even regarded as the view presented here as heterodox, possibly because it wasn’t obvious why such a simple concept as money needed any analysis because money itself seemed so obvious, simple and unnecessary to question.
Here is a list of eight properties of our economy that this new macro explains, and six ways that it differs from present macroeconomics. List of differences
I have also recently added an important interview with Princeton economist Atif Mian, accessible at the bottom of this web page, for which I have taken the liberty of adding commentary with an explanation for how I believe my macroeconomics explains an important source of credit. He has commented importantly about the problems of high debt in our economy.
What is available on this site:
The main essay: A New Macroeconomics to Explain Wealth Inequality. The following references the main 60 page essay that describes a new approach macroeconomics that is based on an important, overlooked property of a basic money system. New macroeconomics to explain wealth inequality-60 pages. As an easier way to become familiar with it I suggest reading a much shorter condensed introduction that particularly concentrates on the long ignored “Fundamental monetary constraint” which forms the important basis for the longer main essay on macroeconomics. The shorter introduction is here: Five page Introduction to Main Macroeconomics Essay.
Because it is such an important foundation for this version of macro I have also written another short essay in slightly different style that describes the “Fundamental monetary constraint“. Second short essay on Monetary Constraint.
A later, updated essay, November 2022, on “Fundamental monetary constraint”
Warning: These essays reflect a view that has been occasionally historically expressed, heterodox view of money that has been resisted by most orthodox economists, but which I believe explains too many other important economic facts to make it possible to ignore. Because this view has been so commonly rejected, an argument has been carefully constructed in favor of it, both in the Five page introduction to Main Macroeconomics Essay above, and in the Second short essay referenced above. I’ve concentrated effort on very carefully describing the monetary constraint because for some reason its importance has been so long ignored, and even denied among the orthodox.
Two additional essays: The first on Monetary Velocity is an economic concept about which many people have only vague understanding about its significance and purpose. The essay explains precisely what activity in the economy causes this number to be what it is. It explains why economic subgroups also have definable monetary velocities, which affect GDP for the entire economy. This macroeconomics uses “monetary velocity” for the same purpose for which economists often use “MPC” (marginal propensity to consume) to explain. Wealthier groups are assumed to have low monetary velocities, and therefore are less efficient at producing GDP per dollar they hold. It also shows how subgroups in an economy who hold money at low velocity cause an entire economy’s velocity down, which also reduces overall GDP. Monetary velocity explained-2 pages
The second essay: Debunking the claim of sudden future death of Social Security: explains an extremely common misunderstanding about how Social Security works. The government does not hold money in storage to be paid to future retirees. All money paid out this month uses tax money that is collected during the present. Some think this must mean the government is being careless with their retirement money. However, the essay explains why economists wisely set it up this way. Merely putting paper money now in an account, or “lockbox” to be opened in the future will not serve that purpose. Social Security Misunderstandings explained-3 pages
Important Interview of Princeton economist Atif Mian for which I have added a commentary. As will be obvious from my commentary, I have great respect for Mr. Mian’s approach, which is very closely tied to what he has observed in the economy. One reason for putting this up is in hopes that Mr. Mian reads and criticizes my essays describing the Monetary constraint–for which I would be very appreciative for any criticism or suggestion. The interview referenced below was conducted by Heather Boushey on the Washington Center for Equitable Growth. Both Mian and I have similar reasons for thinking that high private debt is harmful to an economy. I recopied the entire interview, then added my comments for this site. In my opinion the new macroeconomics I have described on this site is a more compatible economic environment for his ideas about debt than present Samuelson macroeconomics. Here is the entire interview, with my additional commentary: Atif Mian Interview with added commentary The original unmodified interview is here: Original unmodified Interview with Atif Mian.
I strongly invite comments from readers. At the bottom left of this page you can send emails to improve or criticize content or clarity. If I modify the essay based on your suggestions I’ll credit them to you, unless you request that you wish to remain anonymous.
This analysis outlined in the main essay helped me to understand economics much better than I previously did. I hope this will also be your experience. I also believe it has highlighted some obvious weaknesses, but not ones for which I have yet proposed a better alternative. Successful improvements are most likely to occur after a clear understanding has developed for how it presently works–along with present problems. Also available in the left column of this page are a few books that have been important to me, and some web sites I have found interesting or informative. I anticipating expanding the number of items soon.
Boulder Creek, CA.