Toward a New Chapter in Macroeconomics – Literally by Robert Scott Gassler

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Summary
Intermediate macroeconomics textbooks (Blanchard, 2003, for example) have started to expand their treatment of growth and integrate it a bit more into the model, if only by putting the chapter in the middle and not at the end. Jones and Burda and Wyploz even write their books backwards from what it would have been in the 1960s: economic growth, then Aggregate-Supply-Aggregate-Demand, then the Keynesian model, then monetary theory, then the ISLM model, and so forth. The economy is, however, embedded in the ecological system, so our models of the economy need to be embedded in models of the ecological system as well. Before the chapter on economic growth, there needs to be one on the environment in which economic activity takes place. The limits to growth, both from depleting resources and from carbon emissions, should be addressed early. To the circular flow, for example, there need to be added a source and a sink; the flow comes from somewhere and goes to somewhere. I attempt to outline such a chapter. I define a variable YG, which depends not only on the usual factors of production but especially on the quantity of depletable resources used and is related to the quantity of emissions in the environment from the past. There is a level YG* beyond which the environment of the planet is irreversibly damaged. Note that Mother Nature does not care about prices or reductions in per capita GDP. I also indicate how this chapter affects the rest of a typical macroeconomics textbook. Jonathan Harris’s classification of consumption and other variables into non-durable, human-capital intensive, energy-intensive, etc., would appear in this chapter and in the ones on measurement and the components of aggregate demand. But for the moment it should be enough to put them in this new chapter. That way it can be slipped into the typical macroeconomics course without requiring very much revision of the instructor’s lecture notes. This chapter should be compatible with whatever approach is used in the textbook: New Classical, New Keynesian, Post-Keynesian, or radical, though perhaps with a few revisions here and there. For example, a New Classical model would have a vertical Aggregate Supply curve, a New Keynesian model would use a partly horizontal one, and a radical textbook would omit the part on Aggregate Supply and Aggregate Demand. Ideally we would rewrite macroeconomics textbooks completely. In the meantime, we can at least supplement them in a useful way

Global energy subsidies

"How Large are Global Energy Subsidies?" 
CESifo Working Paper Series No. 5814

DAVID P. COADY, International Monetary Fund (IMF)
Email: dcoady@imf.org
IAN PARRY, International Monetary Fund (IMF)
Email: iparry@imf.org
LOUIS SEARS, International Monetary Fund (IMF)
Email: lsears@imf.org
BAOPING SHANG, International Monetary Fund (IMF) - Fiscal Affairs Department
Email: bshang@sphereinstitute.org

This paper estimates fossil fuel subsidies and the economic and environmental benefits from reforming them, focusing mostly on a broad notion of subsidies arising when consumer prices are below supply costs plus environmental costs and general consumption taxes. Subsidies are $4.9 trillion worldwide in 2013 and $5.3 trillion in 2015 (6.5 percent of global GDP in both years). Undercharging for global warming accounts for 22 percent of the subsidy in 2013, air pollution 46 percent, broader vehicle externalities 13 percent, supply costs 11 percent, and general consumer taxes 8 percent. China was the biggest subsidizer in 2013 ($1.8 trillion), followed by the United States ($0.6 trillion), and Russia, the European Union, and India (each with about $0.3 trillion). Eliminating subsidies would have reduced carbon emissions in 2013 by 21 percent and fossil fuel air pollution deaths 55 percent, while raising revenue of 4 percent, and social welfare by 2.2 percent, of global GDP. 

Historical perspective on global cycles

"Global Cycles: Capital Flows, Commodities, and Sovereign Defaults, 1815-2015" 
CESifo Working Paper Series No. 5737

CARMEN M. REINHART, Harvard University - Center for Business and Government
Email: carmen_reinhart@harvard.edu
VINCENT R. REINHART, American Enterprise Institute (AEI)
Email: vincent.reinhart@aei.org
CHRISTOPH TREBESCH, Ludwig Maximilian University of Munich, CESifo (Center for Economic Studies and Ifo Institute)
Email: christoph.trebesch@lmu.de

Capital flow and commodity cycles have long been connected with economic crises. Sparse historical data, however, has made it difficult to connect their timing. We date turning points in global capital flows and commodity prices across two centuries and provide estimates from alternative data sources. We then document a strong overlap between the ebb and flow of financial capital, the commodity price super-cycle, and sovereign defaults since 1815. The results have implications for today, as many emerging markets are facing a double bust in capital inflows and commodity prices, making them vulnerable to crises. 

Planetary boundaries: Guiding human development on a changing planet

The relatively stable, 11,700-year-long Holocene epoch is the only state of the Earth System (ES) that we know for certain can support contemporary human societies. There is increasing evidence that human activities are affecting ES functioning to a degree that threatens the resilience of the ES—its ability to persist in a Holocene-like state in the face of increasing human pressures and shocks. The Planetary Boundary (PB) framework is based on critical processes that regulate ES functioning. By combining improved scientific understanding of ES functioning with the precautionary principle, the PB framework identifies levels of anthropogenic perturbations below which the risk of destabilization of the ES is likely to remain low—a “safe operating space” for global societal development. A zone of uncertainty for each PB highlights the area of increasing risk. The current level of anthropogenic impact on the ES, and thus the risk to the stability of the ES, is assessed by comparison with the proposed PB

Steffen et al Science 2015 http://www.sciencemag.org/content/347/6223/1259855.short

Global recession?

http://theweek.com/speedreads/593044/whole-planet-recession

World GDP should not be falling | Current Activities | GGDC | Expertise & Academic Research | Research / FEB | FEB | Over ons | Rijksuniversiteit Groningen

World GDP should not be falling | Current Activities | GGDC | Expertise & Academic Research | Research / FEB | FEB | Over ons | Rijksuniversiteit Groningen

A new historical database on world human development | VOX, CEPR’s Policy Portal

A new historical database on world human development | VOX, CEPR’s Policy Portal