Tuesday, August 10, 2010

Graph of the day

Is it any wonder middle class folks have so much displaced anger?

Monday, August 9, 2010

An interesting analysis of MPCs

Krugman's take on how the MPC might be higher in a recession (and a liquidity trap) as opposed to "normal" times.
So whereas someone who can borrow and lend freely will spend very little of a temporary rise in income, someone who is liquidity-constrained — wanting to spend more right now, but unable to borrow — will spend all of that temporary rise.
The graphs in the link help illustrate why this can be true. Also note that he is using a dynamic model - usually the tool of the neoclassicals - and not some trumped-up "in the long run we're all dead" argument. It also says a thing or two about why tax cuts (or, equivalently, transfers) to the lower segments of the income distribution might have a greater macroeconomic impact.

A thing or two on the Bush tax cuts here.