Thoma read Samuelson's lastest Washington Post piece and didn't like what he saw.
Samuelson first:
… Economics textbooks once described the U.S. economy as mainly self-contained. ... Globalization has shattered this model. More industries face foreign competition or depend on foreign markets. ... Savings and investment have also gone global. … All this alters the U.S. economy. One theory of low American interest rates is that foreign money flows have pushed rates down...
Thoma responds:
I hate to be the one to break it to him, but we’ve been adding terms like net exports to our models for a long time. Even principles books now routinely cover this, something that wasn’t true twenty or more years ago. I'd guess that's somewhere around the age of the textbook he references when he writes his columns. If I thought it would help, I'd send him a new one.
Well, this does raise some interesting issues. First of all, Mark is absolutely right about the state of the textbooks twenty or more years ago. That situation is improving slowly, but it is still far from perfect. It takes a lot more than adding a term for net exports. Some such treatments were/are pretty ad hoc.
Of course, many journalists took macroeconomics more than twenty years ago and thus have little or no formal training in the macroeconomic view of globalization. The good ones have learned from experience on-the-job through the last couple decades watching and reporting on globalization as it happened. Alas, many writers are still living in earlier, simpler times.
Anyone who has taken economics in the last twenty years or so should have seen some international economics, but it hasn't all been fully integrated into the curriculum. For example, ten years ago you might have seen something about exchange rates shifting the aggregate demand curve (don't have the book with me at the moment, but I think I'm remembering correctly). Maybe if you were lucky, your professor told a story about recent currency devaluations and their effect on the domestic economy, but that would be more likely at the intermediate level, not principles. That's better than nothing, but I think if Robert Samuelson looked at one of those books, he'd probably want to toss it out as being less than helpful at really understanding modern international economics.
So what about the state of the art? It's certainly better. One thing that is starting to creep in even at the principles level is a discussion of interest rate and inflation differentials across countries. That's reasonably sophisticated, but you can do it at the principles level if you keep it intuitive and tell lots of good stories (B-school types call them "case studies" which is much more dignified). But I haven't found the sweet spot yet.
At higher levels (I've been prepping for my master's level course lately), things are much better. There really is no excuse for not doing open economy macro at that level in the current environment. But how many business writers have advanced degrees in economics? How many of them received those degrees in the last 10 years (when a lot of good research started to work its way in to the curriculum)?
But the fact remains that many of the points raised by Samuelson are beyond what is in the principles of economics textbooks. I mean, how many principles texts cover home bias, yield curves, and foreign central bank portfolios? Sounds like that's what he's looking for, and that's a lot more than Y=C+I+G+NX.
So Thoma and Samuelson both make some points. I'll add one more to the mix. Until principles texts really do incorporate some international finance into the discussion in a serious way, perhaps economics departments should push international economics courses for business students as an essential part of their preparation for the real world. Even a well-taught principles course is probably not enough.
I'm getting old as I remember teaching my first macroeconomic class (I was a 2nd year grad student) in 1978. And we did discuss the international side in a model that went beyond having exports be exogenous and imports simply depending on income (aka the old multiplier model). But I had a good group of intermediate students who were ready for IS-LM-BP treatments. My next such class was in the early 1980's and my students were convinced that understanding the impact of the Reagan-Volcker macroeconomic mix required delving into the international aspects quite heavily.
PGL,
True, I think I still have a couple books on my shelf that do IS-LM-BP at the intermediate level. But they don't always spend a lot of time on the BP part. Anyway, I'm not sure that IS-LM-BP is the best vehicle anymore, but that's another story entirely.
My critique is more on the principles texts, some of which paid very little attention to international issues, though as I said, that is getting better but still has a ways to go.
My international macro class is pretty eclectic. Lots of discussion of historical episodes as a vehicle for interpreting the present situation. Plus some of the usual models.
At the advanced level, Obstfeld and Rogoff's "Foundations of International Macroeconomics" is excellent for starters, but even that is already showing its age. The publication of that book was, I think, a watershed event for teaching international macro at the graduate level.
Maybe Robert Samuelson should take a look at it!
Bill - I've only recently gone back to look at Principles of Macro type texts. As far as I can tell, most of the current vintage seems to have progressed very little over the past generation - and have all sorts of shortcomings. But it's hard to teach an intro class on this topic that is both comprehensive and to everyone's satisfaction (especially the students that think economics is too hard).
One other point - Mark had made three points about Robert "no relation to Paul" Samuelson. The other two RS claims were indefensible IMHO.
Yes, I had a hard time seeing Samuelson's point on the unemployment issue. On the wealth effect, the things Samuelson is talking about are starting to be addressed in the research literature if not the textbooks. So if all Samuelson reads are textbooks, I see his point, but of course, if his complaint is about the state-of-the-art in the profession, he should look at the literature.
So, one point of total agreement with you and Mark and one point of qualified agreement.