Tyler and Scott are not fans. Brad is.

I tend to side more with Brad conceptually but I prefer the IS-MP model.

That is where on one side we have investment decisions and on the other side we have monetary policy.

I like this in part because I think every conversation about the macro-economy should be piped through the language of monetary policy.

The real world is nominal and students know that. They always want to “follow the money”

For example, in international trade they want to say that if we send all our money to China we will have no jobs here. You could try to get around that by talking about comparative advantage but you are ignoring their question which is ultimately a monetary question and needs to be answered with monetary policy.

Likewise if people say that there community is dying because there are no jobs and businesses, they are not telling you a story about the geographics of production. They are telling you a monetary story.

They are saying that there is a severe monetary contraction going on in their community. The answer to this story must involve banking, lending, debt, prices, import or export. It will not be solved by changes in real productivity alone.

Why?

Because plenty of communities an be dirt freaking poor and not have the problems that these communities are having. Plenty of poor communities can be thriving. While rich communities can be in throes of death.

Indeed, the more you listen to people talk about “economic problems” the more you realize that they are talking about monetary problems. Problems involving prices, money, debt and lending.

The economy of China is quite poor. The economy of Portugal is quite rich. Yet right now Portugal is experiencing a severe monetary contraction while China is trying to put the breaks on monetary expansion.

Thus it feels to just about everyone that the economy of China is doing well and the economy of Portugal is doing poorly.

The real world is nominal. IS-MP helps us see that.

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