Economic Sciences Prize Committee of the Royal Swedish Academy of Sciences - Scientific Background on the Economics Nobel 2010 - "Along similar lines, Diamond argued that a search and matching environment can lead to macroeconomic unemployment problems as a result of the difficulties in coordinating trade. This argument was introduced in a highly influential paper, Diamond (1982b), where a model featuring multiple steady-state equilibria is developed. The analysis provides a rationale for “aggregate demand management” so as to steer the economy towards the best equilibrium. The key underlying this result is a search externality, whereby a searching worker does not internalize all the benefits and costs to other searchers. The model Diamond developed in this context has also become a starting point for strands of literature in applied areas such as monetary economics and housing, which feature specific kinds of exchange that are usefully studied with Diamond’s search and matching model." - See also Tyler Cowen's take
Bill Woolsey - Money expenditures - "If there were a commitment to get the quantity of money high enough and market rates low enough to get money expenditures back to the growth path of the great moderation, then the demand to hold money would fall and the natural interest rate would rise. It is entirely possible, if not likely, that the actual quantity of money would need to fall and market interest rates would need to rise."
Richard Thaler - EMH (via FT Alphaville) - "The bad news for EMH lovers is that the price is right component is in more trouble than ever. Fischer Black (of Black-Scholes fame) once defined a market as efficient if its prices were “within a factor of two of value” and he opined that by this (rather loose) definition “almost all markets are efficient almost all the time”. Sadly Black died in 1996 but had he lived to see the technology bubble and the bubbles in housing and mortgages he might have amended his standard to a factor of three. Of course, no one can prove that any of these markets were bubbles. But the price of real estate in places such as Phoenix and Las Vegas seemed like bubbles at the time. This does not mean it was possible to make money from this insight. Lunches are still not free. Shorting internet stocks or Las Vegas real estate two years before the peak was a good recipe for bankruptcy, and no one has yet found a way to predict the end of a bubble."
Greg Mankiw - Bush tax cuts - "Suppose that some editor offered me $1,000 to write an article. <..> Without any taxes, accepting that editor’s assignment would have yielded my children an extra $10,000 [30yrs from now]. With taxes, it yields only $1,000. In effect, once the entire tax system is taken into account, my family’s marginal tax rate is about 90 percent. Is it any wonder that I turn down most of the money-making opportunities I am offered?
By contrast, without the tax increases advocated by the Obama administration, the numbers would look quite different. I would face a lower income tax rate, a lower Medicare tax rate, and no deduction phaseout or estate tax. Taking that writing assignment would yield my kids about $2,000. I would have twice the incentive to keep working."
Brad DeLong - China (written in 2006) - "At some point China's State Council will tell the People's Bank of China to stop buying dollar-denominated securities. What happens then? Bad things. And if I listen to my inner Friedrich Hayek about how the cost of unwinding a fundamental resource-allocation and investment disequilibrium rises more than one-for-one with the magnitude times the duration of the disequilibrium, I can get very worried indeed. Dollar crashes, financial crises, large-scale housing defaults, deep recessions, panics, revulsions, discredits--and at the very least the movement of 8 million workers in the U.S. out of construction, consumer services, and supporting occupations and into export and import-competing manufacturing, and the movement of 40 million workers in Asia out of export manufacturing and supporting occupations and into... what?"
"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008