Macroeconomics For Dummies

Chapter 13

Macroeconomic Policies for the Long Run

IN THIS CHAPTER

Remembering the long-run model

Quantifying macroeconomic targets

Dealing with deficits and debt

Valuing commitments

In the episode “Mirror, Mirror” of the original Star Trek TV series, Captain Kirk finds himself in a quasi-parallel universe in which the alternative Enterprise is part of an oppressive empire and not the democratic Federation. After many twists and turns, Kirk eventually works out an arrangement with the alternative Spock to beam him back to the “right” Enterprise. Before leaving, though, he urges the alternative Spock to be part of the freedom movement in that parallel universe because, he argues, the overthrow of the empire is inevitable. The alternative Spock agrees with that assessment, though he notes it will take over 200 years. Still, he says he will consider Kirk’s arguments.

What Kirk and the alternative Spock agree on, then, is the long run. They both believe that given enough time, the other-universe empire will fall. But that’s really a way of saying that they also agree about the short run, at least a bit. Because the subtext of their exchange is that there are forces in the short run, that is, in each period, which are constantly pushing toward the revolution’s rise.

So it is with the economy. As we’ve said many times, the short run is important and can last a while. Nevertheless, even in the short run, there are always forces at work pushing the economy toward its inevitable long-run ...