There are some points on indexation. (1) The productivity slowdown - US output per hour dropped from 3.2% per annum in 1959-1973 to 1.3 % per annum in 1973-1994 - is related to GDP per capita, and this is dangerous, while it should be simple to include hours in the latter graph. The explanation for the slowdown remains in the air - and I would like to see mention of lower investments (due to lower profits and inflation uncertainty in the 1970s, and high real rates of interest since). (2) Mankiw does not provide much light on the ‘CPI correction problem’. His p504 chart on GDP and CPI does not really clarify how Alan Blinder can come up with a correction of -1% per annum on the CPI. While the CPI of course is important for understanding the situation - e.g. the productivity slowdown and the Fed’s inflation policy ! I should mention that I, at this moment of writing, am indeed in doubt of what to think about this American problem - and I am pretty alarmed by this insecurity. We should consider this a major failure of economics (or of government to provide for sufficient numbers of measurement officials). (3) On p544 we see the Dow Jones and S&P indexes mentioned, but not explained, while freshmen economists should be taught to laugh about the Dow Jones index - see also Bernstein (1996). (4) P404 gives a graph of the US ratio of earnings of college graduates to earnings of highschool graduates, and the ratio goes from about 1.6 in 1975 to 1.85 in 1995. Mankiw’s graph looks dramatic, because of the chosen axis - and the graph thus should be redrawn with a normal axis.
Mankiw (p502) states: “Congress could change the Social Security program so that benefits increased every year by the measured inflation rate minus 1 percentage point. Such a change would provide a crude way of offsetting the measurement problems and, at the same time, reduce government spending by billions of dollars each year.”
What kind of argumentation is this ? Well, we could also slash all Social Security: and also get rid of the measurement problem and save billions more ! Pity the US, with all the students who have only one course in economics, and then get Mankiw’s “Principles” !
My own analysis shows that indexation on income is rather more advisable.
Where Mankiw discusses the labour market (e.g. p565), I miss the ILO dictum: “Labour is not a commodity”.
Mankiw’s final chapters give an overview of macro-economics. I have some doubts on this presentation, in particular where macro demand and supply curves are made price sensitive - while Keynes showed that the aggregate price is rather an income. Anyway, my own present book itself is an amendment on economics.
It remains interesting to note Mankiw’s statement on p574: “It is, however, important to note why minimum wage laws are not a predominant reason for unemployment.” Well, they are - and they can have large multiplier effects.