IS-LM vs AS-AD

I'm a fan of the AS-AD model. It makes sense.

Anyways, I was talking with a guy from the Netherlands (I almost spelled that Neitherlands) about the different models. I told him at Miami they don't teach the IS-LM model. Greg, whom I have to write a paper with about the US exchange rate, said that is because Miami is a conservative bastion* in Ohio. Not that that has anything to do with which model to use. Honestly, I don't understand why people still use the IS-LM model. Granted, I've only been using it for about two months, but it seems like the AS-AD model can do all the IS-LM can and then some. For example, the IS-LM model allows 0 ≤ MPC < 1 where the AS-AD model can allow 0 ≤ MPC ≤ 1. You'd be surprised how big a difference this makes (and how much simpler it is to assume MPC = 1). Also, the AS-AD model provides just ONE equilibrium for the goods market. The IS-LM model gives you a whole line of them for the goods market and the only way to determine which equilibrium is the "right" one is to use the money market (the LM curve). That's just confusing. I also don't know how the IS-LM model can assume that supply is passive. That makes no sense whatsoever. The AS-AD model has a whole curve (the AS curve) devoted to supply.

The guy from the Netherlands is taking the international macro class they offer here and they apparently teach both the IS-LM and the AS-AD models but he said they were using the IS-LM to derive the AD curve. That sounds a little strange to me. I do like that they teach both, here. I think it's a good thing to know the different models so you can see where different people are coming from. Right now, our policy is following the assumptions of the IS-LM model. Oh, and when I say "our" policy, I'm talking about the entire world, not just the US. So it's good to know what is motivating these people (though there is the argument that there is no theory behind what they're doing; they - Obama - are just shooting from the hip, much like Bush did).

Greg said he's a third year economics student - like me - and he hasn't heard of IS-LM. The only reason I knew about it was because I read Mankiw's blog. The guy from the Netherlands (I should really learn his name because that's way too long to type) said maybe it's because my professors think very highly of themselves and won't teach something they didn't come up with. I highly doubt that's the case.

All in all, it was a very good discussion.

In other news, I bought Sam and I train tickets to Bratislava. We're nearly there. I just need to write that paper....

* My favorite line is: "Wright said Miami's slant toward liberalism is not a result of indoctrination, but rather reflects a general worldwide climate toward it." Hmm. I wonder just how far up his ass this guy's head is. What does he think indoctrination is?

On a related note, I was describing the US political system to Erkal. I told him that the people who want higher taxes and more government are the liberals. He looked very, very confused. You see, in Europe the people who want higher taxes and more government are socialists and the people who want a smaller government and lower taxes are the liberals. So let's hope that the worldwide climate really is slanting liberal - and not the perverted American version of liberal. (I believe Hayek addresses this issue in the forward to "The Road to Serfdom," I'm not sure which edition.)