Saturday, February 18, 2017

Simon from inside himself "here is the rub. If we really think there is no relationship between unemployment and inflation, why on earth are we not trying to get unemployment below 4%? We know that the government could, by spending more, raise demand and reduce unemployment. And why would we ever raise interest rates above their lower bound?"

Again it's so lapidary

here is the rub.

 If we really think there is no relationship between unemployment and inflation,

 why on earth are we not trying to get unemployment below 4%?

 We know that the government could, by spending more, 
raise demand and reduce unemployment.

 And why would we ever raise interest rates above their lower bound?
 obvious response

to sustain robust exploitation...!!!!!!!!!!!!!!!!!

end job scarcity and precarity and watch exploitation wither to pure innovation 

at any rate 
if we want to actually study
price kinetics




NOT ON SHORT CUT CORRELATIONS BETWEEN UE and product price inflation ! 

Wren Lewis embodies the whatever that swallowed him yes he flies up his own ass hole !

NAIRU bashing

"The NAIRU is the level of unemployment at which inflation is stable. Ever since economists invented the concept people have poked fun at how difficult to measure and elusive the NAIRU appears to be, and these articles often end with the proclamation that it is time we ditched the concept. Even good journalists can do it. But few of these attempts to trash the NAIRU answer a very simple and obvious question - how else do we link the real economy to inflation?

One exception are those that attempt to suggest that all we need to effectively control the economy is a nominal anchor, like the money supply or the exchange rate. But to cut a long story short, attempts to put this into practice have never worked out too well. The most recent attempt has been the Euro: just adopt a common currency, and inflation in individual countries will be forced to follow the average. This didn’t prove to be true for either Germany or the periphery, with disastrous results.

The NAIRU is one of those economic concepts which is essential to understand the economy but is extremely difficult to measure. Let’s start with the reasons for difficulty. First, unemployment is not perfectly measured (with people giving up looking for work who start looking again when the economy grows strongly), and may not capture the idea it is meant to represent, which is excess supply or demand in the labour market. Second, it looks at only the labour market, whereas inflation may also have something to do with excess demand in the goods market. Third, even if neither of these problems existed, the way unemployment interacts with inflation is still not clear.

The way economists have thought about the relationship between unemployment and inflation over the last 50 years is the Phillips curve. That says that inflation depends on expected inflation and unemployment. The importance of expected inflation means that simply drawing unemployment against inflation will always produce a mess. I remember from one of the earlier editions of Mankiw’s textbook he had a lovely plot of this for the US, that contradicted what I just said: it displayed clear ‘Phillips curve loops’. But it was always messier for other countries and it got messier for the US once we had inflation targeting (as it should with rational expectations). See this post for details.

The ubiquity of the New Keynesian Phillips Curve (NKPC) in current macroeconomics should not fool anyone that we finally have the true model of inflation. Its frequency of use reflects the obsession with microfoundations methodology and the consequent downgrading of empirical analysis. We know that workers and employers don’t like nominal wage cuts, but that aversion is not in the NKPC. If monetary policy is stuck at the Zero Lower Bound the NKPC says that inflation should become rather volatile, but that did not appear to happen, a point John Cochrane has stressed.

I could go on and on, and write my own NAIRU bashing piece. But here is the rub. If we really think there is no relationship between unemployment and inflation, why on earth are we not trying to get unemployment below 4%? We know that the government could, by spending more, raise demand and reduce unemployment. And why would we ever raise interest rates above their lower bound?

I’ve been there, done that. While we should not be obsessed by the 1970s, we should not wipe it from our minds either. Then policy makers did in effect ditch the NAIRU, and we got uncomfortably high inflation. In 1980 in the US and UK policy changed and increased unemployment, and inflation fell. There is a relationship between inflation and unemployment, but it is just very difficult to pin down. For most macroeconomists, the concept of the NAIRU really just stands for that basic macroeconomic truth.

A more subtle critique of the NAIRU would be to acknowledge that truth, but say that because the relationship is difficult to measure, we should stop using unemployment as a guide to setting monetary policy. Let’s just focus on the objective, inflation, and move rates according to what actually happens to inflation. In other words forget forecasting, and let monetary policy operate like a thermostat, raising rates when inflation is above target and vice versa.

That could lead to large oscillations in inflation, but there is a more serious problem. This tends to be forgotten, but inflation is not the only goal of monetary policy. Take what is currently happening in the UK. Inflation is rising, and is expected to soon exceed its target, but the central bank has cut interest rates because it is more concerned about the impact of Brexit on the real economy. That shows quite clearly that policy makers in reality target some measure of the output gap as well as inflation. And they are quite right to, because why create a recession just to smooth inflation.

OK, so just target some weighted average of inflation and unemployment like a thermostat. But what level of unemployment? There is a danger that would always mean we would tolerate high inflation if unemployment is low. We know that is not a good idea, because inflation would just go on rising. So why not target the difference between unemployment and some level which is consistent with stable inflation. We could call that level X, but we should try to be more descriptive. Any suggestions?

Friday, February 17, 2017

Nice health cost numbers :"The Centers for Medicare and Medicaid Services projects that health care costs in 2017 will average $10,800 this year. The average for cost for the ten percent of most expensive patients is $54,000. The average cost for the least expensive 50 percent is just $700"

‘Public Sector Asset Rehabilitation Agency’ (PARA),

Mission design an adequate
State operated
      Limitless Debt Pig

Corporate debt needs a full circle public / private debt disposal system

Small state dilemma resolved by state account indexation to imperial dollar

"A feedback between the health of the financial sector and the exchange rate amplifies the effects of the crisis. The pres- ence of dollarized liabilities is crucial for this mechanism. Dollarized liabilities arise endogenously when domestic investors expect a currency crisis with sufficiently high probability and switch their deposits from domestic to foreign currency denomination."

Set up state run
dollar indexed deposit system 

Thursday, February 16, 2017

How long can an underwater job force hold its breath ..if not long enough...

This narrative lacks a sense of the crucial time scale
human life lines

"for a country to gain a competitive advantage by lowering its exchange rate, it has to prevent the automatic tendency of international price arbitrage and corresponding flows of money to eliminate competitive advantages arising from movements in exchange rates. If a depreciated exchange rate gives rise to an export surplus, a corresponding inflow of foreign funds to finance the export surplus will eventually either drive the exchange rate back toward its old level, thereby reducing or eliminating the initial depreciation, or, if the lower rate is maintained, the cash inflow will accumulate in reserve holdings of the central bank. "

Think of china 2000 to 2009 

" Unless the central bank is willing to accept a continuing accumulation of foreign-exchange reserves,"

The BoC did just that 

 " the increased domestic demand and monetary expansion associated with the export surplus will lead to a corresponding rise in domestic prices, wages and incomes, thereby reducing or eliminating the competitive advantage created by the depressed exchange rate. "

No time soon my friend !

"Thus, unless the central bank is willing to accumulate foreign-exchange reserves without limit, or can create an increased demand by private banks and the public to hold additional cash, thereby creating a chronic excess demand for money that can be satisfied only by a continuing export surplus,"

That is not a rare  " unless "


" a permanently reduced foreign-exchange rate creates only a transitory competitive advantage."

Transitory by what
Geological time scales ?

Tuesday, February 14, 2017

Baker" The data are very clear. From December of 1970 to December of 2000 we lost 130,000 manufacturing jobs, less than one percent of the total. There was plenty of productivity growth in manufacturing over these three decades. While manufacturing employment did fall as a share of total employment, there was little change in the absolute number of manufacturing jobs over this long period. By contrast, manufacturing employment dropped by more than 3.4 million, or more than 20 percent, in the seven years from 2000 to 2007. This was trade. The trade deficit exploded over this period to almost 6 percent of GDP, which would be more than $1.1 trillion in today's economy."

More piketty pooh "In the capitalist countries the share of public capital was in the range of 20-30% during the main period of the mixed economy (1950-1980), but this share has collapsed since 1980, as public assets were privatised and the debt was left to rise. In 2007, only Italy had negative public capital (with debts greater than assets). In 2015, this situation was found in the United States, the United Kingdom and Japan (France and Germany have barely positive net public capital). In other words, private property owners own not only the totality of national capital, but they also have drawing rights on future tax revenues. This is a serious burden on the regulatory capacity of public authorities."

"While the average income in the country remains between 3 and 4 times lower than in Europe or in North America, the richest 10% of the Chinese population – or some 130 million persons all the same – do have an average disposable income equivalent to that of the rich countries."

"the share of the poorest 50% in the national income in China fell from 28% to 15% between 1978 and 2015, while the income of the 10% richest rose from 26% to 41%"

And" the share of public capital constituted 70% of national capital in 1978, and has stabilised around 30% since 2006, "

Monday, February 13, 2017

Making Deaf adder music

Paine said in reply to Sanjait...
"The Great Moderation era Fed has some good aspects but has fundamentally failed to understand how its obsession with keeping inflation from ever even thinking abut going up has suppressed wages and caused labor hysteresis.
I think they assume that all those problems just equilibriate away across the cycle but the reality is not that."
The long run wage rate path is a historical product not the consequence of sublime
Ineluctable dynamic
The optimal path of monetary / credit policy would run hotter
That is until we find our selfs back in the roaring 70's again
Then ?
We face up to socializing the price level path
And deal with the complex consequences of that un confronted historical necessity
Paine said in reply to Paine ...
Ken Galbraith and Jim Tobin among other worthy heads
never stopped knocking on that door
Our un socialized pricing mechanism has fatal externality problems
Any and all "absolute autonomous firm level pricing power"
must be moderated
Harnessed in fact
By an encompassing social mechanism
Harnessed into a relative pricing power only

Paine said in reply to Paine ...
Yes I write too long range but
Wage price spirals are obviously
Macro Policy induced whirl pool
we must someday navigate our way thru and out of this whirl pool
Not simply slow down and let the whirl pool unwind
Or stay slow and avoid the whirl pools all together
Slow slack and wage poor

Wednesday, February 8, 2017

Stem cell plants

Stem cell like outfits
that can quickly scale up to full production in various product areas
Where our domestic market place
relies entirely on foreign imports

Obviously a public project 
But one that should not be restricted 
to strategic security related products 
We can never know when the frontier may revive a sector 
We consider now to be easily off shored without consequence 
to our long run social production platform 

WTO allowed Legacy tax schedules for each producing bordered area based on historic contribution to global pollution by bordered market area as tax on imports from that market area

The burden of pollution ought to reflect historic contributions not just present remedies

An export from the us would pay a higher entry tax then say an identical product from Zimbabwe

Of course this is a counter current to border taxes based on carbon content of actual product

Say Zimbabwe has no pigou tax on carbon emissions
Competing products from US and Zimbabwe
 the two legacy payments are set against each other
By  any third bordered market area

Friday, February 3, 2017

Oh that devil dick Nixon....Fear of politics mixing with macro nautics is a libel on " our system "

My goodness a pol gooses up the economy to get re elected and that leads to run away inflation
And / or a steep contraction post election !

What kind of system can get regularly into a phase where policy could actually deliver better performance but only if  the system convulses afterwards ?

Like a  race horse fed a speed ball

Surely other institutional arrangements should be explored
If the present system needs  substantial and yes palpable obvious slack ....
Enough Idle productive capacity and idle labor to be noticeable when removed to get votes .....

Yup sub maximal social production
Just to keep from over heating itself
Not technically or humanly
But simply
Price change wise !!!

Thursday, February 2, 2017

Letting your currency crash on forex markets .....A SIN ?

For a start

Imagine the jubilation among dollar denominated debtors ?

What about the import price tsunami ?

Rationing !

MM "These were not policymakers trying the exploit a permanent inflation output trade-off, but policymakers trying to escape the discipline of any kind of Phillips curve. "

They can  beat the dynamic P curve
Simply by ending untrammeled decentralized autonomous corporate dictated
spontaneous wage and output price setting

The price level path must be directly regulated
Using effective demand variation to " contain inflation"
Is a corporate class solution

One look at the end product of the great moderation ought to jar the counter cyclical demand management is bad for the wage class long run
Whether it's using stop go household credit
Or counter cyclical tax algorithms

Kalecki  macro updated by Vickrey
indeed requires Lerner mark up cap and trade

More mainly mackerel

".....politicians could not be trusted with operating such a Keynesian counter cyclical policy, essentially because they imagined they could beat the Phillips curve using direct controls on prices and incomes."

Yes the social democratic agenda had long run fiscal limits but not because of some long run inter temporal balance constraint

"  ....we failed to raise taxes and cut spending in a boom. "

Far from a denunciation of Keynesian countercyclical fiscal policy, it was an admission that politicians could not be trusted with operating such a policy, essentially because they imagined they could beat the Phillips curve using direct controls on prices and incomes. The fact that fiscal rather than (government controlled) interest rate policy was being used as the countercyclical instrument here was incidental.

The labor party abdication of social democracy circa 1976 : "We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you with all candour that that option no longer exists, and so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step”

Pure poison ?

No the poison came with the corporate fashioned remedy !

Right then and there the correct strategy
" we need to socialize the price level path "

Here however is manly mackerel ' s. Take

"As a piece of text it only makes sense to modern ears if there is a missing sentence:

 that we failed to raise taxes and cut spending in a boom.

 Far from a denunciation of Keynesian countercyclical fiscal policy, 
it was an admission that politicians could not be trusted with operating such a policy,
 essentially because they imagined they could beat the Phillips curve 
using direct controls on prices and incomes. "

My my the road not traveled is blocked by a meme barrier ! 

One wonders what he thinks of Weintraub Lerner remedies ? 

Crude analogy : 
No more  massive electricity generation
It requires ruinous climate changing coal ! 

 Nicely he does add: 

" The fact that fiscal rather than (government controlled) interest rate policy 
was being used as the countercyclical instrument here 
           was incidental."

More DBCFT chatter : will deduction of ground rent boost land values ?

We're told this tax change would  " hurt " real estate  firms ?

Really ?

Hell if I'm interested in chasing these foxes to their dens

Tax warriors are chicken shit

The job bled multitude needs
A Vickrey - Lerner macro policy juggernaut
Not tax snipers

But some one must have figured the class and sectoral implications of this by now

DBCFT chatter : What if we pin the dollar forex ?

PK CW "So one way to think of a DBCFT is as a VAT combined with a subsidy for employment of domestic factors of production. The VAT part has no competitive effect, but the subsidy part would lead to expanded domestic production if wages and exchange rates didn’t change.
But of course wages and/or the exchange rate would, in fact, change. If the US went to a DBCFT, we should expect the dollar to rise by enough to wipe out any competitive advantage. After the currency adjustment, the trade effect should once again be nil. But there might be a lot of short-to-medium term financial consequences from a stronger dollar."

But why not lean against the appreciation like the PRC might ?

Would Yellen accommodate a trump  "protectionist " dollar 

Wednesday, February 1, 2017

Temp price freeze as real life NK macro

Why not pull a Nixon -Connolly  ? A temporary price freeze at the time of injection ?

Ya ya the rat ex swinging Panglossians will predict enfeeblement

I'd bet on a real effect

The impoverished dynamics of mainstream macro models

I'll leave it at that except to add

Models that restore some steady path are doomed to remove the basis for real comp dynamics

Try building a model
With  internally generated convulsions
And variable sim paths with and without optionally operated multiple intensity homeostatic sub systems

Forget multiple equilibria stick to comparative dynamics

Roger farmer wants us to condemn Paul Samuelson for his belief in spontaneous ie endogenous 
Recovery from contractions 

Nonsense !

The problem with leaving it to the corporations and households is obvious
It's too SLOW 
too long between trough and recovery yes too long 
and too deep a drop from peak to trough too ! 

The state with correct macro nautics can do better !
In fact the state can end the output and employment cycle as we know it 

And we know it and have known it ..more or less ..
since the  late 1930's and early 40's 

After thirty years of reactionary NEW DEMOCRAT hegemony
The prog wing of the  Democrats ...the new majority democrats....
The new hegemonic democrats ....need to thrust 
this self evident truth 
on a long suffering long awaiting multitude 
of job class dis illusionists

Perpetual full employment !

The horrid fiscal deficit / state debt mass phobia : If social democracy is synonymous with tax and transfer systems what's not synonymous unfortunately is a full power autostab use of this system for perpetual full mobilization of social production factors


Social democracy stalled out because the implementation of perpetual mobilization max was never an explicit goal
And the dynamics of such a system was never fearlessly explored and advocated against its
Shrewd class enemies scare tactics dis info and reliance on received embedded superstitions
Reinvigorated with half truths and damnable out right falsehoods !

Keeping the system safe for bountiful corporate profits is NOT a reasonable job class objective

The output pricing system is best kept decentralized
But nothing suggests it can't be interconnected by a  mark up warrant exchange

Yes viable sustainable average mark ups vary from industry to industry
But at the margin they can be tagged with a tax or subsidy to reflect system wide conditions

It's really that simple

Of course we'd best start with a sector like health
Where obvious social control would have immediate and substantial benefits
Always of course
With the clear objective
of expanding the range of the exchange step by step
to commodities and industrial imports and exports and then to the rest of the economy

Typical meme toxins "Wages aren’t in that description. Wages are primarily a guide to estimating full employment (economic slack). Rising wage growth indicates the economy is approaching full employment. Wage growth in excess of the inflation target plus productivity growth raises warning signs that the economy is operating beyond full employment. Also, commodity prices are included as idiosyncratic shocks. Finally, the labor market data is very clearly not the ultimate arbiter of price stability. In the long-run, inflation expectations are the ultimate arbiter of price stability."

Some  use the term employment max v full employment

Others say sustainable employment

All mean just to the north edge of the estimated
"nominal wage acceleration zone "

Surprisingly this contrivance of 70's macro nautics
Rarely gets the credit it may deserve for the relative decline
 in real wage rates
           secular climb thru time

This taboo zone  is sacred
willfully violated only once ( late 90's )  since the volcker Dammerung
During the dot com bubble up
and the fabulous fiscal surplus soar

Attempts to dive to the " true bottom "
Just to see what's real and what's fantasy
have never even been broached by establishment Merlins

Step one of any new macro for job class pols should be
To undertake such an expedition
A vickrey drive toward full mobilization

If we need a output price freeze pro temp
So be it

Society must from time to time
Probe  the alleged  operational boundaries of its various instituted systems

If certain institutions need to be modified as a result

Bravo !