In his 30 August 2009 post The natural rate of interest is zero!, Billy-Blog Billy complains that
to advocate Wicksell’s theory you have to buy into the whole theoretical box-and-dice – in all its inanity and inconsistency.
Accordingly, you have to consider markets equilibrate through price adjustments and the economy tends to full employment...
Later, in praise of MMT, Bill writes:
"the natural economic state for a modern monetary theorist is full employment."
So if you think, like Wicksell, that the economy tends to full employment, you're a dope. But if you think, like Billy, that full employment is the natural state, then you have the wisdom?? C'mon, Bill, you can do better.
5 comments:
I think what Bill is differentiating is that the laissez fare-ists believe what ever level of employment you have IS full employment. They believe how ever many people have jobs is the number that are supposed to have jobs. That there is no involuntary unemployment.
Bill (rightly in my view) believes that the govt by virtue of its position as tax collector/currency issuer must be directly involved in the job market. Since one cannot participate in our economy to any reasonable extent without income AND that under our current arrangements, income cannot be acquired without a job, the govt must be prepared to offer employment to those who cannot find it (or do not wish to find it) in the private sector.
Bill believes that full employment is "Everyone who wants a job has a job" while those he is criticizing believe "Everyone who does not have a job (in the private sector), doesnt have one for a reason (usually because they are demanding too much salary)and its not the govts place to interfere with the 'natural' ebb and flow of private sector activity". The other guys believe that if you remove minimum wage laws and end unemployment payments that people will work for whatever they can get. Make people desperate enough and they will find work. This, to me, defines the difference in the two positions.
Ohhh... Good point, Greg. Yeah, that's why Bill says (discussing Greenspan's view) that "There is never unemployment!" (That line didn't make sense to me when I read it before.) As you put it --
...the laissez fare-ists believe what ever level of employment you have IS full employment.
-- which is why the NAIRU is said to vary, I suppose.
Well said, Greg!
Ya gotta watch me all the time :)
Put another way, unemployment is used as a tool to control prices. Which to me is a moral issue.
Keeping people out of work, who would like to work, just so the rest of ours' spending power isnt affected is just wrong, in my view.
Its wrong because it assumes a zero sum game and it pits Americans against each other.
A moral issue. I see.
I have seen... Austrians, probably (I don't remember)... I've seen people complaining that the Fed strategy of encouraging a little inflation is "stealing" because it takes away their spending power. That's a moral argument, too.
You put it well: unemployment is used as a tool to control prices.
In my Reduction post I wrote:
It was the Seventies...
We did not have a problem getting the economy to grow. We did not have a problem keeping inflation under control. We could do either one exceptionally well.
The problem that caused the death of Keynesian economics and gave birth to Reaganomics was not an "either/or" problem. The problem was that we couldn't get healthy growth and price stability at the same time. Splitting the problem into two smaller problems was not a reasonable approach, because it was the combination that was the problem.
We still have not solved this problem, which emerged in the 1970s, because we still think of it as two separate problems. But it is not two separate problems. It is one problem.
I stand by that.
Yes that IS the Austrians primary moral argument. That inflating or debasing a currency is criminal. They value a currency over people. Monetarists are just non gold standard Austrians.
You made a post earlier where you said something about the economy being composed of transactions. I like that way of putting it. The number of transactions have decreased and the question is how to get more transactions occurring. Austrians say we would have more transactions if we made the transactions cheaper. I say we would have more transactions if everyone had more income.
We are both right of course. Either one would increase the number of transactions but in the Austrian scenario everyones debt to income ratio would skyrocket prolonging the pain of paying down the debt. This fact actually works against the other moral argument that the Austrians make regarding our present situation. They like to say that our credit binge was spending money we didnt have and now we must pay it back. I agree except that rising unemployment doesnt allow us to pay it back. So rising unemployment is not the rational response to a credit binge, its completely irrational. Austrian economics is supposedly based entirely in rational observations about the world, thats their claim
You can buy more with your dollar by making everything cheaper or you can buy more by increasing production.
The obsession with a strong dollar is a holdover from gold standard days and was the destructive force during the great depression.
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