Friday, May 9, 2014

Maybe the problem is excessive debt.

Syll quotes Roger Farmer:

The NK economist accepts Milton Friedman’s concept of the natural rate of unemployment which asserts that, in the long run, there is a unique equilibrium level of unemployment associated with stable inflationary expectations. If inflation appears, following a recession, a policy maker who accepts NK economics will infer that the economy is operating above potential. If unemployment is now 6%, rather than 3%, it must be that the natural rate of unemployment has increased.

Okay, but why has the natural rate of unemployment increased? Sunspots?

C'mon, Jack. Something must have caused it.


Jazzbumpa said...

Okay, but why has the natural rate of unemployment increased?

Assuming the premise, this is a key question. You have proposed a plausible answer. What about a stagnating economy due to secular demand shortfall caused by extreme inequality? I think that is plausible, also.

Another thought - causes aren't always easily or correctly identifiable. Everyone believes Volker killed the inflation dragon. But what if it just died of old age [or something] while he was standing there holding a sword?

Similarly, I don't believe Reagan brought down the Soviet Union. It crashed under its own dead weight.


The Arthurian said...

As the chicken asked the egg, "Which came first?"

Jazzbumpa said...

Is that a yolk?

I'm shell shocked.