Sunday, December 25, 2016

A gift from Scott Sumner

To return to the example above, the neo-mercantilists believe that if we stopped imports from China, consumption would not decline. Instead all those toys and sneakers and iPhones would be built in America with American workers. But Janet Yellen has made it clear that the Fed regards 4.6% unemployment as roughly full employment, and any attempt by Trump to boost AD will be met with tighter money. The only way to boost output significantly is supply-side policies, and mercantilism is certainly not a supply-side policy.

Sumner is shooting down Trump econ. Specifically, "Peter Navarro, who was just named head of Trump's National Trade Council".

Shoot 'em down, I don't care. But look at Sumner's argument:
Janet Yellen has made it clear that the Fed regards 4.6% unemployment as roughly full employment, and any attempt by Trump to boost AD will be met with tighter money. Therefore, the only way to boost output significantly is supply-side policies...

I added the word "therefore", but it is implicit in the original.

Sumner is saying that we are at full employment, at least in the opinion of the person whose opinion matters. And because we are at full employment, boosting demand is not an option. Therefore, he says, if we want economic growth, the supply side is the only way to get it.


If it's not demand it must be supply? Supply and demand is how the economy works, sure. But "supply and demand" doesn't necessarily define what's wrong with the economy. To assume that it does is no better than "drawing causal implications from the famous GDP identity" -- something Sumner says is an "EC101 mistake".

Sumner is saying we won't be allowed to increase demand, so the only way to get more growth is by improving supply. But there is no connection between the problem and Sumner's solution. It may be true that "we won't be allowed to increase demand", but increasing demand isn't the problem. It's a solution, one that Sumner says is not an option.

Sumner bounces off the word "demand" and lands on the word "supply". The problem is inadequate growth, but Sumner has shifted our focus to "demand". So it sounds logical when he offers "supply" as an alternative to "demand". It sounds logical, but it is not.

Look, I know Sumner said it, and a lot of people think he's a smart guy, and I think so too, but he's mostly just a bullshitter.

Here's the problem: We need more growth.

Here's Sumner's solution: The supply side is the only option.

Where is the analysis of the problem? There isn't one. Where does Sumner identify the cause of the problem? He doesn't. He only uses the logic of a bullshitter:

  1. We cannot boost demand.
  2. "Supply and demand".
  3. Therefore we must boost supply.

This is Sumner's whole argument: "Supply and demand".

It's not an argument. It's not a logical analysis of the cause of inadequate growth. It's just bullshit.

Merry Christmas.


The Arthurian said...

In Sumner's analysis -- what there is of it -- the only ways to increase growth are to increase supply or to increase demand. That's economics for tards. What if the problem, say, is excessive private sector debt. Then the way to increase growth would be to reduce private sector debt.

If the problem and the solution are as I define, then the solution will of course result in the increase of supply and the increase of demand. But this does not mean that the solution is to increase, for example, supply. To claim that it does is nonsense. You might as well say that the way to fix the economy is to increase NGDP.

Come to think of it, Sumner says that too.

jim said...

Merry Christmas Art,
The problem with Sumner is that the people who got Trump elected know more about economics than he does.

The voters know that the unemployment rate is phony even though the so-called economists like Summner are selling it as a valid measure. Sumner's ignorance of what is going on with Blue collar labor is proof positive that he is incompetent as an economist.

The voters in WI, MI, OH, IN, PA, etc know that there are millions of blue collar jobs that used to be available that were able to support a middle class family that have now been been replaced with low paying jobs that do not support a middle class lifestyle. The voters know that there are millions working at part-time jobs because the employer limits their hours to less than 29 hrs/week to avoid having to provide those employees with health care under the rules of Obamacare. It doesn't take a genius to figure out how that has artificially lowered the umemployment rate. The voters know that there are millions that would be in the workforce but are not currently counted as in the workforce because they are still living at home with their patents or went for early retirement or have simply given up because the job they could have had in the past has been shipped overseas. Those voters know the unemployment rate would be higher if there were an abundance of good paying jobs instead of an abundance of shit paying jobs.

The supposition that Sumner presents as fact is that unemployment rate is inextricably tied to Aggregate Demand. The voters know better. The voters understand that implicitly Sumners is telling them so what if your skilled manufacturing job disappeared and your now working part time flipping burgers or driving cab. You are employed and that's as good as it will ever get.

The Arthurian said...

Wow, good thing today is not "be kind to scott sumner" day! :)

Merry Christmas to you Jim.