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.
3 comments:
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.
Cheers!
JzB
As the chicken asked the egg, "Which came first?"
Is that a yolk?
I'm shell shocked.
JzB
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