Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Monday, 20 February 2017
Don’t be taken in by this NAIRU bashing site of Lars Syll’s.
It’s here.
It might seem from the comments that the NAIRU bashers are winning the argument. That’s in part because (speaking as a NAIRU supporter) it looks to me like pro-NAIRU comments are being supressed. Certainly half of mine are not being published.
But no big surprises there: academics are none too keen on free speech. Or maybe it’s a technical problem. Anyway…
The first, and not too clever comment (by “antireifier”) reads “Totally agree. Central banks claim that they have buried NAIRU but I do not believe them.” The answer I would give to that if I was able to publish it is thus.
That’s nonsense: the biggest central bank in the World, the Fed, has a chart which shows their NAIRU estimate over the years. See:
https://fred.stlouisfed.org/series/NROU
And I’m not suggesting the latter chart is a good one. There is much wrong with it, and I’ve told the Fed as much.
Next, there’s a NAIRU basher by the name of “Jerry Brown” who says:
“Ralph, if you want to believe in a number that is not quantifiable then go right ahead. That’s fairly harmless. Just don’t advocate policy based on this belief. That can do real harm.” Again, my answer to that if I was allowed to publish it is thus.
The claim that NAIRU is not quantifiable is ridiculous: it most definitely is quantifiable. It’s just that it cannot be quantified with a huge amount of accuracy. I.e. it pretty obviously lies somewhere in the 3% to 8% unemployed range.
And the point is ridiculous for a second reason. Governments just HAVE TO make a stab at guessing NAIRU because they just HAVE TO take the decision as to whether more stimulus is a good idea or not. Thus to say that NAIRU cannot be quantified is just pissing into the wind.
If you’re sailing a ship towards an area where you know there are rocks, but you do not have an accurate idea where the rocks are, that is not a reason to abstain from making the best educated guess you can as to where the rocks are!!!
Unfortunately the latter point will be way too subtle for NAIRU bashers.
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Cant believe this is even a contentious subject.I mean we have inflation targets don't we,how accurate are they?What is the ideal rate in any given situation?You still have to have a target even if only to say why you are deviating from it.
ReplyDeleteI agree: it's unbelievable there are people, including academics, who claim there is no relationship between inflation and unemployment. I spend half my time combating stupidity rather than discussing the ideas I would like to discuss.
DeletePerhaps the NAIRU antagonism of Bill Michell and other MMTers is because they believe that a Job Guarantee scheme would both make unemployment zero and also “anchor” inflation. Ergo NAIRU does not exist.
ReplyDeleteThe fallacies of this view are:
1. In the concept of NAIRU “unemployment” is a reflection of the output gap. JG jobs and other types of “concealed” unemployment should therefore be included in unemployment data for the purposes of NAIRU.
2. The JG wage might have some influence on the lowest wage rates, but this would have very limited effect on inflation in most of the economy (c.f. minimum wage legislation).
Re 1, JG shouldn't consist of TOTALLY unproductive work. At the same time it is obviously less productive than normal employment. Difficult to know whether to classify it as "unemployment" or "employment".
DeleteRe the popular claim by JG enthusiasts that it "anchors" inflation, that always strikes me as ridiculous. If there is an excessive rise in demand, the existence of a JG scheme is not going to stop the resulting inflation.