Two more NAIRU bashers try their luck with varying degrees of intellectual dishonesty.

One is Lars Syll whose points I answered in the comments after the article. The second is Eric Lonergan.

It’s now about 24 hours since EL's article appeared. He seems to have found time to publish one complimentary comment after his article, plus he has found time to re-tweet a couple of complimentary tweets, but strangely, has not found time to publish two critical comments I left yesterday. I’m sure there is a good explanation for this and that he is not tilting the playing field in his favour (ho ho).

Incidentally one of my comments criticised EL’s article, while the second criticised the above mentioned complimentary comment (made by “Ramanan” - details below).

As I noted a few days ago, it looks like NAIRU bashers don’t like being criticised.

Of course EL may eventually get round to publishing critical comments. But to a significant extent that knobbles the critical comments: people are understandably more interested in current ongoing debates that debates that are days or weeks old.

Anyway, details of EL’s article and my responses are thus.

He devotes a rather large number of words to setting out an economy which is a fair enough depiction of the real world: imperfect competition and so on. He then says.

“What happens in the economy that I am describing when unemployment falls to extremely low levels is relatively unpredictable, but not particularly harmful nor requiring any policy response. I am happy to let the system sort it out. Labour shortages may take time to be addressed – there may be a need for more training, there may be a need for more migration, there may be need for firms to substitute capital for labour. I don’t mind – the market system can sort that out, and smart policy-makers can facilitate it with micro-policies.”


My answer that was thus (in green italics).

“Re more training and education, people already spend about a quarter of their lives in education and training. Clearly if everyone stayed in education / training till they were 30 or 40, that would lower NAIRU. I doubt it would make economic sense.

Moreover, as Eric rightly points out, skill shortages take time to deal with. But by the time people have finished relevant “training” (one year, two years on average?) an entirely new set of skill shortages will have arisen. We do not live in a static world. So training is not a panacea: it certainly does not dent the basic NAIRU concept.

Re immigration, obviously allowing immigration as compared to a total ban on immigration will lower NAIRU. But the above mentioned problem is still there. Dealing with shortages takes time, and by the time one set of skill shortages have been addressed by immigration, another set will have arisen.

Re replacing labour with capital, employers ALREADY invest what they think is the cost minimising amount of capital equipment. Thus more capital investment would RAISE costs, not cut them. I.e. far from alleviating inflation, it would exacerbate the problem.

NAIRU survives Eric’s criticisms far as I’m concerned."


Ramanan’s comment.

Ramanan, as you’ll see if you look at EL’s site, claims that the NAIRU idea might dissuade governments from boosting demand by enough to get near the 2% target, hence NAIRU causes an unnecessary amount of unemployment.

Well the simple and glaring flaw in that argument (as I spelled out in my comment) is that inflation, at least in the UK, has averaged significantly above 2% over the last 70 years or so!