Tuesday, 14 September 2021

Strange ideas on NAIRU from Roger Farmer.


Farmer claims in this NIESR publication entitled “Coordinating monetary, fiscal and financial policy” that “There is no NAIRU” and that NAIRU “is a religion, not a science”. MMTers incidentally often claim likewise.

His main reason for that claim seems to be that “Because the NAIRU and r-star are unobservable and time-varying, the dominant paradigm is irrefutable.” Presumably “dominant paridigm” refers to NAIRU. (Academics always like using six syllables where two will do because that makes them look important.)

Well there's an obvious flaw in that argument, which is at we human beings use HUNDREDS of concepts every day which are “unobservable and time-varying”. Love is not “observable”, at least in the sense that it cannot be actually measured, which I assume is what Farmer means here. Clearly every romantic novel should be burned as they are all talking nonsense.

And for another example there is “power” in the sense of the power of the Roman Empire or the US military machine in 2021. How exactly do you measure those? You can't, at least not with anything remotely like accuracy that is normally implied when the word measurement is used in physics, astronomy etc.

Incidentally, while on the subject of physics, there are sub-atomic particles whose existence was inferred before they were actually “observed”. Obviously physicists need to pay attention to Farmer and the NIESR (ho ho).

Clearly all books on the history of the Roman Empire and indeed all other books which refer to the “power” of some country or empire should be re-written.

I could cite a hundred other examples of commonly used ideas and concepts which are not “observable”, but hopefully you've got the point.

The moral is that if you're looking for nonsense on stilts, then something written by a leading economist published by a respectable, taxpayer funded organisation like the NIESR might be a good place to look.

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