Monday, January 26, 2015

Lars P. Syll — NAIRU — more religion than science

Lars P. Syll’s Blog
NAIRU — more religion than science
Lars P. Syll | Professor, Malmo University

The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. We shall examine each of these three categories of objections to the government expansion policy in detail.


Ryan Harris said...

I think the part of the argument that isn't included is what and how much gets produced and how does investment adapt to the knowledge that government will act. As an example, what we see in places like Texas or China where governments does alot of infrastructure spending to boost employment and wages for those not in the upper and middle classes, the government plans tollways, housing developments and industrial development using plans that stretch decades into the future but there are a few developers and connected people that always seem to have procured resources in advance who are then able to profit. For example they may buy land for $40k an acre but sell it a few years later developed for $1million an acre. The process is sketchy, chicken and egg over which comes first planning, development or speculation isn't always clear, but the same middle and upper classes always benefit in unexpected ways from the plans intended to help others that are less fortunate because they move their capital in to take advantage. Which is fine when they help government achieve its goals, but in the US the upper middle and upper classes tend to work against government policy and we don't have a way to prosecute hedge funds or their public pension fund patrons for corruption.... China goes after corruption with penalty of death.

We see in all markets that they tend to front run and defeat the reaction functions of the fiscal, monetary and banking sectors. A whole culture of corruption becomes embedded around the government and ultimately makes it very hard for the government to achieve it goals. Similar strategies have been very effective at profiting from healthcare provisioning (pharma comes to mind with $50,000/month drug treatments! Does it help the poor who need treatment? Yes. But it REALLY HELPS the middle class executives and researchers ;) ), better fiscal policy, or even a JG or BIG can quickly be profited from with simple no-brainer strategies as well.

It will become more and more important to have more realistic conceptual models for MMT that don't assume that production and resource allocation are static but rather are dynamic and react to policy and that the sectors may always balance but the sizes of each sector rapidly expand and contract with consequences for participants. Otherwise, we'll end up with the same problems that plagued previous Keynesian policies, with over reach by partisans bent on ideology and widespread corruption which will ultimately erode support for the ideas. Not that MMT isn't better than anything we have today, but for it not to backfire, with real MMT people in congress and it actually looking like it will become policy one day, it might be the time to think one step out...

Ignacio said...

Good post Ryan.

What you describe though is why all the talk about "small government", "cutting government spending" or "getting the government out of the way of the private sector", crowding out etc. is a big load of shit and all talk and posing by always the same people. (Although they would convert those welfare-for-the-rich programs from partially helpful for middle-poor classes to only actual welfare for their-self if they could.)

Would be nice though if instead of run by cronyism which is not sustainable would be run by democratic principles.

Ryan Harris said...

It's a hard argument to make because MMT at onces acknowledges the limitations of government and the private sector but at the same time calls for more government to help the private sector and we are saying that we can manage the well known problems.
MMT usually falls back on the JG with the implication that higher wages in labor markets will cajole the poor into accepting the implied corruption by the middle and upper class. And at the same time remove some of the incentive for the upper class to screw over the poor.

Tom Hickey said...

@ Ryan

Right. The devil is in the details.

Stephanie Kelton is now getting close up experience of how the game is played and I think that over time that will have an impact on how MMT is presented politically.

There's a big difference between being on the outside looking in and being on the inside.