Sandwichman — FLEXIT

You can see immigrants. You can't see NAIRU or flexible labor market policies. Most people wouldn't know a NAIRU from a Nehru jacket and have probably never heard of flexible labor market policies.

There is a simple logic behind the "growth through austerity" policies beloved by Cameron and Osborne: "wages are too damn high." But there is also a more technical-sounding obfuscation. This more convoluted explanation is that there is a long-run, "natural" rate of unemployment that is unaffected by aggregate demand, therefore fiscal stimulus will result in inflation. Thus the only non-inflationary way to reduce unemployment is to fine tune this hypothetical natural rate by removing labor market rigidities.

Sounds plausible. What it means in practice is "wages are too damn high." In the 19th century, this superstition was known as the wages-fund doctrine. Also known as this magazine of untruth.…

Econospeak
FLEXIT

Sandwichman

Merijn Knibbe — Understanding Keynes: the data

An implication of (almost all) ‘New Keynesian’ models is that economies will bounce back to full employment if only labour and other markets are ‘flexible’ enough. The UK example shows that this isn’t necessarily the case. Keynes explained why. New Keynesian models don’t. As far as I’m concerned, data like those below should be part of any undergraduate introduction into Keynesian economics.

Are you listening, Greg?

Real-World Economics Review Blog
Understanding Keynes: the data
Merijn Knibbe

Lars P. Syll — Keynes vs. ‘New Keynesians’ on unemployment

The final court of appeal for macroeconomic models is the real world, and as long as no convincing justification is put forward for how the inferential bridging de facto is made, macroeconomic modelbuilding is little more than “hand waving” that give us rather little warrant for making inductive inferences from models to real world target systems. If substantive questions about the real world are being posed, it is the formalistic-mathematical representations utilized to analyze them that have to match reality, not the other way around.

To Keynes this was self-evident. But obviously not so to ‘New Keynesians’.

Keynes vs. ‘New Keynesians’ on unemployment
Lars P. Syll | Professor, Malmo University

David Beckworth — A Paradox of Flexibility or Central Bank Incompetence?

Of course, Professor Beckworth, being an obedient neoliberal, doesn't meet the Keynesian objection concerning where the effective demand is going to come from either to purchase increasing supply or to send a signal to suppliers to produce more, and he doesn't give any indication that he is even familiar with the Keynesian argument, not realizing that New Keynesians are not actual Keynesians at all, but neoclassical economists at bottom, just as Samuelson was.

Beckworth is just "monetary policy, monetary policy, monetary policy." How is that monetary policy working for you these days? Oh right, the Fed is not targeting NGDP.

Market monetarists like Beckworth don't understand money, the relevance of accounting and finance to economics, or stock-flow consistency macro modeling. Have they even perused Godley and Lavoie, for example?

The kicker, however, is that real wages have been falling over the last couple of years, not rising. Oh right, they are not falling fast enough. I see. How about wage stagnation over the last thirty years and an inverse relationship between labor share and profit share. Oh right, not enough, even though inequality of income and wealth and the Gini coefficient of the US the highest of developed countries.

Oh, and did I mention that corporate profits have been rising since the Great Recession? Yeah, those corporations are really being squeezed by wage rigidity, it seems. NOT.

What neoclassical economists dont' see is that there is a tradeoff between wage flexibility and unemployment. Employers generally use both. They cull their work force and also do their best to reduce wages to control costs. But their best strategy is let the least productive workers go and continue to pay productive workers well so that they don't lose them to higher competitive bids, so that their workforce decline competitively.

Economists should be required to work in business for a few years before going to grad school to learn how business actually operates. Sorry, guys, it's more nuanced than you think.

Did I forget anything? After all I am not an economist.

Macro and Other Musings
A Paradox of Flexibility or Central Bank Incompetence?

David Beckworth | Assistant Professor of Economics at Texas State University in San Marcos, Texas

David Ruccio — The market for oranges, er, labor

In neoclassical economics, everything comes down to flexible markets. And in neoclassical macroeconomics, everything comes down to the labor market, which should follow the rules of any other market, like the market for oranges.* Hence, the neoclassical lamentation that wages are downwardly rigid.**

As neoclassical economists understand it, if only nominal wages would decline in the face of significant unemployment, an equilibrium between the quantity supplied of and the quantity demanded of labor would be achieved and unemployment itself would cease to exist (because the number of people looking for work would exactly equal the number of jobs being offered by employers). In such a neoclassical world, there aren’t any financial bubbles and crashes, no problems of aggregate demand, no decisions by employers not to hire additional workers even with hoards of cash on hand. It’s all about the inflexibility of the labor market.***

Occasional Links & Commentary on economics, culture and society
The market for oranges, er, labor
David Ruccio | Professor of Economics, University of Notre Dame