If for no other reason, students, and everybody else, should be concerned with unemployment, because 1% more in the rate can hurt considerably more than the equivalent change in prices [ and that is why Okun's Misery Index, which adds the unemployment and inflation rates makes little sense; it mixes apples and oranges]. But even further, it is important to remember that whereas inflation hits everybody more or less equivalently – even if people have different consumption baskets – unemployment is a divisive social problem, which makes some ‘losers’ and others ‘winners,’ causing deep divisions in society (e.g. immigrants rob our jobs).Naked Keynesianism
It is for that reason that full employment is the most important economic and social policy, the foundation on which to build the other policies. Work defines our lives, to a great extent, and gives dignity to people. And I do not mean just the poor. As I tell my students, I am a big believer in the ethics of hard work, and that is why I think rents and wealth should be heavily taxed, so that everybody needs to work to earn a living. That is full employment for all!
Full employment, why it is important
Matias Vernengo | Associate Professor of Economics, University of Utah
16 comments:
I couldn't agree more . . . and MMT has the answers.
Speaking of Okun and the question of inflation vs unemployment:
"Most Americans think inflation is bad for everyone while unemployment is bad only for the unemployed. In reality, the reverse is more the case – unemployment hurts us all and inflation hurts some but helps others. 'Okun’s law' estimates that every 1% increase in the US unemployment rate reduces real output by 2%. That is, the pie we all have to eat shrinks by 2% when 1% of the labor force loses their jobs. Moreover, a study of the social effects of unemployment prepared for the Joint Economic Committee of Congress in 1976 – back when congress still cared about such things – estimated that a 1% increase in the unemployment rate led to, on average: 920 suicides, 648 homicides, 20,240 fatal hearts attacks or strokes, 495 deaths from liver cirrhosis, 4,227 admissions to mental hospitals, and 3,340 admissions to state prisons – each tragedy impacting a network of connected lives."
– Robin Hahnel, The ABC’s of Political Economy; A Modern Approach (2002)
[I]t is almost always true that the vast majority of my students think that inflation is the real problem.
This is a marvelous thing to know. Having been an advocate of the Austrian School since 1973, this post supports by longstanding theory that not only is Keynesianism a hoax and a fraud but it is also counter-intuitive. People have to be intimidated into believing it, like in “The Emperor’s New Clothes”.
Of course “inflation” is the problem. It is the cause of the distortions in the price, investment and capital structures that result in the boom/bust cycle and depressions. If people can be inoculated with sound Austrian analysis in advance, they would never fall for the Keynesian Hoax.
We're not on the gold standard Bob... rsp,
"Of course inflation is the problem." Not clear why. The evidence is that inflation below 40% a year has no impact on growth (and hence on investment, which follows the accelerator). So while unemployment does cause significant problems inflation has effects only at very high levels.
Bob, something I don't understand about you're view of the world is this…
Prices distortions by government intervention apparently are terrible, but price distortions by "normal" market phenomena are justified? (for example, a drought causing a shortage in the supply of corn).
What MMT, and Keynesians in general, seem to be saying is that there is no such thing as a smoothly functioning 'free market' economy that is optimal. Distortions can occur both naturally and man made (I could hoard my crop without the drought to drive up the price).
It seems clear to me that your objection is against price distortion per se, rather only when the price distortion occurs by government involvement.
Most of us here obviously believe the benefits of government intervention far outweight the costs.
For starters, "price distortions" resulting from drought are simply prices reflecting reality. Such prices provide essential information especially in a crisis situation such as a drought. The inevitable [and unnatural and unnecessary] price distortions caused by fiat funny money hide and disguise reality and lure labor and capital into unsustainable lines of production that are only profitable due to the [temporary] injection of fiat money into that line. Once the fiat money injection ends, so does that line of production.
Our dear Professor Vernegno seems to have meticulously avoided any familiarity with Austrian School theory (I’m shocked). After winning the Nobel Prize in 1974 for this precise theory, Hayek said on “Meet The Press” in 1975:
Not in the least, because the dangers of inflation are very different ones. They are exactly the kind of unemployment which is now arising. In the usual discussion, there is quite a wrong emphasis. There are many bad effects of inflation, but the worst is that it draws labor* into employments where they can be kept employed only by an accelerating inflation. And the point inevitably arises where inflation cannot be accelerated sufficiently fast to keep them in that [employment] (Hayek misspoke here and meant “employment”, not “inflation”).
http://mises.org/daily/3311
http://mises.org/media/2773
*and capital [BR]
I think price stability is a generally worthwhile goal of economic policy, and promotes predictability and confidence. One of the argued benefits of the MMT outlook is that it jettisons the NAIRU framework in favor of a model in which price stability and full employment are mutually achievable.
bob,
"where they can be kept employed only by an accelerating inflation. "
I think I see what you are saying here in a way...
What happens is the govt "ratifies" the new higher price structure created by a typical short term supply/demand shock.
govt does this by "indexing" and COLAs (cost of living adjustments) based on CPI...
Or the govt via the bank examiners keeps on approving higher and higher property appraisals as collateral for bank loans and guess what? Prices stay up because govt has provided balances to the non govt to pay the now higher prices either thru direct govt purchases or thru bank loans...
this is MMT on "inflation" Bob...
So you are correct, but only in effect though and you are missing the true causation. iow it is not caused by "funny money" or any other monetarist theory, it is caused by direct govt "ratification" of the higher prices of a supply/demand shock.
It's like the govt (or its banks) agrees with the higher prices and simply pays (or lends) the higher prices and then the prices can usually stick.
But I would also add that if govt kept NFA flows consistently higher via higher deficits, then prices need not be consistently raised to as Hayak said "keep folks employed via contantly rising prices". Constantly rising prices are only needed if the deficit is too low.
Prices could very well stay about the same for apples vs apples over the long term if govt just focused on NFA flows via the domestic balance (ie "the deficit").... Prices Bob, dont have anything to do with the "money supply", prices key off of the amounts the govt agrees to pay for things and finance things for under the current arrangements.
Under gold standard it would of course be a bit different Bob...
Rsp,
The MMT job guarantee is just an excuse to offer something for everyone. It's standard socialist policy that isn't satisfied with a 95% success rate. Only a 100% spread the wealth policy is acceptable. Never mind any potential negative impacts.
FDO,
You're losing it, sober up man!... rsp
FDO:
"the MMT job guarantee is just an excuse to offer something for everyone"
Opinion.
"It's standard socialist policy that isn't satisfied with a 95% success rate"
The 95% success rate is dependent upon the government buying a substantial amount of total production.
Without that the "success" rate would likely be more like 50%
"Never mind any potential negative impacts"
Never mind any potential negative impacts of the government not buying unused production.
"Of course inflation is the problem." Not clear why...
Don't...don't engage him. It's a matter of mysticism.
paul,
I think Bob may see the need for constant asset price "inflation" that is required due to what you point out that at loan inception, balances are only issued for the principle of the loan and what about the interest.
The balances that are required to pay the interest have to come from govt deficits OR imo, banks can increase the appraisal value of the same property and create deposits, within the system, via new loans on the same properties to provide system balances to pay the interest at least temporarily.
So Bob may see the same thing we see but doesnt understand the causation...
rsp,
I can't even be bothered answering Bob's mind numbingly repetitive assertions.. what's the point.
The man is floating in his own imaginary world where everything rothbardians blindly believe to be true necessarily must be true.
So bored of it.
As for FDO15, well what can you do?
Again Bob, I can´t get your what you mean (I do have a fairly good underesstanding of Austrian and marginalist theory, in fact I do teach history of ideas and have read quite a bit of Austrian Business Cycle). The quotes you put do not go to the point I raised, namely that in Austrian (as in any other marginalist theory) unemployment resolves without any need of intervention and that is why is less relevant than inflation. Excessive spending leads to inflation tax (forced savings) and a cumulative process of inflation. However, that is predicated on the untenable notion that the system tends to full employment.
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