tag:blogger.com,1999:blog-8595404115121834255.post4789267062078449689..comments2024-03-28T03:24:05.678-04:00Comments on NAKED KEYNESIANISM: It's the model stupid!Matias Vernengohttp://www.blogger.com/profile/09521604894748538215noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-8595404115121834255.post-68198900276279584602011-05-23T04:19:04.168-04:002011-05-23T04:19:04.168-04:00I kind of prefer not to have an independent Treasu...I kind of prefer not to have an independent Treasury (or Fed for that matter). Mind you most people would be for increasing taxes on the wealthy to deal with fiscal sustainability issues, and are in favor of social spending (Medicare and Social Security). So politics is not necessarly that bad.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-45768893491941247962011-05-22T22:02:43.609-04:002011-05-22T22:02:43.609-04:00Thanks for recognizing that we are in a Keynesian ...Thanks for recognizing that we are in a Keynesian underemployment equilibrium; I was about to say "classic," but since they are not all that common, I should say "clear." <br /><br />The solution, as all here understand, is both classic and clear: Fiscal stimulus until employment is at reasonable levels. <br /><br />The last major time it took a world cataclysm to finally fix things. Have we learned?<br /><br />Is it time to (mostly) free fiscal policy from politics as we did (partly) with monetary policy? An independent Treasury? Of course we get to pick the staff.Steve Bannisterhttps://www.blogger.com/profile/14466785184416801339noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-66348433089602622272011-05-22T17:00:02.762-04:002011-05-22T17:00:02.762-04:00And that is the problem that models assumed "...And that is the problem that models assumed "there were substantial equilibrium-restoring forces in the world economy." Part of Friedman's legacy. There is almost no recognition that demand forces influence the capacity limit of the economy, and it has led to very timid fiscal measures, insufficient for a more robust recovery. Thanks for the additional citation.Matias Vernengohttps://www.blogger.com/profile/09521604894748538215noreply@blogger.comtag:blogger.com,1999:blog-8595404115121834255.post-68193124108542583762011-05-22T16:33:39.485-04:002011-05-22T16:33:39.485-04:00Indeed. As I say further down from the passage you...Indeed. As I say further down from the passage you quote:<br /><br />>Back when I started in this business, back in the Spring of 1980, I had as teachers two of the smartest men I have ever known: Marty Feldstein and Olivier Blanchard. They taught that John Maynard Keynes had feared that if the economy got itself wedged into a situation of high unemployment that it would never recover by itself--that it would settle into an "underemployment equilibrium." It would need some large positive shock--either a wave of business exuberance, either rational or irrational, or activist stimulative monetary, banking, and/or fiscal policy on the part of government in order to knock unemployment down and employment back up to where it ought to be. Back in 1980 they said that we economists had learned that the market system worked better than that, and that there were substantial equilibrium-restoring forces in the world economy.<br /><br />>But look at the U.S. labor market over the past two years. Those forces are not there. There are no signs that the share of American adults with jobs has been growing, or is about to start growing. Ben Bernanke and Barack Obama both like to talk about how the unemployment rate is falling. But all of the decline in the unemployment rate has come from the fact that people have been dropping out of the labor force. None of it has come from any increase in the share of the adult population with jobs.<br /><br />>That suggests, to me, that we fact a very long slog. The economy will grow, but we won’t close the gap between actual and potential output. We will not for a long time to come get back to the 62 to 64% of the adult population having jobs that we thought was normal back in the decades of the 2000.bradhttps://www.blogger.com/profile/04548019979157668776noreply@blogger.com