Tuesday, August 30, 2011

The Two Groups


If you were to divide economic opinion into two groups today, I think you'd have to distinguish between those whose primary concern is jobs, and those whose primary concern is inflation. This is rather sad.

The two groups we see today are the two that were defined by a problem that arose in the 1970s. And the absolute irreconcilability of the two groups is an outgrowth of our solution to that problem.

Back in the early 1970s the economy developed stagflation -- inflation in a stagnant economy. This was unusual because, before that time, when the economy was stagnant prices tended to fall. And times when prices were rising were times of growth, not stagnation.

It was the death of Keynesian economics, because Keynesian economics could not explain the stagflation.

Eventually, a new economics arose: supply side economics. It attempted to suppress inflation by monetary means, while encouraging growth by favoring producers.

In other words, the stagflation problem was solved by treating it as two separate problems: the inflation problem, and the growth problem. This solution was the mistake that created the two irreconcilable groups we have today.

6 comments:

Jazzbumpa said...

I'm in almost total disagreement with almost every part of this.

My opinions:
The two groups we see today are those whose concern is jobs, and those who don't give a hirsute rodent's hindquarters about jobs. The latter have to pretend to be about something, so they pretend to be about inflation, or the deficit, or roughing up Ben Bernanke. (OK, there is a third group who really does believe the latter. They are delusional.)

Stagflation (SF) didn't kill Keynesian economics. Krugman and DeLong are still breathing. What it did is offer an opportunity for charlatans to invent a new load of pseudo-economic bovine excrement, which has been trickling down on us, lo, these 30 years.

Keynes had no cure to offer because SF existed in a realm (yes, I insist on using that word) that Keynes never had occasion to ponder.

Classical economics was equally clueless in that realm, (just as it is now) but classicists ignore that inconvenient truth.

I'm not at all convinced that the SF problem was ever actually solved. The inflation bubble burst. If it were for some identifiable, policy-related cause, the credit most likely goes to Volker, not anyone on St. Ronnie's payroll.

The problem we have today is that the ultra-rich finance think tanks that come up with quasi-economic schemes that always favor the ultra-rich, who at the same time own large chinks of the government and can therefore get these schemes implemented as policy.

Which is why WASF!
JzB

P.S. Do you ever sleep?

WV: untraimu - the trickling excrement of discontented cows

The Arthurian said...

"Do you ever sleep?"

Not much.

"I'm not at all convinced that the SF problem was ever actually solved."

I absolutely agree with that. The stagflation problem was NOT solved. It was treated as two separate problems, which is it not.

Jazzbumpa said...

The great mistake is, we failed to use accelerated repayment of debt to fight inflation.

Well, I'm innocent, at least. I've been an accelerated repayer for decades. Not to fight inflation, though. To avoid hose ugly interest payments.

Cheers!
JzB

The Arthurian said...

Micro. The individual. (The trombone player.)

For society as a whole, if debt is accumulating too fast, the policymaker can use policy to obtain benefits comparable to those you have achieved, by using policy to achieve those benefits for society as a whole, redundant redundant redundant.

And if (for society as a whole) those policies are claimed to hinder growth, then maybe we should start thinking Keynesian, as in quasi-boom.

I observe that even well-behaved individuals like yourself are affected when society as a whole is not so well-behaved in regard to debt accumulation.

Jazzbumpa said...

For society as a whole, if debt is accumulating too fast, the policymaker can use policy to obtain benefits comparable to those you have achieved, by using policy to achieve those benefits for society as a whole, redundant redundant redundant.

No matter how many times I read this one sentence, I cannot see the humor in the last 5 words.

I observe that even well-behaved individuals like yourself are affected when society as a whole is not so well-behaved in regard to debt accumulation.

Yes, when the ship goes down, we all drown, along with the rats.

Re: the title of your link - I had a hunch back earlier in the day you might try that pun.

I know nothing of Hunter Lewis other than what you provide in your link. To jam two quotes together, as he did with apparent nefarious intent, is to deprive both of context and simultaneously provide false context for concatenated quasi-quote.

This is dishonest and actually rather sordid.

Still, I think a naive or uncritical collector might be interested in having the whole blockbuster 4-part trilogy:

Where Keynes Went Wrong
Some More of Keynes's Greatest Mistakes
Who is This Keynes Person Anyway?
and
Well, That About Wraps It Up For Keynes

His other free-standing volume, Everything You Ever Wanted To Know About Debt, But Were Too Ashamed To Ask is long out of print, and does not deserve the rarity premium it commands in certain less reputable book sellers along the galaxy's outer arm.

Don't Panic
JzB who has actually hitchhiked with his trombone.

The Arthurian said...

Don't read too much into the Hunter Lewis jam. I didn't look real hard for the second quote.

A hunch back earlier?? Oh, ouch.

Shantih shantih shantih