I don't know for sure. I mean I certainly disagree with it as Sumner describes it:
"There are some people claiming that I am “pro-austerity.” That’s a bit misleading as my position has always been more nuanced:
"There are some people claiming that I am “pro-austerity.” That’s a bit misleading as my position has always been more nuanced:
1. I favor monetary stimulus combined with fiscal austerity.
2. If the central bank continues to stubbornly target inflation, I’ve advocated cuts in employer-side payroll taxes and/or the VAT as a way of reducing inflation, and encouraging more monetary stimulus. So if monetary policy refuses to play ball I’ve advocated effective forms of fiscal stimulus. I don’t favor ineffectivestimulus, such as bloated military spending merely to give us more “empty GDP calories.”
As far as what's wrong with MM, however, it's not my question but MMer Marcus Nunes.
Actually, Marcus is just responding to Sumner who first asked it.
"Now that market monetarism riding high, I figured it was time for a vicious internecine struggle for the soul of market monetarism. Consider this the first shot. :)
What it seems to come down to is what Sumner is calling the German Miracle. In Germany since 2005 the unemployment rate has dropped from 12% to just around 5%. On the other hand, NGDP and productivity have been weak since 2008. This could call into question Market Monetarism's preferred indicator of NGDP.
"RGDP rose by 8.8%, while NGDP rose by 16.94%. At annual rates that’s about 1.3% RGDP growth and about 2.4% nominal. So why such a big drop in unemployment? The German population does seem to be gradually falling, but as far as I can tell that’s not the main factor. German employment seems to have risen by around 7% to 10%, depending on the data source. Can someone help me? So that suggests either fewer hours worked per worker, or flat productivity. But as far as I can tell productivity (RGDP/hour) rose around 4% total (with incomplete data), and hours per year only fell by around 1%. But the hours number may be wrong, as I can’t tell if it includes part-timers."
"So how did unemployment fall so much with slow NGDP growth? Perhaps a bit of everything. Low inflation helps; that means more RGDP for each euro of NGDP. But 8.8% RGDP growth is not very much over 6.75 years. So you then add in slow growth in worker productivity, or less hours worked per worker, or some combination."
"BTW, employment in the US is down almost 1% over the same period where German employment has risen by 7% to 10%. Our RGDP is up by 6%, but that’s not good for a country with robust population growth."
"Now here’s where things get interesting. NGDP grew very fast from 2006:1 to 2008:1, by 9.8% total, or about 4.8% per year. Then NGDP started falling, and despite a rebound by 2012:4 was only up another 6.2%, barely 1.3% per year. Market monetarism says that Germany should have done much worse after 2008:1 than before. Initially they did do poorly, but over the entire 2008:1 to 2012:4 period they did quite well, with the unemployment rate falling from 8.2% to 5.4%. So what’s wrong with market monetarism?"
"Fortunately I was able to find German data for aggregate worker compensation (wrong link, try this.):
2006:1 286,190 mil. euros (50.5% of NGDP)
2008:1 303,710 mil. euros (48.8% of NGDP)
2012:4 347,820 mil. euros (52.5% of NGDP)
"To say these number blew my mind would be an understatement. I immediately saw the annual rates were similar, and my calculator showed 3.0% growth during the huge German boom of 2006:1 – 2008:1, and then an almost identical 2.9% during the global recession and recovery, when their NGDP growth rate plunged from 4.8% to 1.3%. No wonder the Germans love the ECB’s tight money policy!!"
To be sure, Sumner isn't worried. He has the answer for what's going on here. The German labor reforms of 2005 are responsible. It's not that MM misfired, but that stucturalist reforms worked their magic.
"Most people seem to have misinterpreted my previous post, probably because I “buried the lede” at the end. Just to be clear, I have no problem explaining why German unemployment fell between 2006 and 2012. Although NGDP growth was fairly slow, Germany did lots of labor market reforms, which I’ve discussed in previous posts, and this opened up lots of low wage jobs. That could also explain the relatively weak productivity figures, although as I indicated earlier there are lots of issues with German data, so I’m not sure exactly what happened to productivity."
Those labor reforms were wonderful Sumner is at pains to tell us. Can you believe that there are those who want to pull back on them?!
"This was one of the most successful labor market reforms in history. The data suggests it increased the share of German GDP going to the working class. However by creating low wage jobs it may have also made German wages more unequal. So naturally the party responsible for one of the most successful labor market reforms in history now wants to scale back the reforms, and even the Christian Democrats are calling for a minimum wage."
All Sumner was saying is that maybe nominal total compensation (wage) targeting might be better-he's suggested that before anyway. So all is right in the MM world. Or is it?
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