I got to say I find two recent posts by Lambert over at Angry Bear very puzzling. He seems to be suggesting that there is little slack in the economy and so inflation is going to be a real worry soon. I must say I find this more puzzling than anything that Stephen Williamson has written.
"The Fed is definitely worried. They want to extract themselves from QE as soon as possible. Many expect the Fed to get out of QE near the end of 2014, but it would be better if they were out of QE by July. The Fed should reduce QE by at least $15 billion per month, instead of $10 billion."
"I agree that a fiscal stimulus would create jobs and not crowd-out private production, but it would not get us back to the previous full employment. These economists are unknowingly guiding fiscal policy toward an illusion… “If you build it, they will come.”
"Their view is another way to believe in the “Say’s law” fairy."
- See more at: http://angrybearblog.com/2013/12/says-law-fairy-build-it-and-they-will-come.html#sthash.HyynBnhU.dpuf
"The whole point of this observation is not that effective demand is an obstacle to full employment. The point is that aggregate demand (AD) is not equal to aggregate supply (AS) for all volumes of output. Keynes’ great insight was in realizing that AD decreases as a function of output and that AS increases as a function of output. Thus AD and AS intersect at precisely one point and that point is known as effective demand."
"Keynes went on to argue that policymakers always have the ability to shift AD to the right through public works and expansionary monetary policy so that effective demand can be increased until full employment is achieved. As he says in Chapter 10:"
” If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”
http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch10.htm
"Evidently Paul Krugman, Dean Baker, Mark Thoma and Jared Bernstein understand Keynes much better than you do."
- See more at: http://angrybearblog.com/2013/12/says-law-fairy-build-it-and-they-will-come.html#sthash.HyynBnhU.dpuf
He claims that the 'natural rate of employment' is now much higher and that because this is not understood, there are mistaken calls for more stimulus.
"The explanation of wage growth uses structural issues, but there really isn’t strong structural unemployment signs. My view is that the economy has much less available spare capacity than is thought. It only appears as structural because they are assuming a large output gap."
"The wage growth is telling a story that the labor market is reaching its natural rate of unemployment. It is no puzzle. The natural level of output has fallen and the natural level of unemployment is higher too. The wage growth is a natural sign that the economy is reaching the end of the business cycle."
"The Fed is definitely worried. They want to extract themselves from QE as soon as possible. Many expect the Fed to get out of QE near the end of 2014, but it would be better if they were out of QE by July. The Fed should reduce QE by at least $15 billion per month, instead of $10 billion."
- See more at: http://angrybearblog.com/2013/12/fed-is-behind-the-curve.html#more-20751
I'm just going to come out and say it. Lambert is really losing me here. In another post I find him even more perplexing. He claims that Krugman, Thoma, Bernstein, and Baker among others are ignorant supply siders who don't understand Keynes. If they did they wouldn't call for: fiscal stimulus. I told you it's confusing.
" Paul Krugman, Dean Baker, Mark Thoma, (update: Jared Bernstein) and many others call for fiscal policy to boost employment and production. Their idea is to increase employment and labor’s power to bargain for better wages. The increased purchasing power of labor will resolve some problems with debt overhang too. There would be a snowball effect of output, employment and demand to return the economy back to full employment (implying an unemployment rate of about 5%)."
"I agree that a fiscal stimulus would create jobs and not crowd-out private production, but it would not get us back to the previous full employment. These economists are unknowingly guiding fiscal policy toward an illusion… “If you build it, they will come.”
"Their view is another way to believe in the “Say’s law” fairy."
- See more at: http://angrybearblog.com/2013/12/says-law-fairy-build-it-and-they-will-come.html#sthash.HyynBnhU.dpuf
So calling for FS involves believing in Say's Law whereas claiming that the 'natural rate of employment' is much lower now is Keynesian? In a way it might seem academic as he believes that FS will do some good but that he has a much lower NRE in mind than he assumes Krugman and friends does.
In another piece he predicts a coming recession.
So let me see if I get this right:
1. We're going to have a recession soon
2. Inflation is our big threat
3. QE needs to be wound down quickly
4. Krugman and friends calling for FS-with a coming recession-makes them dyed in the wool followers of Say-and so Supply Siders.
5. Yet he's the one who's claiming that the natural rate of employment-a concept I don't much like-is now higher. Yet they're the ones guilty of believing in structural arguments.
I'm so confused I guess I have to agree with Mark Sadowski, He quotes from Keynes here:
“Thus Say’s law, that the aggregate demand price of output as a whole is equal to its aggregate supply price for all volumes of output, is equivalent to the proposition that there is no obstacle to full employment.”
"The whole point of this observation is not that effective demand is an obstacle to full employment. The point is that aggregate demand (AD) is not equal to aggregate supply (AS) for all volumes of output. Keynes’ great insight was in realizing that AD decreases as a function of output and that AS increases as a function of output. Thus AD and AS intersect at precisely one point and that point is known as effective demand."
"Keynes went on to argue that policymakers always have the ability to shift AD to the right through public works and expansionary monetary policy so that effective demand can be increased until full employment is achieved. As he says in Chapter 10:"
” If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”
http://www.marxists.org/reference/subject/economics/keynes/general-theory/ch10.htm
"Evidently Paul Krugman, Dean Baker, Mark Thoma and Jared Bernstein understand Keynes much better than you do."
- See more at: http://angrybearblog.com/2013/12/says-law-fairy-build-it-and-they-will-come.html#sthash.HyynBnhU.dpuf
Evidently either that's true or none of us understand very much about it except Lambert.
"I got to say I find two recent posts by Lambert over at Angry Bear very puzzling."
ReplyDeleteEdward Lambert has been blatently misinterpreting Keynes' General Theory for a couple of years now, and Angry Bear has cheerfully given him a platform on which to do it.
The only thing puzzling is why until you did this post not one person other than me has called him out on it.
If anything it's the fiscalists who should be outraged that Lambert implies Keynes thought fiscal stimulus was pointless but there's not been one peep.