1
Opinion
Berlusconi, Isolated
A reader from Ireland says the refusal of the former Italian prime minister’s party to back him in bringing down Prime Minister Enrico Letta’s government is good news for Italy and for Europe.
2
U.S.
Car Search Yields No Clues in Fatal Chase
The police found no weapon in the car of a Connecticut woman who was killed by officers after trying to ram her vehicle through a White House barrier, court papers said.
6
N.Y. / Region
Cuomo Denounces Con Ed’s Proposed Rate Increase
7
9
12
U.S.
Cost of Flood Insurance Rises, Along With Worries
Sharp increases in federal flood insurance rates are starting to hurt property values and housing sales in areas just beginning to recover from the recession, according to residents and legislators.
13
World
Myanmar in Lead Role at a Regional Meeting
At the close of the East Asia Summit, Myanmar’s president, Thein Sein, formally assumed responsibility for hosting the meeting a year from now.
14
World
Small Businesses in Mumbai Bear Brunt of High Inflation
As India battles with slowing growth, rising inflation and a weakened rupee, small businesses across the country are among the worst affected.Wage Flexibility in Doctrine and Policy (Wonkish)
I probably should have made clear in my post on sticky wages that I was arguing for stickiness as a central issue in the history of macroeconomic thought, not as a central issue in current policy. I’ve been arguing for years that when you’re in a liquidity trap wage flexibility actually hurts rather than helps; this is the paradox of flexibility,
which arises, roughly speaking, because under current conditions the
aggregate demand curve is upward-sloping thanks to debt and balance
sheet effects.
But if we look at the way the civil war emerged in macro during the 1970s, both sides assumed downward-sloping aggregate demand (the liquidity trap was a distant memory), so the whole focus was on aggregate supply. The key issue then because whether it was acceptable to assume an upward-sloping short-run AS curve even though we had no “microfoundations” for that assumption, just observation of reality. Half the relevant profession decided that although it might be true in practice, it wasn’t true in theory, and therefore couldn’t happen.
At this point, of course, we have many cohorts of economists trained in freshwater schools who don’t know this history — they just know that Keynes was “proved wrong” in the 70s, but don’t know the context, and are shocked, shocked to discover that the other half of the profession continued to take the evidence on sticky wages seriously despite the lack of a maximizing model to explain it.
One small note: what about stagflation? It’s true that the outward shift of the apparent tradeoff between unemployment and inflation during the 70s had an important impact on macroeconomics; it mattered a lot that Friedman and Phelps had predicted exactly that kind of shift by working with models that attempted, in a rough way, to provide microfoundations for aggregate supply. This lent some credibility to the freshwater exercise — I remember a few classmates in grad school saying things like, “Well, they’ve been right so far, so maybe they’re right about the next step”, which was rational expectations and microfoundations all the way down.
But by the early 80s it was already clear that going all the way was wrong. Textbook Keynesian economics (literally: think Dornbusch-Fischer and Gordon) had comfortably incorporated inflation expectations, while the persistence of recessions and the evident ability of fully anticipated monetary policy to move the real economy had made Lucas-type models unsustainable.
So stagflation mattered, but Keynesians responded by adapting their models; anti-Keynesians, by contrast, responded to their own empirical debacle in the 1980s by withdrawing deeper into their bubble."
But if we look at the way the civil war emerged in macro during the 1970s, both sides assumed downward-sloping aggregate demand (the liquidity trap was a distant memory), so the whole focus was on aggregate supply. The key issue then because whether it was acceptable to assume an upward-sloping short-run AS curve even though we had no “microfoundations” for that assumption, just observation of reality. Half the relevant profession decided that although it might be true in practice, it wasn’t true in theory, and therefore couldn’t happen.
At this point, of course, we have many cohorts of economists trained in freshwater schools who don’t know this history — they just know that Keynes was “proved wrong” in the 70s, but don’t know the context, and are shocked, shocked to discover that the other half of the profession continued to take the evidence on sticky wages seriously despite the lack of a maximizing model to explain it.
One small note: what about stagflation? It’s true that the outward shift of the apparent tradeoff between unemployment and inflation during the 70s had an important impact on macroeconomics; it mattered a lot that Friedman and Phelps had predicted exactly that kind of shift by working with models that attempted, in a rough way, to provide microfoundations for aggregate supply. This lent some credibility to the freshwater exercise — I remember a few classmates in grad school saying things like, “Well, they’ve been right so far, so maybe they’re right about the next step”, which was rational expectations and microfoundations all the way down.
But by the early 80s it was already clear that going all the way was wrong. Textbook Keynesian economics (literally: think Dornbusch-Fischer and Gordon) had comfortably incorporated inflation expectations, while the persistence of recessions and the evident ability of fully anticipated monetary policy to move the real economy had made Lucas-type models unsustainable.
So stagflation mattered, but Keynesians responded by adapting their models; anti-Keynesians, by contrast, responded to their own empirical debacle in the 1980s by withdrawing deeper into their bubble."
15
N.Y. / Region
Penny Harvest Charitable Group to Stay Afloat With City Money
An infusion of $550,000 in public money will help Common Cents, the charity that operates the drive known as the penny harvest and educates students on charitable giving, to avoid shutting down this year.
16
Business Day
A Ransacked Endowment at New York City Opera
Mismanagement at the now-bankrupt New York City Opera led it to raid its endowment to pay off its huge deficits.
17
Booming
Taking Questions About When It’s Time for Assisted Living
Debra Drelich, a specialist in geriatric care, will answer questions about assisted living and other special living arrangements for aging relatives.
18
Opinion
Using Devices in Flight
A reader suggests a separate part of the cabin for those who wish to use electronics.
19
No comments:
Post a Comment