Monday , December 23 2024
Home / Lars P. Syll / Summers and Stansbury only get it half right

Summers and Stansbury only get it half right

Summary:
Summers and Stansbury only get it half right The new Keynesian school emerged from the synthesis, propelled by the invention of a slew of frictions and rigidities – staggered contract negotiations perturbing labor markets, “menu costs” of changing prices and wages, prices locked into inefficient levels by contracts, probabilistic price revision, monopsony power of firms in labor markets, on and on. In the process, any and all discussion of effective demand was submerged. The new Keynesian inventors are now the ruling elders of macroeconomics, unlikely to change their minds. So much for Keynes for now, but Summers and Stansbury might remember with Max Planck that science advances one funeral at a time. They are certainly correct in saying that “the role

Topics:
Lars Pålsson Syll considers the following as important:

This could be interesting, too:

Lars Pålsson Syll writes Andreas Cervenka och den svenska bostadsbubblan

Lars Pålsson Syll writes Debunking the balanced budget superstition

Lars Pålsson Syll writes How inequality causes financial crises

Lars Pålsson Syll writes Income inequality and the saving glut of the rich

Summers and Stansbury only get it half right

The new Keynesian school emerged from the synthesis, propelled by the invention of a slew of frictions and rigidities – staggered contract negotiations perturbing labor markets, “menu costs” of changing prices and wages, prices locked into inefficient levels by contracts, probabilistic price revision, monopsony power of firms in labor markets, on and on. In the process, any and all discussion of effective demand was submerged.

Summers and Stansbury only get it half rightThe new Keynesian inventors are now the ruling elders of macroeconomics, unlikely to change their minds. So much for Keynes for now, but Summers and Stansbury might remember with Max Planck that science advances one funeral at a time. They are certainly correct in saying that “the role of particular frictions and rigidities in underpinning economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand.” Convincing their peers is far more easily said than done …

Summers and Stansbury, to their credit, point to fundamental contradictions that central bankers confront. They cannot control inflation in a world of conflicting claims. The bankers’ chosen instrument, the interest rate, has little macroeconomic traction. How institutions largely determine output, employment, and inflation is beyond their ken. Demand drives output and prices, but it is not clear that the fiscal expansion Summers and Stansbury propose will boost inflation under existing labor market institutions. It is possible that both wage equality and inflation could rise if economic expansion combined with supportive regulation boosts workers’ bargaining power in the labor market.

Lance Taylor / INET

Lars Pålsson Syll
Professor at Malmö University. Primary research interest - the philosophy, history and methodology of economics.

Leave a Reply

Your email address will not be published. Required fields are marked *