Tag Archives: economy

from Lars Syll One way that inequality precipitates debt bubbles begins with “relative deprivation.” This concept concerns the discontent people feel when they compare their socio-economic status, measured by income, wealth, consumption, or other indicators of perceived economic welfare, with that of their richer counterparts. Economists have suggested several ways that this discontent may translate into indebtedness. One theory holds that people of a given income level may try to...

A PLOG is a ´Persistent Large Output Gap´. Read: a long period of high unemployment. Literature about PLOGs tries to mitigate one of the ideas of economic orthodoxy, especially the unsubstantiated idea that lowering high post-economic crisis unemployment will fuel inflation. According to this literature, which is quite empirical, it doesn´t. However, this somewhat older literature does not yet consider the post-2009 Euro Area experience. Here, I will propose an updated definition of...

from Dean Baker New York Times columnist Christopher Caldwell devoted his Thanksgiving piece to describing the German sociologist Wolfgang Streeck’s views on capitalism and democracy.  I have not read much of Streeck’s work, but as recounted by Caldwell, he gets many of the basic facts about the U.S. economy badly wrong. According to Caldwell’s account, capitalists were willing to sacrifice profits in the decades after World War II for stability. This meant less dynamism but allowed...

The ´natural rate of unemployment´, also called ´Non-Accelerating Inflation Rate of Unemployment´ (NAIRU) or ´Non-Accelerating Wage Rate of Unemployment´ (NAWRU), is as, on this blog, Lars Syll states (here and here), a dangerous tool. According to NAIRU/NAWRU theory, a) When unemployment falls below a certain threshold, an inexorable increase in inflation will start. This is simply not true, considering the facts. b) As NAIRU/NAWRU theory is untrue, it can´t be measured by...

from Lars Syll Sixty years ago Milton Friedman wrote an (in)famous article arguing that (1) the natural rate of unemployment was independent of monetary policy and that (2) trying to keep the unemployment rate below the natural rate would only give rise to higher and higher inflation. The hypothesis has always been controversial, and much theoretical and empirical work has questioned the real-world relevance of the idea that unemployment really is independent of monetary policy and that...

Who decides what statistical offices measure and how they measure it? And what are the implicit values embedded in these decisions? Recently, the ILO issued a new manual on measuring productivity. Below, I´ll discuss the questions posed. But for starters, it is essential to realize that economists measure monetary productivity, not physical productivity, which leads to problems with ever-changing prices. This will be part of the discussion. The ILO (International Labour Organization)...

from Lars Syll The NAIRU story has always had a very clear policy implication — attempts to promote full employment are doomed to fail since governments and central banks can’t push unemployment below the critical NAIRU threshold without causing harmful runaway inflation. Although a lot of mainstream economists and politicians have a touching faith in the NAIRU fairy tale, it doesn’t hold water when scrutinized. One of the main problems with NAIRU is that it is essentially a timeless...

Hyperinflation is defined as over 50% inflation per month. Let´s define ´normal´ inflation as anything between 0 and 1% per month and anything between 1 and 50% per month as superinflation (1% a month is still a lot, yearly!). Before President Milei, Argentina already knew superinflation. After Milei, inflation accelerated, and the country almost entered a period of hyperinflation. It´s still nearly 200% a year. The maximum monthly increase of the consumer price index was over 24%. These...

Eurostat published new data on employment in Europe. Average employment growth is +0,9%. The average hides stark differences. A Germany-centered core consisting of Germany, Austria, Sweden, Estonia, Finland, and Hungary shows declines. Surprisingly, it excludes Denmark, Belgium and the Netherlands. The South does better. Countries like Portugal, France, Greece, and, especially, Spain post above-average increases. But unemployment in these countries is still high (over 5%), even when EU...

Executive summary: if investments are needed, do not reform. Invest. Investments are the reform. Angus Maddison (historical patterns of growth) and Jan Kregel (leading post-Keynesian economist) were the intellectually dominant forces during my economics study in Groningen around 1982. Let´s apply their frameworks to Greece. Growth, as we measure it, has many sources: increasing the productivity of existing activities (the mechanization of the potato harvest), shifting labour from...