Home > Uncategorized > Chicago economists — people who have their heads fuddled with nonsense

Chicago economists — people who have their heads fuddled with nonsense

from Lars Syll

joblossMainstream macroeconomics has always had problems with the notion of involuntary unemployment. According to New Classical übereconomist Robert Lucas, an unemployed worker can always instantaneously find some job. No matter how miserable the work options are, “one can always choose to accept them,” according to Lucas:

KLAMER: My taxi driver here is driving a taxi, even though he is an accountant, because he can’t find a job …

LUCAS: I would describe him as a taxi driver [laughing], if what he is doing is driving a taxi.

KLAMER: But a frustrated taxi driver.

LUCAS: Well, we draw these things out of urns, and sometimes we get good draws, sometimes we get bad draws.

Arjo Klamer

In New Classical Economics unemployment is seen as a kind of leisure that workers optimally select. In the basic DSGE models used by these economists, the labour market is always cleared – responding to a changing interest rate, expected lifetime incomes, or real wages, the representative agent maximizes the utility function by varying her labour supply, money holding and consumption over time. Most importantly – if the real wage somehow deviates from its “equilibrium value,” the representative agent adjust her labour supply, so that when the real wage is higher than its “equilibrium value,” labour supply is increased, and when the real wage is below its “equilibrium value,” labour supply is decreased.

In this model world, unemployment is always an optimal choice to changes in the labour market conditions. Hence, unemployment is totally voluntary. To be unemployed is something one optimally chooses to be.

Yours truly has to admit of being totally unimpressed by this kind of New Classical macroeconomic quackery. I guess Keynes would have felt the same:

The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years … 0616_ig-john-maynard-keynes_1024x576Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.

John Maynard Keynes (1929)

  1. antireifier
    October 29, 2017 at 9:08 pm

    NAIRU. Non Accelerating Inflation Rate of Unemployment. Central bankers deny employing it but in reality fighting a questionable or theoretical inflation by raising interest rates to slow down the economy by restricting wages and causing slow growth producing layoffs (or not taking up the new entries to the workforce) is the same thing. They just don’t attach a number to it.

    • October 31, 2017 at 12:49 am

      There are multiple problems with the attempts by central bankers to ward off the imagined “poison” of accelerating price inflation.

      The first one is the idea that—unchecked—demand-pull price inflation will reach a point of “acceleration” at which all bad things imaginable occur, inflicting such economic damage that it is thought “desperate measures” must be taken to prevent it from ever occurring.

      Contrary to the befuddled thinking of central bankers, price inflation does not actually impose any loss of purchasing power on the households which experience it. This is because true price inflation only occurs when households have experienced incomes inflation, i.e., an increase in their nominal incomes that is sufficient to cover any higher prices they might have to pay that are actually caused by “price inflation.”

      What this means is that while the individual dollars/pounds/euros/yen that consumers spend (in a market that has been “infected” by inflation) do lose some of their purchasing power in those markets, it is not true that that the households participating in that market have lost any of their purchasing power overall. This, because their incomes were necessarily sufficiently inflated to cover the higher prices. Otherwise, we could not attribute the higher prices to inflation, by definition.

      From this we can see that: Inflation is always and everywhere harmless when it comes to its impact on the purchasing power of the households that experience it..

      A second problem with the thinking of NAIRU-obsessed central bankers is their failure to realized that inflation is not some kind of mysterious effect which diffuses evenly over the entire economy like a fine mist. In fact 1) rates of price inflation vary across different income brackets, and 2) price inflation is a phenomenon that is market specific.

      For example, when all of the richest citizens in a country are given a big income tax cut, they all experience the same gain in disposable dollars/pounds/euros/yen, which they will predictably use to inflate the prices of real and financial assets and luxury experiences.

      A significant third problem with the befuddled thinking of central bankers is their belief that they need to actually increase unemployment with a sufficiently harsh contraction of credit in order to fight off the “harmful” effects of inflation (which actually don’t exist).

      Instead of the Fed interpreting its “dual mandate” from Congress to be that of minimizing unemployment up to the point when doing so begins to threaten price stability, it should instead seek to minimize inflation, but only up to the point when that effort begins to threaten 100% full employment.

      Higher levels of price inflation can be painlessly tolerated while effective actions are taken to prevent any possibility that an “acceleration” could advance to the point of hyperinflation. Contrary to popular opinion, credit controls can be implemented which put absolute limits on the quantities of dollars/pounds/euros/yen that are lent out by banks in certain categories.

      Indeed, such credit controls are absolutely necessary in order to put a lid on the kind of speculative borrowing that promotes hoarding and dramatically higher prices in certain markets.

  2. October 29, 2017 at 9:18 pm

    I’d love to see “macroeconomic quacks” such as Robert Lucas test their neo-Ayn Randian “choice” theory by driving a taxi for a year, clerking at Walmart, otherwise living paycheck to paycheck, or otherwise living cash-poor, unable to pay the bills, and facing a medical crisis.

    Examining what I can about Lucas’s upbringing, I cannot fathom the origin of such intellectual cruelty.

    Two wonderful human beings, career economists who earned their PhDs at the University of Chicago (where my dad earned his masters), died this summer at age 98. Knowing them well enough, I experienced in them a warm humanity that infused their economics. I am unable to reconcile their experience as proteges of Frank Knight, Jacob Viner and Theodore Schultz, which helped shape them into careers as exceptional teachers, with “The Chicago Boys” ideology that so well served Augusto Pinochet and helped ruin Russia. Further, my best teacher in grad school was a protege of Milton Friedman, yet he was a marvelous human being.

    I cannot understand the power of this “school” to create such cold, calculating and twisted intellectual robots as Robert Lucas and Gary Becker, both Nobel winners.

  3. October 30, 2017 at 2:53 am

    So fuddled with nonsense are the heads of Chicago economists, we can know with absolute certainty that they would be utterly aghast at any proposal which calls upon the government to create a jobs environment where there are always more jobs available than there are people to fill them, i.e., to create and indefinitely maintain a chronic labor shortage.

    Why should we think that such an agenda might actually be rational, from an economist’s perspective? Well, there is certainly no doubt that in such a jobs environment, the production and consumption of real wealth would be optimized and the incidence of poverty due to unemployment would be eliminated.

    It should also be rather evident that in such an economy, economic INVESTMENT would also be optimized, which means that economic growth over time would also be optimized. We are talking about an ideal economic achievement that almost any rational economist should be happy to enthusiastically endorse, at least in principle.

    And there is no mystery as to how an economy might achieve such idyllic levels of wealth generation and consumption. Quite simply, all jobs are dependent upon spending. If there is any level of unemployment, it is because not enough money is being spent in the economy.

    If the private sector does not generate a sufficient level of spending to eliminate all unemployment, governments can make up the difference in ways that cannot fail to earn the approval of any sane economist (i.e., by devoting all additional government spending to real economic investments: infrastructure, human capital, etc.).

    So what kind of nonsense in particular is it that befuddles the minds of the Chicago coterie, which persuades them that ideal levels of economic performance ought to be feared?

    Answer: their utterly unjustified belief that price inflation inflicts some kind of real harm on those who participate in a full-employment economy. They fear a bogeyman that doesn’t actually exist…

  4. Frank Salter
    October 30, 2017 at 8:16 am

    You point out that: ‘In the basic DSGE models used by these economists, the labour market is always cleared’. In their universe of discourse, this may be true, however false to fact in the real world!

    If they — DSGE economists — did not make such assumptions — along with many others — then they would be faced with the necessity of introducing further variables into the equations — modelling some hopefully “plausible” but still an alternate reality. The resulting system of equations would then become indeterminate — more variables than equations. Now a realistic paper cannot be written!

  5. robert locke
    October 30, 2017 at 11:31 am

    Its rather cultural. I noted that in America, young college graduates will take ordinary jobs; they need the money. But Europeans resent very much taking jobs below their educational qualifications and choose unemployment instead.

    • October 30, 2017 at 12:27 pm

      “LUCAS: I would describe him as a taxi driver [laughing], if what he is doing is driving a taxi.”

      “Europeans resent very much taking jobs below their educational qualifications and choose unemployment instead”.

      It seems to me we have here the worst of both worlds. If the job which needs doing is providing a taxi service, isn’t an intelligent graduate just as likely to recognise that as a man who aspires only to what he feels capable of? The problem lies in the scorn of the Lucases and the defensiveness of the under-achievers, not in the service of others. To make the best of automation, I envisage less professional employment timeshared with more hobbyist and volunteer employment, both considered as essential to education and self-challenging.

  6. October 30, 2017 at 12:32 pm

    “For you have the poor with you always, and whenever you will you may do them good: but me you have not always.” (Mark 14:7). Per new classical economics poverty is a choice, just like unemployment. But Jesus seems to differ with this new classical notion. Could Christianity dare to differ with Lucas, et al? But then the official position of the Christian Evangelical organizations is 100% supportive of new classical economics. I’m confused. Or, is that just another part of the befuddling Lars discusses?

    Whichever it is, I suggest an experiment. Let’s study the President and all the officers of the American Economic Association. Allow these officers to choose half to employment and half to unemployment, as economists. Those “choosing” not to be economists will be free to work at any other trade or profession. The experiment will last 12 months. Think we’ll get any takers? Think they’ll last out the 12 months?

    • October 30, 2017 at 8:02 pm

      Thank you for bringing Jesus into the argument. Yes, poverty is a choice, but not when others thrust it upon you. Is it possible for the Christian Evangelicals have an official position?
      It might seem that way if their churches are run as businesses by those trained in business practices informed by new classical economics. We Catholics do at least have a recognisable head, so it is recognisable that in the long run most points of view are adopted, because we have a sort of papal democracy wherein the economic understanding of the popes varies with their personalities rather than their religion. (The four gospels likewise represent different viewpoints). But if you are trying to mock my time-sharing life-style with your “straw man” experiment I don’t suppose that will help.

      It may help you more if you consider what I “envisaged” as a vision rather than a specification. The specification would include honest money (i.e. as much credit as one needs), so that one was not forced into poverty or indeed any particular job, but could choose not to buy more than one needs, and to do work because it needs (or is worth) doing. It also involves not being spoiled while growing up. If happiness is the measure of utility, the cause of happiness is gratitude: not wealth, but learning to be grateful for small mercies.

      With the year’s winds explained by today’s news of an appalling increase in atmospheric carbon dioxide and global warming, we all need to be a lot more economical, far more diligent in our care for and renewal of life on earth, and grateful for still having surpluses to share.

  7. Jan Milch
    October 30, 2017 at 8:08 pm

    William Spencer Vickrey ,on NAIRU:
    “Fifteen Fatal Fallacies of Financial Fundamentalism: A Disquisition on Demand Side Economics-1996 ”

    Fallacy 6
    “It is thought necessary to keep unemployment at a “non-inflation-accelerating” level (“NIARU”) in the range of 4% to 6% if inflation is to be kept from increasing unacceptably.

    Currently the unemployment rate as officially measured has fallen to 5.1%, while the Congressional Budget Office (CBO) has put the NIARU for 1964 at 6.0 percent, having ranged between 5.5 and 6.3 since 1958. Recent CBO protections were for unemployment to remain steady at 6.0 percent through the year 2005, with inflation in the urban consumer price index fairly steady at about 3.0 percent (Economic and Budget Outlook, May 1996, pp xv, xvi, 2, 3).

    This may be a fairly optimistic forecast of the results to be expected from current tendencies, but as a goal it is simply intolerable. While even five percent unemployment might be barely acceptable if it meant a compulsory extra two weeks of unpaid furlough annually for everyone, it is totally unacceptable when it means 10%, 20% and 40% unemployment among disadvantaged groups, with serious consequences for poverty, homelessness, family breakups, drug addiction and crime. The malaise that pervades our cities may be attributable in no small measure to the fact that for the first time in our history, an entire generation and more has grown up without experiencing reasonably full employment, even briefly. In contrast, while most other industrialized countries are currently experiencing higher rates of unemployment than the U.S., they have nearly all had relatively recent periods of close to full employment. Unemployment insurance and other welfare programs have also been much more generous so that the sociological impacts have been much less demoralizing.

    The underlying assumption that there is an exogenous NIARU imposing an unavoidable constraint on macroeconomic possibilities is open to serious question on both historical and analytical grounds. Historically, the U.S. enjoyed an unemployment rate of 1.8% for 1926 as a whole with the price level falling, if anything. West Germany enjoyed an unemployment rate of around 0.6% over the several years around 1960, and most developed countries have enjoyed episodes of unemployment under 2% without serious inflation. Thus a NIARU, if it exists at all, must be regarded as highly variable over time and place. It is not clear that estimates of the NIARU have not been contaminated by failure to allow for a possible impact of inflation on employment as well as the impact of unemployment on inflation. A Marxist interpretation of the insistence on a NIARU might be as a stalking horse to enlist the fear of inflation to justify the maintenance of a “reserve army of the unemployed,” allegedly to keep wages from initiating a “wage-price spiral.” One never hears of a “rent-price spiral”, or an “interest-price spiral,” though these costs are also to be considered in the setting of prices. Indeed when the FRB raises interest rates in an attempt to ward off inflation, the increase in interest costs to merchants may well trigger a small price increase.

    Analytically, it would be more rational to expect that there could be a maximum non inflation-accelerating rate of reduction of unemployment (NIARRU), such that if an attempt were made to proceed more rapidly by a greater recycling of excess savings into purchasing power through government deficits, prices would start to rise more rapidly than had been generally anticipated. This would occur as a result of a failure of supply to keep up with the increased demand, giving rise to shortages and the dissipation of part of the increased demand into more rapidly rising prices. This NIARRU may be determined by limits to the rates at which labor can be hired and put to work to meet anticipated increases in demand, and perhaps lags in the realization that demand will be increased, and even new productive facilities created, installed, and brought up to speed. The ultimate technological constraint to putting unemployed to work more rapidly in the private sector may reside in a limited capacity in the capital goods industries such as construction, cement, and machine tools.

    In any case much will depend on the degree of confidence that can be engendered in the proposed increase in demand. It might be wise to start slowly, with a reduction of unemployment by say 0.5% the first year, and increasing to say 1% per year as confidence is gained. Possibly the growth rate should subsequently be reduced somewhat as full employment is approached, allowing for the increasing difficulty of matching workers to vacancies. It is mainly at the later stages of the approach to full employment that training and improving the organization of the labor market may become needed. In the face of a policy of maintaining a fixed NIARU, “workfare” efforts to retrain and assist welfare clients amount to assistance in the playing of a cruel game of musical chairs.

    Such a NIARRU is likely to prove somewhat volatile and difficult to predict, and in any case it might prove desirable to push to full employment somewhat faster than would be permitted by an unaltered NIARRU. This would call for the introduction of some new means of inflation control that does not require unemployment for it to be effective. Indeed, if we are to control three major macroeconomic dimensions of the economy, namely the inflation rate, the unemployment rate, and the growth rate, a third control is needed that will be reasonably non-collinear in its effects to those of a fiscal policy operating through disposable income generation on the one hand, and monetary policy operating through interest rates on the other.

    What may be needed is a method of directly controlling inflation that do not interfere with free market adjustments in relative prices or rely on unemployment to keep inflation in check. Without such a control, unanticipated changes in the rate of inflation, either up or down, will continue to plague the economy and make planning for investment difficult. Trying to control an economy in three major macroeconomic dimensions with only two instruments is like trying to fly an airplane with elevator and rudder but no ailerons; in calm weather and with sufficient dihedral one can manage if turns are made very gingerly, but trying to land in a cross-wind is likely to produce a crash.

    One possible third control measure would be a system of marketable rights to value added, (or “gross markups”) issued to firms enjoying limited liability, proportioned to the prime factors employed, such as labor and capital, with an aggregate face value corresponding to the overall market value of the output at a programmed overall price level. Firms encountering a specially favorable market could realize a higher than normal level of markups only by purchasing rights from firms less favorably situated. The market value of the rights would vary automatically so as to apply the correct downward pressure on markups to produce the desired overall price level. A suitable penalty tax would be levied on any firm found to have had value added in excess of the warrants held.

    In any case it is important to keep in mind that divergences in the rate of inflation either up or down, from what was previously expected, produce merely an arbitrary redistribution of a given total product, equivalent at worst to legitimized embezzlement, unless indeed these unpredictable variations are so extreme and rapid as to destroy the usefulness of currency as a means of exchange. Unemployment, on the other hand, reduces the total product to be distributed; it is at best equivalent to vandalism, and when it contributes to crime it becomes the equivalent of homicidal arson. In the U.S. the widespread availability of automatic teller machines in supermarkets and elsewhere would make the “shoe-leather cost” of a high but predictable inflation rate quite negligible.”

    • October 31, 2017 at 3:05 am

      What may be needed is a method of directly controlling inflation that do not interfere with free market adjustments in relative prices or rely on unemployment to keep inflation in check.

      I would suggest to you, Jan, that any serious effort to try to control rates of inflation should begin with an understanding of precisely how additional “inflation money” is introduced into an economy.

      Except in those situations where a government has decided to simply print the money it wants to spend, all of the inflation dollars/p/e/y that get pumped into an inflationary economy are lent to borrowers who then spend them into the flow of market transactions.

      It is a mechanism which absolutely can be controlled by central bank edict. Enlightened central bankers would set absolute limits on the quantities of d/p/e/y that will be available within the pool of “loanable funds” that is to be allowed for various categories of lending. This will drive up the cost of certain kinds of loans to such levels that loan demand will drop to the new equilibrium level.

      By being category-specific, enlightened central bankers could continue to finance real economic investments in an inflationary economy at the same time it makes the cost of leveraged speculation by financiers so very high that hoarding high-demand commodities is no longer seen as a profitable ploy.

      Intelligently thought out credit controls absolutely can prevent the occurrence of hyperinflation even in economies that are experiencing double-digit inflation for months and months and months. Why so many economists seem oblivious to this fact is beyond me…

      • Jan Milch
        October 31, 2017 at 5:05 pm

        Thank you James! Very interesting, but sadly i don´t think this type of thoughts is beyond the horizont of Chicago-Economists and their adepts around the World.But why not send it to Lucas and the others? We could at least give them a try :) ? All the best Jan

  8. Jan Milch
    October 31, 2017 at 5:06 pm

    Thank you James! Very interesting, but sadly i t think this type of thoughts is beyond the horizont of Chicago-Economists and their adepts around the World.But why not send it to Lucas and the others? We could at least give them a try :) ? All the best Jan

    • November 3, 2017 at 12:13 am

      But why not send it to Lucas and the others?

      :) This made me laugh, Jan, when I pictured Lucas actually taking the time to consider my criticisms of his life’s work… :)

      • Jan Milch
        November 9, 2017 at 11:25 am

        Yes James!it is sad! Chicago Unversity .Once up on a time the home of people like Carl Sandburg and John Dewey and now Lucas an company! What a a decline !

        “CHICAGO-Carl Sandburg

        HOG Butcher for the World,
        Tool Maker, Stacker of Wheat,
        Player with Railroads and the Nation’s Freight Handler;
        Stormy, husky, brawling,
        City of the Big Shoulders:

        They tell me you are wicked and I believe them, for I
        have seen your painted women under the gas lamps
        luring the farm boys.
        And they tell me you are crooked and I answer: Yes, it
        is true I have seen the gunman kill and go free to
        kill again.
        And they tell me you are brutal and my reply is: On the
        faces of women and children I have seen the marks
        of wanton hunger.
        And having answered so I turn once more to those who
        sneer at this my city, and I give them back the sneer
        and say to them:
        Come and show me another city with lifted head singing
        so proud to be alive and coarse and strong and cunning.
        Flinging magnetic curses amid the toil of piling job on
        job, here is a tall bold slugger set vivid against the
        little soft cities;

        Fierce as a dog with tongue lapping for action, cunning
        as a savage pitted against the wilderness,
        Building, breaking, rebuilding,
        Under the smoke, dust all over his mouth, laughing with
        white teeth,
        Under the terrible burden of destiny laughing as a young
        man laughs,
        Laughing even as an ignorant fighter laughs who has
        never lost a battle,
        Bragging and laughing that under his wrist is the pulse.
        and under his ribs the heart of the people,
        Laughing the stormy, husky, brawling laughter of
        Youth, half-naked, sweating, proud to be Hog
        Butcher, Tool Maker, Stacker of Wheat, Player with
        Railroads and Freight Handler to the Nation.#

  9. November 1, 2017 at 11:49 am

    The debate here seems one-sided. The one side arguing with itself. There are multiple economies. For example, evangelical Christians. In his 1992 book, “With Liberty and Justice for Whom? The Recent Evangelical Debate Over Capitalism” Craig M. Gay describes the struggles of the just emerging Christian evangelical movement in the US to come to terms with capitalism. With one exception the evangelicals viewed capitalism as something they had to put up with, but held a lowly place among their moral preferences, while they searched pensively for some “better way” of ordering economic life. In 1992, most evangelical sentiment towards capitalism ranged from hostility to discomfort to cautious acceptance. Except for “far right” evangelicals who “baptized” capitalism as God’s ordained economic system. Most Christians accepted capitalism’s efficiency. Christians were keen on capitalism’s wealth-production, but felt revulsion for materialistic capitalist culture and distress over members of the underclass at home and abroad who seem not to have shared in the free market’s exceptional prosperity. Evangelical Christians were uncertain what to do about capitalism – reject it altogether, attempt to find a Christian moral foundation for it, or (per far-right evangelicals) choose as the economic system ordained by God. The answer given by the far-right carried the day, at least in terms of the public’s awareness. It is dominant but not universal today. In the words of Ralph Reed of the Christian Coalition capitalism is the only choice for “genuine” Christians in the great war between capitalism and communism. To do otherwise is to deny the great struggle between right and wrong, good and evil which defines Christianity.

    This brings us to inflation. Like the other metrices of the newly invented economy, inflation was invented in the early 20th century, as the US was becoming a world military power and a primary industrial state. The notion of inflation grew out of government efforts to measure prices, which in turn emerged from the same early 20th century Progressive urges to assess whether the industrial system was allowing all citizens to meet their basic needs. Government surveys to measure prices began in the 19th and continued into the 20th and 2st centuries. Driven by a simple sounding question – what does it cost the American family to live? This lead to the establishment of the first official “cost of living” index in 1918. And here begins the struggle (really a brawl) over inflation (changes in the cost of living). Labor unions pointed out that a “living wage” was defined as a wage one could live on. That would meet basic needs. The unions saw the cost of living index as the way to ensure the cost of meeting basic needs was accurate. Unions over the next 90 years continually worried some in government were skewing the cost of living calculations to “freeze wages.” After World War II the consumer price index” (CPI) replaced the cost of living index. But the struggles and conspiracy theories continue, up to the current time. But it’s gotten worse. Just about everything from wages, to contracts, to government and private spending is now indexed to the CPI. As many of those who invented the CPI and its predecessors have repeated pointed out, many of these new uses are inconsistent with and beyond the scope of this simple statistical construct. Irving Fisher invented inflation as a black/white, right/wrong concept. Economists have used it this way ever since. But the situations in which they’ve applied the construct seldom have been either black/white or right/wrong. The history of the way inflation is measured is also complex. This wavered between the mechanical, statistical, and systems. And the struggles over defining and measuring inflation continue.

  10. November 2, 2017 at 12:31 am

    Irving Fisher invented inflation as a black/white, right/wrong concept.

    Fisher did a great deal of harm to the cause of theoretical economics when he popularized the fundamentally flawed notion that Inflation is some kind of mysterious effect which diffuses evenly throughout the entire economy. It is nothing of the sort. Price inflation is market specific and income bracket specific. The implications are extremely important.

    The very concept of The Price Level, so popular in economic models, has led to a widespread misperception that price inflation ultimately reduces the purchasing power of every dollar/p/e/y in circulation, but it actually does nothing of the kind.

    Because actual price inflation can only occur when incomes inflation has occurred, income earners are “compensated” by their inflated incomes for the higher prices they must pay. Only the dollars that are spent in particular markets—that households with inflated incomes participate in—experience a “debasement” of their units of currency.

    It is not the dollars/p/e/y themselves that lose purchasing power—in any and all markets—but only the dollars that are spent in those markets which are dominated by buyers who have all experienced inflated incomes.

    Price inflation is nearly always market specific because disposable incomes inflation is usually market specific. This is especially true re: inflation in the assets markets. Fisher’s theoretical nonsense took everyone to a theoretical Fairyland that bears little semblance to reality.

    • November 2, 2017 at 11:18 am

      Agree in all respects with your comment. Economists, aided by some statisticians and a simplistic version of mathematics focused years and millions of dollars on “measuring” the ‘theorizing” about inflation. And in this they lost touch with the historical needs that prompted the invention of inflation. Is the current American economic and industrial system allowing all Americans to meet their basic needs. Prices were the original object of this work since they were assumed to determine whether American could meet their basic needs. This is a pragmatic and thoroughly political process. Economics plays little role, formal or otherwise. Today we are further than ever from understanding or answering this basic question – do the current economic policies and arrangements provide Americans a living wage? A wage sufficient to meet their basic needs. The answer seems to be no! And nothing is being done to fix the problem, which was the primary reason for the invention of inflation, the cost of living index, and the CPI. There seems to be rather an active effort to achieve the opposite effect by obscuring all this by lying about inflation the living wage conditions of Americans. Many, maybe even most Americans are clearly not receiving a living wage. And thus, are largely unable to meet their basic needs.

  11. Jan Milch
    November 2, 2017 at 9:47 am

    The Inventor of NAIRU, Milton Fiedman was discredited by ,Paul Diesing, “Hypothesis Testing and Data Interpretation: The Case of Milton Friedman,” Research in the History of Economic Thought and Methodology, 1985, vol. 3, pp. 61-69.

    Paul Diesing was a great philosopher of the social sciences.Diesing published six important books during his career,but became not particularly famous.
    Until his retirement,Diesing taught in the State University of New York at Buffalo.Diesing was enrolled at the University of Chicago philosophy (social ethics) Professor from 1950 ,he worked with and was closely familiar with Friedman and his work.In latter year, Diesing took a position in the Philosophy Department of the University of Illinois.

    • November 2, 2017 at 12:00 pm

      Thanks for this. Diesing was a perceptive philosophy. But more than that he was a pragmatic observer of social science. Diesing warns that “social science exists between two opposite kinds of degeneration, a value-free professionalism that lives only for publications that show off the latest techniques, and a deep social concern that uses science for propaganda.” He argues for greater self-awareness and humility among social scientists, although he notes that “some social scientists . . . will angrily reject the thought that their personality affects their research in any way.” On these Milton Friedman is “guilty on all counts.” A brash and egocentric nonscientist Friedman spent not just his career but his life propagandizing one form of economics. Never adding any substantial new information or insights to the discipline. Never solving or helping to solve even one significant problem. But his relentless propaganda pleased the political and economic elites. Which was his goal.

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