The highly-educated econ-cons are dancing in the dark these days, and if they got a heart -- it scares 'em plenty.
Here's my recent favorite hair-standing-on-end conjecture by that everlasting friend of the little people, Paul K of Times Square and Nassau Hall:
"There’s been some talk about risks of deflation, but there’s one alarming comparison I haven’t seen made.... the CBO is currently projecting an output shortfall from the current slump comparable to the slump of the early 1980s. Actually, it’s very close....Now I agree with St Paul here: one really ought to conjure seriously with this deflation warning. "Deflation," as ole Alan Greenspan was wont to remark -- "now that's real trouble."Now here’s the thing: the slump of the early 1980s produced the Great Disinflation, which brought the core inflation rate down from about 10% to about 4%. This time, however, we entered the slump with a core inflation rate of about 2.5%. If we experienced a disinflation comparable to that of the 1980s, that would mean ending up with deflation at a rate of -3.5%."
Why? Well, first there's the obvious: one starts postponing purchases and that tends to build its own added downward price mojo, if an economy is already short on sufficient effective demand.
But more centrally, in a deflationary regime, where the real value of dollar denominated obligations increases right along with the real value of the dollar itself, the debt jacket harnessing us all gets to weigh heavier and heavier
Paul here is taking quite sharply, literally, and without offsets, a model of aggregate price level movement that the late (and not a minute too soon) evil dwarf Milton Friedman inspired with some vague verbal gestures back in the late 60's (yes, right in the heart of the topsey-turvey; the model was evolved by a bevy of other, more math-hungry dwarfs after that).
It postulates a so-called "natural rate of unemployment" (now, by the way, placed in our "real world" at 5% or so), and here's whats relevant about this "reasonable assumption": if an economy such as ours were to run a rate of unemployment higher than our "natural rate", then the core inflation rate (the rate of increase of our aggregate price level due to wage costs) begins to slow itself down; and if (like today) we start this higher than natural jobless period from very near the low end of the inflation range, and we proceed to run above our natural rate long enough -- well, we might travel down past the zero inflation point and right on into Bizzaro-land, right into deflation; nay, accelerating deflation, much as we experienced off and on for three years under Quaker apostate and bulwark of ordered liberty Herbert Zebulon Hoover.
Now that's taking the model very literally, of course, as one is wont to do when one's in the scary-story business, but even within the model, Paul K's conjecture from analogy to the 80's Reagan-Volcker Goetterdaemmerung hardly accounts for structural variations that might well exist in any market system's dynamic behaviour: far above zero inflation (mid 80's) vs. very near zero (nowsville).
My hero Abba Lerner felt there was no such sweet spot "natural " rate of unemployment, with inflation accelerating immediately to one side and disinflation just as immediately to the other side, no matter the initial rate of inflation.
Dear Abba suggested we might actually exist in this age of modern macro management on a kind of plateau between say 10-12% unemployment and 3-4% unemployment, where uncle's macro policy could stabilize the jobless rate more or less while simultaneously maintaining a given rate of price change (again more or less). He thought we could drift forward without much action either way, anywhere along that spectrum. That is, with anywhere between 15 million and 4 million jobless supplicants -- an 11 million margin of misery.
I think he was right. And I bet the system's corporate demigods will discover within the next three quarters or so that they're quite comfortable with an 8-10% jobless rate -- for a few years here anyway -- you know just till things settle down. The horrors of proximate job loss without the actual losing of one's job is a tonic to citizenship. In particular it gives the right kind of environment for America's jobbler zillions to get used to their freshly-poured, still-drying cement debt suits.
Maybe it's true, comrades -- maybe most of us wage freaks really do need a decent interval of hell's-doorstep pecuniary night sweats. Maybe we need to learn to be grateful to our Scrooges and our Mr Burns-es, grateful for our grossly liened-on home and shitpile job.
Next time: scarcity works; or, the cases of jobs and credit scores. Why "walking away" from a debt suit might require a far stronger job market and consumer credit market than Obigma's posse prolly has in store for us.
Comments (10)
So I guess the guaranteed annual income is off the table, huh? Not that it was ever really on in the first place....
Posted by LA Confidential Pantload | January 15, 2009 8:19 AM
Posted on January 15, 2009 08:19
wanna read a bit of allegorical algebra on this natural rate stuff ???
by none other then
larry S wall street Razor back
aided
by no less a tiny terror
then
tubby wonder boy
master pugsley delong
http://74.125.47.132/search?q=cache:OPzCi23T6DgJ:www.j-bradford-delong.net/pdf_files/Filling_in_Troughs.pdf+natural+rate+hypothesis&hl=en&ct=clnk&cd=9&gl=us
Posted by op | January 15, 2009 8:34 AM
Posted on January 15, 2009 08:34
a nice vickreyesque passage
"The assumption that output is always below potential except during total war is defensible....."
indeed and the green reconstruction is
a moral challenge equivalent to a crusaders holy war so ....
details of welfare effect ..short run:
"When employment is high, scarce fixed capital is intensively used, learning-by-doing proceeds at a rapid pace, and unemployment rates for marginal groups in the labor force drop to levels not much worse than the core labor force suffers at business cycle troughs."
yes we might black out a few enviro-killer machines here but as to the rest
"It is difficult to believe that the inefficiencies of too rapid depreciation or too small “inventories” of unemployed labor are the same order as these benefits of a high-pressure economy"
so why not go for it ???
well
"too small inventories of unemployed labor "
lead to wage profit price spirals...
in a firm level
"free" pricing regime
enter some thing like
A lerner and w vickrey's
version of colander's
mark up cap and trade market http://community.middlebury.edu/~colander/articles/Vickrey-latest%20latest.pdf
Posted by op | January 15, 2009 8:59 AM
Posted on January 15, 2009 08:59
Don't we have to now type in "Madame Secretary" instead of "Hillary" above?
OP: headached by your usual rococco prose style, I guess you're saying maybe they want a little deflation. But isn't the debased dollar of hyper-liquidity going to produce inflation?
Posted by seneca | January 15, 2009 11:45 AM
Posted on January 15, 2009 11:45
A condensed Owen Paine:
Faced with immense structural problems, our crackpot realist elite will somehow find the courage to crush labor as hard they can, for as long as they can, because a big depression is preferable to yielding a teaspoon of control.
Posted by Al Schumann | January 15, 2009 12:15 PM
Posted on January 15, 2009 12:15
"I guess you're saying maybe they want a little deflation."
no just protracted two digit unemployment
like the best of the 30's only better
call it
happy days are here again lite
skip the hoovervilles go right from
1930 to 1933 aim for a doable
10% vs 15% to 20% unemployment
i might add
the new dealers didn't have
the benefit
of three generations worth of ivy keynesians
singing
"more ....more .....more "
Posted by op | January 15, 2009 2:16 PM
Posted on January 15, 2009 14:16
Mmmm... cement. Yep, I'm really anxious to rush out and spend more money I don't have on one more piece of shit degree peddled by some schmuck on the internet. Because that's so confidence-inspiring: Guaranteed debt, guaranteed-to-be-obsolete pieces of overpriced toilet paper in a frame. But no guarantee of a job when it's over. Just another invite to dig yourself in one more time for the next new, improved piece of toilet paper.
Fuck it.
Posted by ms_xeno | January 15, 2009 4:47 PM
Posted on January 15, 2009 16:47
why i like dani rodrik
http://rodrik.typepad.com/dani_rodriks_weblog/2009/01/rhetorical-numbers.html
"Suppose you read the following statement:"
'In 2006 the measured economic output of the entire world was around $47 trillion. The total market capitalization of the world's stock markets was $51 trillion, 10 percent larger.... Planet Finance is beginning to dwarf Planet Earth.'
"Are you impressed? You shouldn't be."
"A year's output is the value of goods and services produced over that year, while equity values reflect the (discounted) value of all future streams of profits."
" If you are comparing the two, you must at least have a sense of what a decent benchmark for comparison would be. "
So if, say, half of GDP originates in the corporate sector and profits are one-third of value added, the present value of profits discounted at a continuous rate of 8% amounts to 208% of GDP (=0.5x0.33/0.08). "
" This suggest that the value of stock markets should be more than double that of annual output, not the mere 10 percent extra that the above numbers suggest. "
simple eh ??? but effective
Posted by op | January 15, 2009 5:11 PM
Posted on January 15, 2009 17:11
mz x :
enhance your human capital
is the ultimo
merit class
butch collar gambit
Posted by op | January 15, 2009 5:16 PM
Posted on January 15, 2009 17:16
Trotting out this kind of faith-based-economics analysis without the context of a finite planet is like trying to breathe without air.
I'm not sure why SMBIVA and OP insist on pursuing such dead ends and justified means but it stands to reason that they suffer from consensual validation and rationalization in equal measure the same as the Obamatrix.
With regard to context, I recommend:
1) A recent, big-picture, reality-based interview with geologists, Howard G. Wilshire and Jane E. Nielson
2) The Disconnection Between Financial Assets and Real Assets, an article by reality-based economist Herman Daly which dovetails with number 1
3) An article which explores the need for Biophysical Economics (*)
The title of the last article is, Biophysical Economics: In the future, economists will return to earth. Unfortunately, economists will not voluntarily adapt to the reality of a finite planet. And--if Status Quobama, the Obamatrix and OP are any indication--neither will we-the-people.
As geologists, Howard G. Wilshire and Jane E. Nielson, have astutely observed:
"HGW: But the total resource depletion picture of the world is that we’ve got to change our ways, we can’t just find something that’s cheap and easy and go on doing what we’re doing.
"JEN: Because there isn’t anything.
"SFBG: That technological fix doesn’t exist?
"JEN: That technological fix doesn’t exist. We have to realize that we have to adapt to limitations.
"SFBG: So it’s more of a cultural fix?
"JEN: Definitely."
But that implies actual change and we're all about the illusion of change. Which is why Status Quobama is the perfect president. He is the epitome of style over substance: a simulacrum of hope and change.
---
(*) If you want an idea of what Biophysical Economics might entail, read, Don't fix the economy - change it.
---
Postscript: Yes, I agree that Biophysical Economics will never come to pass. It is literally sacrilegious in the face of faith-based-economics (the belief in the myth of infinite growth on a finite planet). But to try to analyze mainstream faith-based-economics without the context of a finite planet is to try to pound a nail without a hammer.
Business-as-usual economics is unsustainable by definition: period. Trying to analyze it as if it is sustainable--that we're going to recover and return to things the way they were (or that we're magically going to fix the current, failed system by converting to "green capitalism")--is absurd at best.
We may be able to create another smoke-and-mirrors based bubble for a few years but lacking a reality-based foundation that house of cards will fall, only farther next time around. Imported carrying capacity will only last so long (all the while causing unfathomable, outsourced pain, suffering, death and destruction).
But I know this finds blind eyes and deaf ears. The SMBIVA crowd is too well educated, economically speaking, to allow reality to get in the way.
Posted by MonkeyMuffins | January 18, 2009 12:54 PM
Posted on January 18, 2009 12:54