The way MS economists estimate the non-inflationary unemployment (UE) rate is very flawed & tot. BS. - Politics | PoFo

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Main stream economists have this theory based on BS (only BS) that there is a NAIRU or NAtural Non-Inflationary rate of UE. It should not change as the UE rate changes, but it does. In Spain now it is over 15%, while UE is over 25% (covidvurus!). Before the GFC/2008 it was about 2%tage pts less than the UE rate which was then about 5%. What changed? I and the Econ Prof. in the link think it is because MS economists need it to stay just under the actual measured UE rate for ideological reasons. That is, the whole theory is BS, but is is necessary to keep the Gov. from using fiscal policy (i.e., Keynesian deficit spending) to reduce unemployment. Or to help the mass of the people for that matter.
. . The whole idea of a NAIRU is bogus. It can't be measured, it can't even be seen. It is imaginary. It seems to be [-]calculated[/-], estimated (calculated implys a precision that it does not deserve) in a black box where only the result is seen. No one who is not an economist can understand how it is estimated or why it's estimated in that way. Everyone else is expected to take it on faith.

"Never trust a NAIRU estimate"

MMTers hold that a Main Purpose of US Gov. deficit spending is to replace savings. That banks don't lend savings and most savings are in the form of US Gov. bonds in any case. But, savings are a leakage just like dollars going overseas. MMTers hold that it is far better to replace the dollars leaking into savings with US Gov. deficit spending than it is to rely on banks doing it by making loans. Private debt must be paid back starting day one, while Gov. debt can be rolled-over for at least 325 years. And most Recessions and Depressions are caused by the borrowers being unable to make their debt payments. [The Dot-com Recession of 2001 was caused by the US Gov. surplus and not by private debt. So Pres. Bush II was right to cut taxes because that ended the stupid surplus. He should have weighted the cuts toward the mass of the people though, and then let the money flow up to the rich, which leaves behind some stuff in the hands of the masses on the way. Giving the cuts to the rich does nothing for the masses or for the GDP (i.e. economy) for that matter because the rich save (a leakage) most of it.]
Rugoz wrote:The NAIRU makes sense as a concept, so does hysteresis. Both are being taught in so-called mainstream economics. They do not contradict each other. It's just that hysteresis changes the level of the NAIRU.

I can agree that, as a concept, NAIRU does make some sense. That is, if UE were pushed by Gov action down to 0.01%, then wages would likely go up. But, there is a huge gap between 0.01% UE and 20% UE.

I had to look up 'hysteresis'. It means "lag behind or come later than"). It seems in MS economics to refer more to 'lag behind', but not in time but in level. As in as the UE rate goes up the NAIRU goes up with it.
. . Under CAUSES, WIKI says, "When some negative shock reduces employment in a company or industry, there are fewer employed workers left. As the employed workers usually have the power to influence or set wages, their reduced number incentivizes them to bargain for even higher wages when the economy again gets better, instead of letting the wage stay at the equilibrium wage level, where the supply and demand of workers would match. This causes hysteresis, i.e., the unemployment becomes permanently higher after negative shocks.[4]
. . It has also been argued that unemployed people lose their skills during unemployment, which makes them less likely to again get jobs."
. . With all due respect, this is BS. It seems to claim that as a comp. lays off workers, the remaining workers will be able to bargain for more pay. This has not been rue in the Neo-liberal age. Workers bargaining power has been constantly reduced. This is a perfect example of MS economists ignoring facts and reality and sticking to their false assumptions in the face of contrary real evidence.

Since that was the whole of the text that explained why the assumed effect does happen, and I don't see the effect happening, then for me at least, there needs to be a better argument.
. . For me, it stands unproved and likely false.

Like I said in my OP, all this ideologically driven. That is, it is assumed to be true despite no evidence that it is true in reality.

Besides which, MMT is calling for a whole new way to control inflation. MMTers know that infation needs to be controlled. Despite MS claims MMTers are very aware that inflation is the only risk of larger Gov. deficits. [Deficits by Gov. not in the EUor EZ and that don't have debts money in foreign currencies.]
. . MMT's new inflation control system is its Job Guarantee Program. All MS economists refuse to look at how this would work. Or, if it would work as claimed.

The lurkers will have to think for themselves. They can't rely on MS econ. to do their thinking.
If you want to learn more, googe MMT & Job Guarantee Program. I have already explained it.
_______________________________ ______________________

Going beck to the 'cause' that hysteresis happen with UE, I think I could make a case that as UE goes up the NAIRU goes down. The higher UE rate, the more UE workers there are, and so pgq the *less* bargaining power the still employed workers will have.
. . How does that sound. To me it, as a concept, sounds just as likely or more likely than the opposite.

Also, this theory claims that once UE reaches 25% the Gov. can't do anything to save the economy without high inflation. So, lets just let 25% of the workers starve for the next 100 years. Or, does MS econ. have a way that we can avoid letting a continually growing part of the population starve, in a land of plenty. One that works.!!
. . What is it? We now know that EU style *austerity* is not the way, because it has not worked for over 12 years now.

You young workers/lurkers have nothing to lose but your chains.
Steve_American wrote:
"One line posts with pronouns in them are hard to understand.
Yes, I read the article. It's true that ideological is my word.
What is your point again?"

Rugoz wrote:
hysteresis, your article's argument is based on it.

OK, yes, I see where hysteresis is mentioned in Bill's bog I linked.
I'll quote it here. From Bill's blog.
But, even if structural factors are determinant of the NAIRU, it remains the fact that if they are influenced in any way by the economic (spending) cycle, then the NAIRU becomes sensitive to government spending shifts and the whole Monetarist-NRH story crumbles.
That is what the concept of hysteresis was about. That was one of the things my PhD contributed – I was one of the first to develop that concept in the literature in the 1980s.
The idea is that structural shifts accompany cyclical shifts and so there is no determinant NAIRU and estimates of it will just follow the actual unemployment rate up and down in some lagged fashion depending on the econometric technique used to estimate it.
And, when one examines the alleged structural factors (proposed by proponents of the NAIRU concept) using all sorts of statistical and econometric tools – from simple linear regressions to advanced techniques (non-linear, filters, etc) the overwhelming result is that the structural variables, are, themselves, highly sensitive to the economic cycle.
Which means if the actual unemployment rate falls, the estimated NAIRU falls (and vice versa).
Which means that if governments stimulate the economy using fiscal policy and reduce the unemployment rate, they create their own non-inflationary space in the process.

I have repeatedly said, 'I'm not an expert'. Not being an Economics major is an advantage here, because MS Economics is like a religion with a dogma. Like a religion you must accept the assumptions on faith and ignore reality.

I don't think as you said, "your article's argument is based on it [hysteresis]" is true. His point here is that the way hysteresis acts on the NAIRU if or when the national Gov. acts fiscally to drive down UE, the movement of the UE rate will also drive down the NAIRU, so that it stays below the current declining UE rate.

I think this [it stays below the current declining UE rate] is what Bill means where he says, "That was one of the things my PhD contributed – I was one of the first to develop that concept in the literature in the 1980s."

I think the main point Bill was making in the whole blog post is that, (for several reasons) the NAIRU theory is BS. It is BS starting with IF it is actually a real economic effect, moving to how it is estimated, and ending with 'it doesn't matter anyway because the NAIRU will move down to *always* stay below the current UE rate.'
In any case, how was I supposed to infer that your "it" referred to hysteresis? There were a lot of other concepts it could refer to.

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