From: sug6@amber.uchicago.edu (Patrick Sugent)
Subject: Re: The same old unemployement lies
Organization: University of Chicago
Date: Tue, 15 Sep 1992 23:41:21 GMT


 ZEITLIN@SLACVM.SLAC.STANFORD.EDU (Cary Zeitlin) writes:

  Please do not take this as a flame, but I disagree with much of your
analysis.  However, in the interest of brevity, I'll only follow up on 
one or two points.

>or others of his ilk repeat their dogma, remember: 1) Many policies take
>*much* more than 1-2 years before they come home to roost -- decades, in
>some instances; and 2) Sometimes external factors, beyond the control of
>the federal government, have a major impact on the U.S. economy.

  This is true, but some factors which on the surface seem external
can be argued to be a result (in one way or another) of U.S. policy.
For example, it can be argued that our monetary policy was directly
related to the Oil Shocks.  The argument is mildly complicated so I
will not get into it too much, but the OPEC nations stated that they would
take action against the monetary policy which lead to "any adverse
effects on the per barrel real income of Member Countries".  It
appears that they may have been ensuring oil prices in terms of the
price of gold rather than the depreciating dollar.  This can be tied
back to replacing Bretton Woods.  Additionally, our price-wage
experiments with oil hurt us as well.



>He was relying
>heavily on policies pushed by Volcker and other conservatives whose biggest
>worry was (and is) inflation. He had retreated from his previously-stated
>position that he was primarily worried about the "human tragedy" of
>unemployment.

  Well, Volcker didn't come on the scene until after trouble was
already brewing and it could be argued that he didn't figure out what
needed to be done for some time afterwards.  Certainly the evidence
supports this. :-)

  Volcker's predecessor doesn't win particularly high marks from 
any of the sources I have read.


>Since you brought up employment figures, let's explode one of the myths
>of the Reagan years: that he achieved high employment. In fact, it was the
>policy of the Reagan administration to keep unemployment high (I can dig up
>some references if people are interested). High unemployment keeps wages down,
>which keeps inflation under control. 


  If you have your data, I wouldn't mind seeing them.  If Reagan tried 
to keep unemployment high he did a poor job of it. (These numbers are
floating around in other threads.)

  Additionally, I would really like to know if you actually subscribe
to the theory put forth by the Phillips curve.  I would think the 70s/80s
pretty much destroyed that.  This sort of link of inflation to
unemployment is not on very solid empirical ground at all.  Inflation
(it seems) can much more accurately be tied to monetary policy.  In fact,
it can be argued that the Phillips curve gets causality all wrong.
For example, Monetary policy used to fight inflation under old bank regulations
left banks with little money to loan and ends up stumbling the real economy
causing unemployment.  At any rate, the 70s & 80s inflation/unemployment
numbers really dispute the Phillips curve logic your point is based
upon.  (As you can tell, I'm no Keynesian.)


  Well, those are a few of my points.  Please don't take them as a flame.  
I welcome your comments and will be more than happy to explain further
anything that needs clarification.



Pat


-- 
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