The New Arthurian Economics

Wednesday, May 2, 2012

The recent (2008-09) NGDP crash was the largest since the 1930s, and Lucas has argued that the Friedman and Schwartz story applies to the steepest part of that crash, in late 2008 and early 2009.  However he also believes that the slow recovery is better seen as an example of the sort of stagnation that hit Europe after the 1970s, when natural rates of unemployment rose to a much higher plateau. 

1.  One would expect Sumner to speak of an "NGDP crash" as opposed to a GDP crash, because NGDP is part of Sumner's central theme.  However, we really didn't have much deflation to speak of, so what is correctly described as an NGDP crash is also correctly described as a GDP crash or an RGDP crash. 

No biggie.  But Sumner's use of the term "NGDP crash" shifts focus to his theme and away from analysis of the problem.  And it is never right to take eyes off the analysis. 

I guess that's the problem with lots of solutions people offer: They want you to look at their solution, rather than at what the problem really is. 

2.  The biggie:

"...the slow recovery is better seen as an example of the sort of stagnation that hit Europe after the 1970s, when natural rates of unemployment rose to a much higher plateau." 

You can't just make up something like "the natural rate of unemployment" and assume that it varies, and then throw numbers together based on these and other assumptions and call that evidence, and expect me to buy it. 

The thing that you call the natural rate is something I see as a result of the interaction of your conflicting economic policies.  But you never blame your policies.  You act like your policies had nothing to do with the problems.  You act like there's no way your policies could have done things to make the so-called "natural" rate go up. 

Funny thing about that: If you guys made the natural rate go up, it isn't really a natural rate at all.