13 May 2013

Who Said It?

Scott Sumner 45 Comments

“Always focus on the labor market. Keep that in equilibrium and the free market can handle the rest.”

(A) John Maynard Keynes

(B) Paul Samuelson

(C) Paul Krugman

(D) Robert Reich

(E) Scott Sumner

(F) Super Grover

(After you choose, go here for the answer.)

45 Responses to “Who Said It?”

  1. Daniel Kuehn says:

    I think he plagiarized Super Grover, though

  2. ThomasL says:

    Yay! I won.

  3. Major_Freedom says:

    (G) Karl Marx when he’s drunk and a little more candor?

  4. TravisV says:

    Dr. Murphy,

    Dr. Sumner’s view makes perfect sense. It’s indisputable that our economy features massive downward nominal wage rigidity. NGDP and/or inflation targeting is an excellent way of directly addressing that problem.

    It’s the Austrian notion that markets can only adjust if tens of millions of people are unemployed that’s strange.

    http://econlog.econlib.org/archives/2013/04/the_grave_evil.html

    http://jaredbernsteinblog.com/the-trouble-with-low-inflation

    • Major_Freedom says:

      Since when did spending money on goods constitute spending money on labor?

      There is no “Austrian *prescription*”, since Austrian economics is wertfrei.

      Seriously, I mean is it too much to ask to learn basic economics, and the economics you’re criticizing?

      • Bob Roddis says:

        MF, you just don’t understand fundamental Austrian concepts. “Lord Keynes” has definitvely proven that Austrians PRESCRIBE slashing prices and wages regardless of the situation. Since he’s found evidence that sometimes firms cut production and not prices or wages, the entire Austrian School has been definitively debunked once and for all.

        http://mikenormaneconomics.blogspot.com/2013/05/lord-keynes-misesian-economic.html

        • Lord Keynes says:

          ““Lord Keynes” has definitvely proven that Austrians PRESCRIBE slashing prices and wages regardless of the situation. “

          Rothbard:

          There is no reason why prices cannot fall low enough, in a free market, to clear the market and sell all the goods available. If businessmen choose to keep prices up, they are simply speculating on an imminent rise in market prices; they are, in short, voluntarily investing in inventory. If they wish to sell their ‘surplus’ stock, they need only cut their prices low enough to sell all of their product. But won’t they then suffer losses? Of course, but now the discussion has shifted to a different plane. We find no overproduction, we find now that the selling prices of products are below their cost of production. But since costs are determined by expected future selling prices, this means that costs were previously bid too high by entrepreneurs. “

          Rothbard did prescribe “slashing prices and wages regardless of the situation”.

          If he had had any intelligence he would have noticed that cutting them without cutting nominal debt levels with induce severe debt deflation.

          So much for Roddis’s knowledge of Austrian economics.
          But he did not notice or say any such thing.

      • Bob Roddis says:

        Seriously, I mean is it too much to ask to learn basic economics, and the economics you’re criticizing?

        Yes. It is way too much to ask.

        And I admit that I’m a horrible person for insisting that Keynesianism is a ruse to trick workers into accepting lower real wages without them knowing what hit them. Where could I have gotten such an idea?

        • Major_Freedumb says:

          How does it feel to have been burned and owned by Lord Keynes, Bob Roddis? You’re regarded as a village idiot over at Mike Norman’s. Perhaps you’re one of MF’s many sockpuppet accounts. Why don’t you admit it already?

          • Major_Freedom says:

            Roddis owns and burns LK on an almost daily basis.

            You’re only imagining sockpupptery here because A. You are having a tough time accepting the fact that ideas that go against yours are that popular, and B. You yourself sockpuppet and so you have a prejudicial attitude that condemns others to sockpuppety.

        • Lord Keynes says:

          “And I admit that I’m a horrible person for insisting that Keynesianism is a ruse to trick workers into accepting lower real wages without them knowing what hit them.”

          Or maybe you were reading Mises and it slipped your mind that he said much the same too, bob, you genius:

          “Mises’s analysis led him to seek in another direction for the explanation of the observed positive effect of inflation on the employment of labor. His explanation begins with initially-prevailing conditions of excess supply in labor markets that are hampered by minimum wage laws and by the restrictionist policies of legally privileged unions. It is under these conditions, which have prevailed in most industrial economies since the 1920s, that unanticipated inflation via bank credit expansion can lower real wage rates toward market-clearing levels and increase the employment of labor. As Mises argued:

          ‘Under conditions of [the inflationary] boom, nominal wage rates which before the credit expansion were too high for the state of the market and therefore created unemployment of a part of the potential labor force are no longer too high and the unemployed can get jobs again. However, this happens only because under the changed monetary and credit conditions
          prices are rising or, what is the same expressed in other words, the purchasing power of the monetary unit drops … inflation can cure unemployment only by curtailing the wage earner’s real wages.‘”

          Salerno, Joseph T. 2010. Money, Sound and Unsound. Ludwig von Mises Institute, Auburn, Ala. pp. 210–211.

          • Major_Freedom says:

            That is not “much the same thing.”

            The key word is “observed”, and the context is minimum wage creating unemployment.

            If the state sets a price floor for labor, say at $25 an hour, and that causes a rise in unemployment, then inflation of the money supply which raises spending and prices can make that minimum wage lower and lower in terms of market rates, until employers would willingly pay $25 because they know they’ll be able to sell their goods at higher prices later on to make $25 profitable.

            “Mises’s analysis led him to seek in another direction for the explanation of the observed positive effect of inflation on the employment of labor. His explanation begins with initially-prevailing conditions of excess supply in labor markets that are hampered by minimum wage laws and by the restrictionist policies of legally privileged unions. It is under these conditions, which have prevailed in most industrial economies since the 1920s, that unanticipated inflation via bank credit expansion can lower real wage rates toward market-clearing levels and increase the employment of labor.”

            If on the other hand there is a free market, and prices are allowed to fall, then inflation does not overcome the above barriers to entry, since those barriers won’t even exist anymore.

            You quoting Salerno in the way you did would imply that you believe that abolishing minimum wage and other restrictionist policies that hamper potential employers and employees from creating contracts, will make inflation unnecessary.

            But we know you aren’t intellectually honest enough to admit this, which is why it is easy to see that you’re just whoring out a passage from an “Austrian” but through misrepresentation and obfuscation of the main point.

            • Lord Keynes says:

              “That is not “much the same thing.”

              Yes, it is, despite your desperate attempts to prove otherwise.

              “You quoting Salerno in the way you did would imply that you believe that abolishing minimum wage and other restrictionist policies that hamper potential employers”

              No, it doesn’t.

              But your comment above might imply that you endorse coercion and violence to suppress free association in unions so you can have your anarcho-capitalist flying unicorn paradise.

              Without coercion, unions will continue to exist. And workers in general will continue to resist wage cuts. You’re stuck with wages relatively rigid downwards in the real world.

              • Major_Freedom says:

                “Yes, it is, despite your desperate attempts to prove otherwise.”

                No, it isn’t, despite your desperate attempts to prove convince otherwise.

                “No, it doesn’t.

                Yes it does, for that is the context for why Salerno said inflation can boost employment. It is when it is already reduced due to other interventions. Salerno would not, and did not, argue that employment can still be boosted from inflation in a context of no intervention.

                “But your comment above might imply that you endorse coercion and violence to suppress free association in unions so you can have your anarcho-capitalist flying unicorn paradise.”

                No, it doesn’t, because to be anti-politicized unions is not to be anti-union. Nothing wrong with voluntary association.

                But that isn’t the only phenomena associated with unions. There is also a coercive factor, whereby the state uses coercion to stop non-unionized workers from competing with the unionized workers. Unions finance and donate money to politicians and political candidates willing to use coercion to stop competition.

                “Without coercion, unions will continue to exist.”

                Yes. Without coercion, states and state backed unions cannot exist.

                “And workers in general will continue to resist wage cuts.”

                And sellers will continue to resist price cuts.

                But mere resistence is not sufficient to prices actually paid. Workers who want to work, and earn money rather than starve, will have to accept lower wage rates even if they want higher wages, and sellers will continue to have to accept lower prices even if they want higher prices for the goods they sell.

                “You’re stuck with wages relatively rigid downwards in the real world.”

                You mean we’re stuck with all prices not decreasing at all, if pyschological dislikes of price cuts were sufficient.

                But they are not sufficient. It doesn’t matter if wage earners want to earn $1 million an hour, and it doesn’t matter if sellers want to sell their goods for $1 million an hour. If they want to earn an income, they will have to accept the maximum prices offered by those who own the money being paid.

                Also, inflation tends to encourage downward price rigidity, so it cannot be a solution to price rigidity.

                Once again, you show ignorance of economics and of politics.

        • Bob Roddis says:

          Actually, I got the idea from Hayek on TV in 1977:

          http://www.youtube.com/watch?v=gaQcbGoW2C0

          Reading Mankiw just reinforced the obvious for the 798th time.

          • Lord Keynes says:

            So presumably Mises saying much the same thing makes him a vicious evil thug as well?

            Or perhaps crippling debt deflation via price deflation is preferable in your flying unicorn ANCAP world?

            • Bob Roddis says:

              There wouldn’t be Keynesian inflation-induced unpayable debt in my flying unicorn* ANCAP world.

              There would be no undistorted prices and thus no inducement to take on such debt. Therefore, there would be no horrible and painful period of downward price readjustments that result from your polices. You wouldn’t understand because you refuse to understand the process of economic calculation or the mis-calculation that is induced by your own policies.

              *LK claims I have no sense of humor.

              • Lord Keynes says:

                “There wouldn’t be Keynesian inflation-induced unpayable debt in my flying unicorn* ANCAP world.”

                Unless you use coercion and force to suppress voluntary credit money in ALL its forms — e.g., negotiable cheques, bills of exchange, promissory notes, FR bank money — then even ANCAP flying unicorn paradise will have credit expansion, which is a sufficient cause of business cycles, according to your own Misesian ABCT.

                Oh, wait, bob roddis just *knows* by magic or telepathy or some sorcery, that no one, anywhere, at any time, would ever use credit money in the ANCAP flying unicorn paradise … But for those who do not believe in magic, they might be skeptical.

                And he has also failed to read his Mises:

                “For the sake of economic calculation all that is needed is to avoid great and abrupt fluctuations in the supply of money. Gold and, up to the middle of the nineteenth century, silver served very well all the purposes of economic calculation. Changes in the relation between the supply of and the demand for the precious metals and the resulting alterations in purchasing power went on so slowly that the entrepreneur’s economic calculation could disregard them without going too far afield. Precision is unattainable in economic calculation quite apart from the shortcomings emanating from not paying due consideration to monetary changes.” (Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar’s Edition. Ludwig von Mises Institute, Auburn, Al. p. 225).

                That entails:

                (1) no great and abrupt fluctuations in the supply of money, and

                (2) slow changes in purchasing power of money

                So economic calculation IS consistent with mild money supply growth when matched by money demand, and mild/low inflation or deflation.

                Roddis fails to understand his own Austrian theory yet again.

              • Bob Roddis says:

                Wow. A little dose of poison is easier to cure than a large dose.

                You are right, LK. Let’s poison away. What harm could it cause?

              • Lord Keynes says:

                No, roddis, Mises did not think money supply expansion or credit growth in response to the demand for it was “poison”, but a normal part of capitalism:

                “In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur. Again, Deflation (or Restriction, or Contraction) signifies: a diminution of the quantity of money (in the broader sense) which is not offset by a corresponding diminution of the demand for money (in the broader sense), so that an increase in the objective exchange-value of money must occur. If we so define these concepts, it follows that either inflation or deflation is constantly going on, for a situation in which the objective exchange-value of money did not alter could hardly ever exist for very long. The theoretical value of our definition is not in the least reduced by the fact that we are not able to measure the fluctuations in the objective exchange-value of money, or even by the fact that we are not able to discern them at all except when they are large”
                Mises, L. von, 1953, The Theory of Money and Credit (trans. H.E. Batson), J. Cape, London. p. 240.

                That is,

                “Mises …. suggests inflation [is] … ‘an increase in the quantity of money above the market demand of money.’ Note that, under Mises’ suggested definition, not every increase in the quantity of money is inflation, only increases that exceed market demand …. [Mises] saves the term inflation for cases where the quantity of money is increasing above the market demand for money”
                Cachanosky, N., 2009, “The Definition of Inflation According to Mises: Implications for the Debate on Free Banking,” Libertarian Papers Vol. 1, Art. No. 43. 2009: p. 5.

                That means that the money supply — including credit money — can continuously rise in proportion to the demand for money.

              • Bob Roddis says:

                This “debate” is boring and has exhausted itself. I submit that people must become aware of the nature of economics and funny money and be careful in their dealings with money.

                You think the solution is for the world to declare you official dictator/regulator so that you can dilute the money supply, apply the appropriate amount of “stimulus” spending and flyspeck and approve every single transaction in advance in order to avoid “debt deflation” and whatever else.

                We disagree. I’m bored.

              • Ken B says:

                “*LK claims I have no sense of humor.”

                That’s the great thing about markets: if you don’t already have one you can buy one.

            • Major_Freedom says:

              Mises did not say “much of the same thing.”

    • Aneirin says:

      “It’s the Austrian notion that markets can only adjust if tens of millions of people are unemployed that’s strange.”

      I think that’s inaccurate. There are people who believe in ABCT who think that nominal GDP doesn’t have to take a hard fall during liquidation phases (including those who think declining nominal GDP actually *hurts* the ability of markets to clear).

      Hayek, Selgin, and White come to mind, for instance. I tend to agree with them that maintaining monetary equilibrium during recessions is helpful, and as such, would favor an NGDP target over current Fed policy.

      • Tel says:

        Maintaining monetary equilibrium is not an NGDP target, because an NGDP target will inevitably be pumped by some arbitrary invented growth rate.

        Maintaining monetary equilibrium is targeting zero (price) inflation, over a sufficiently broad and realistic basket of goods (which absolutely must include food and fuel).

    • Tel says:

      NGDP and/or inflation targeting is an excellent way of directly addressing that problem.

      So what you are saying it we can reduce wages but overcome this “stickiness” by thinking that everyone is an idiot, and it won’t occur to them they are being ripped off?

      Yeah, it will occur to them. Getting the job done by stealth won’t work. People just aren’t as stupid as you think.

      It’s the Austrian notion that markets can only adjust if tens of millions of people are unemployed that’s strange.

      It’s the Keynsian notion that they are always the smartest guys in the room that is strange.

  5. TravisV says:

    Aneirin,

    You’re part of a teeny-tiny minority of Austrians who support NGDPLT. Bob Murphy, Major_Freedom and the Ron Paul crowd, for example, think we need to tighten monetary policy and throw millions of people out of work.

    I’m glad you see that that’s a rather strange view.

    • Richard Moss says:

      “I’m glad you see that that’s a rather strange view.”

      Sorta strange to accuse Austrians of being wrong about markets clearing unemployment through falling wages, and at the same time accuse them of wanting unemployment in order to clear the market…

      “Bob Murphy….think we need to tighten monetary policy and throw millions of people out of work.”

      What about Bryan Caplan? He thinks that during a recession we should fire government regulators and IRS agents because they are employed in sub-optimal jobs that inhibit economic growth.

      • Tel says:

        Not strange when you think that everyone is too dopey to notice inflation devaluing their wages. Just like a holy grail — all the benefits of devalued wages, without anyone reacting. Genius!

    • Major_Freedom says:

      “You’re part of a teeny-tiny minority of Austrians who support NGDPLT. Bob Murphy, Major_Freedom and the Ron Paul crowd, for example, think we need to tighten monetary policy and throw millions of people out of work.”

      You fail to address the law of opportunity costs.

      Throwing millions of people out of work is not what we want. We want the sovereign consumers, which includes ALL people, not just those in the state, to throw as many people out of work as required to restructure the economy to be in line with actual sovereign consumer preferences, instead of what inflation distorted relative prices and interest rates seem to signal.

      You people are dangerous because you would rather the errors pile up so long and so widespread until the entire monetary system breaks down, rather than admitting the problems originate from inflation itself, and that it is better to suffer now while the problems are smaller, rather than suffering even more later on when the problems are greater.

  6. TravisV says:

    Major_Freedom,

    You wrote “Since when did spending money on goods constitute spending money on labor?”

    The answer is very clear. NGDPLT solves the problem of sticky wages.

    If national income is growing 0% or 1% a year, individual firms that need to cut back are unwilling to cut the wages of workers. Instead, they reduce the average wage by firing lots of people. The economy suffers depression, mass unemployment and reduced wealth creation.

    In contrast, if national income is growing 5% a year, individual firms that need to cut back will hold the workers of some wages flat. With that approach, everyone is still working. Hooray, problem solved!

    • Major_Freedom says:

      “The answer is very clear. NGDPLT solves the problem of sticky wages.”

      That is not an answer.

      Plus, inflation itself makes workers less willing to take pay cuts. So you can’t treat inflation as an exogeneous factor.

      “If national income is growing 0% or 1% a year, individual firms that need to cut back are unwilling to cut the wages of workers. Instead, they reduce the average wage by firing lots of people. The economy suffers depression, mass unemployment and reduced wealth creation.”

      Not all investments, not all labor and resource allocations, are sustainable.

      “In contrast, if national income is growing 5% a year, individual firms that need to cut back will hold the workers of some wages flat. With that approach, everyone is still working. Hooray, problem solved!”

      Working for working sake is not a solution to the problem. It’s the creation of a new problem.

      If it’s working for working sake that is the solution, why not have the state print money and hire all laborers?

  7. Darien says:

    I find that, on the whole, this trivia question would have been more challenging had you not tagged it “Scott Sumner.”

    • Bob Murphy says:

      I find that, on the whole, this trivia question would have been more challenging had you not tagged it “Scott Sumner.”

      I’ve learned not to ask too much of Free Advice readers.

  8. TravisV says:

    Richard Moss,

    Here is a great old exchange between Dr. Murphy and Greg Mankiw on sticky wages:

    http://gregmankiw.blogspot.com/2009/04/instantaneous-deflation-as-macro.html

    Greg said “I wish we lived in the world that Mr Murphy describes, but my reading of the evidence is that we don’t.”

    Exactly!

    • Bob Roddis says:

      Mankiw the budding Austrian writes:

      I think this [Bob Murphy’s] analysis is correct, under the maintained assumption that prices (including wages) are completely and instantaneously flexible. But if prices are sticky, then the immediate deflation and concurrent increase in expected inflation won’t occur painlessly. Instead, it would take a while for the price level to fall, and as we wait, the economy would suffer through a period of depressed economic activity.

      According to conventional new Keynesian analysis, sticky prices are the ultimate market imperfection that makes aggregate demand matter. If you deny that prices are sticky and assume they can instantaneously jump downward to new equilibrium levels, many macroeconomic problems become much easier to solve. Indeed, you don’t need to solve them at all, as the market would do it.

      I get it. After the Keynesians have induced an artificial unsustainable bidding-up of prices and wages, the people are in a state of uncontrolled hysterics when those unsustainable prices and wages are poised to collapse, having gone to government schools and thus appropriately oblivious to the fact that inflation is a purposeful government program which has by now mispriced most everything. Instead of just explaining the plain truth to the people, we need another round of funny money dilution and continued deception from now until the end of time.

      Actually, Mankiw has basically admitted that if the people understood Austrian analysis they wouldn’t act in an irrational and hysterical manner and they wouldn’t tolerate further episodes of price distortion.

      • Major_Freedom says:

        “Mankiw has basically admitted that if the people understood Austrian analysis they wouldn’t act in an irrational and hysterical manner and they wouldn’t tolerate further episodes of price distortion.”

        And that’s likely why he doesn’t teach it.

    • Major_Freedom says:

      We don’t live in that world because of the very inflation Mankiw desires, and gets.

      Workers who live in a price deflation world for generation after generation, will learn and will adapt and will accept pay cuts far more easily.

      You and Mankiw are arguing as if wage earners would rather starve to death than accept pay cuts, even if they know prices will decrease in the future, as if inflation is ONLY a solution and does not affect ask and bid prices itself.

      • Tel says:

        People just factor in their own estimate of inflation, which is why unions will regularly use CPI as a basis for wage rises. Thus, in order for governments to make the Keynesian magic work, they also need to jigger the CPI figures.

        Then it comes down to the prices I see vs the prices you see. Most people see: food, fuel, transport tickets, rent, health & medicine, and some entertainment — that’s their whole budget gone.

    • Richard Moss says:

      TravisV,

      I did not read all of Dr. Mankiw’s post, but focused on this comment he made;

      I think this analysis is correct, under the maintained assumption that prices (including wages) are completely and instantaneously flexible. But if prices are sticky, then the immediate deflation and concurrent increase in expected inflation won’t occur painlessly. Instead, it would take a while for the price level to fall, and as we wait, the economy would suffer through a period of depressed economic activity.

      This position makes a lot of sense if you don’t think the primary cause of businesses cycles is capital misallocation. If it’s just a sudden drop in demand due to ‘animal spirits’ and creating money is a more ‘efficient’ way of dealing with ‘wage rigidity’ because it will have neglible side effects (i.e. no further misallocation of capital), then it makes a lot of sense to support it.

      But, the Austrian position is that capital misallocation is the problem behind business cycles, and that government induced credit expansions undertaken to prevent a ‘bust’ and falling wages will cause more problems later. So, unfortunately, whatever ‘pain’ one has to undergo to accept lower wages is necessary. Necessary in the same sense that Bryan Caplan thought (in the link you provided above) that many government regulators and tax agents should lose their jobs in the name of economic efficiency under his proposed ‘free market’ solution to address ‘sticky wages.’

  9. Bob Roddis says:

    The concepts and terms “sticky wages” and/or “sticky prices” are dishonest and misleading from the get go. It is the government school system that fails to inform its students that inflation is not a mysterious and inexplicable force of nature but a purposeful government program intended to facilitate the surreptitious theft of purchasing power.

    Apparently, the Keynesian program is based upon the unsubstantiated assertion that the entire human race is too stupid to even be told that their prices and wages have been fatally and unsustainably distorted by prior Keynesian funny money and spending policies. And the Keynesian cure for the prior Keynesian-induced distorted pricing is not to shift to a program of undistorted pricing in the future but instead to employ even more Rube Goldberg-like methods to induce continued distorted unsustainable pricing from now until the end of the universe.

  10. TravisV says:

    Guys,

    What has Peter Schiff done for you lately?

    When do y’all think the massive hyperinflation disaster apocalypse run on the dollar actually going to happen?

    Forty years from now? Seventy years from now? Even longer than that?

  11. TravisV says:

    Nevermind Peter Schiff, what has Bob Murphy done for you lately? Remember his inflation bet with David Henderson?

    http://econlog.econlib.org/archives/2012/12/my_inflation_be.html

    When do y’all think the massive hyperinflation disaster apocalypse run on the dollar is actually going to happen?

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