“There is no reason to think that saving is going to hurt long term growth. The economy just adjusts.
Prices adjust. As as long as people’s expectations are correct …
Oh really? And what is your evidence for this statement that “prices adjust” if savings increase and demand falls?
Clairvoyance? Magic?
This is a synthetic a posteriori statement, so you need empirical evidence to prove it.
The evidence is overwhelming that you’re living in a fantasy world, Murphy:
This is why Austrian economics is such a stagnant and mostly irrelevant school of economics. At least mainstream neoclassical economics (with the possible exception of the New Classicals) does recognize the fact of strictly prices.
2) the deflation in 1920-1921 was caused not just by a decline in aggregate demand but also by a positive aggregate supply shock. Another factor is that deflationary expectations were high after the war, as prices over the 1914–1920 period had increased by 115% (Vernon, J. R. 1991. “The 1920–21 Deflation: The Role of Aggregate Supply,” Economic Inquiry 29: 572–580 at 577). This means that business was expecting deflation
The post-WWI deflation was a highly anomalous event in US economic history, and some expectation of deflation then hardly proves that people have deflationary expectations now or that they have had such expectations in post-1945 recessions.
You say:
Bob wrote prices would adjust as long as expectations are correct.
No, that just assumes that people since 1945 expect deflation in recessions, when in fact disinflation is what nearly always happens.
Bob clearly said if prices adjust if peoples expectations are correct.
You didn’t attack this statement as “highly anomolous” you attacked it as “lacking evidence” – despite the fact that you clearly believed the same thing when it came to 1920-21.
The fundamental issue is whether prices are really set in a flexible way today and in modern market economies since 1945 so that they adjust in the manner Murphy requires.
Pointing to anomalous price flexibility in 1920-1921 nearly 100 years ago does not refute the empirical evidence that most prices do not have this degree of flexibility today.
No, that is not the issue. You’re moving goalposts now.
“Pointing to anomalous price flexibility in 1920-1921 nearly 100 years ago does not refute the empirical evidence that most prices do not have this degree of flexibility today.”
You mean when we have a central bank that prevents prices from falling as a matter of policy, results in an economy where prices don’t fall to clear the market?
Tell us more about the flaws of the free market LK.
And even then it simply does not follow that prices were flexible enough to clear markets.
Even in the 1930s depression, deflation was highly uneven: Gardiner Means found that the administered pricing sector of the US economy had price declines of only about 10% during the depression, whereas the more competitive or flexprice sectors had seen price falls of about 40 to 60% (Means, Gardiner C. 1975. “Simultaneous Inflation and Unemployment: A Challenge to Theory and Policy,” in Gardiner C. Means et al., The Roots of Inflation: The International Crisis. Wilton House Publications, London) — already a clear disparity thwarting this alleged market clearing tendency from price flexibility.
Trashing this article is like shooting dead fish in a barrel. It’s ridiculous and sounds almost like a parody written by a high school for the annual joke issue of the school paper..
problem: “Unemployment blows!”
solution: Guaranteed govt work for everybody (with all the benefits of govt work of course)
problem: “Employment blows!”
solution: universal basic income, in which the government would just add a sum sufficient for subsistence to everyone’s bank account every month. (aka free money for everyone so they can get a life)
You give all that free stuff to people and they would find something else to complain about. That’s just human nature.
Statement by Murphy at 5.11-5.17:
“There is no reason to think that saving is going to hurt long term growth. The economy just adjusts.
Prices adjust. As as long as people’s expectations are correct …
Oh really? And what is your evidence for this statement that “prices adjust” if savings increase and demand falls?
Clairvoyance? Magic?
This is a synthetic a posteriori statement, so you need empirical evidence to prove it.
The evidence is overwhelming that you’re living in a fantasy world, Murphy:
http://socialdemocracy21stcentury.blogspot.com/2014/02/mark-up-pricing-in-12-nations-empirical.html
This is why Austrian economics is such a stagnant and mostly irrelevant school of economics. At least mainstream neoclassical economics (with the possible exception of the New Classicals) does recognize the fact of strictly prices.
Correction:
“sticky prices”
So why do you spend most of your pathetic existence trying to discredit it? Get a life.
LK,
Bob wrote prices would adjust as long as expectations are correct.
It’s funny you would have a problem with that, since you yourself wrote the following in the comment below;
http://consultingbyrpm.com/blog/2012/10/krugman-on-the-1920s-a-one-act-play.html?replytocom=46330#respond
to wit (bold added);
2) the deflation in 1920-1921 was caused not just by a decline in aggregate demand but also by a positive aggregate supply shock. Another factor is that deflationary expectations were high after the war, as prices over the 1914–1920 period had increased by 115% (Vernon, J. R. 1991. “The 1920–21 Deflation: The Role of Aggregate Supply,” Economic Inquiry 29: 572–580 at 577). This means that business was expecting deflation
The post-WWI deflation was a highly anomalous event in US economic history, and some expectation of deflation then hardly proves that people have deflationary expectations now or that they have had such expectations in post-1945 recessions.
You say:
Bob wrote prices would adjust as long as expectations are correct.
No, that just assumes that people since 1945 expect deflation in recessions, when in fact disinflation is what nearly always happens.
So Murphy can’t even get that right.
Lk,
Bob clearly said if prices adjust if peoples expectations are correct.
You didn’t attack this statement as “highly anomolous” you attacked it as “lacking evidence” – despite the fact that you clearly believed the same thing when it came to 1920-21.
Sorry,
*Bob clearly said prices adjust if people’s expectations are correct.
The fundamental issue is whether prices are really set in a flexible way today and in modern market economies since 1945 so that they adjust in the manner Murphy requires.
Pointing to anomalous price flexibility in 1920-1921 nearly 100 years ago does not refute the empirical evidence that most prices do not have this degree of flexibility today.
No, that is not the issue. You’re moving goalposts now.
“Pointing to anomalous price flexibility in 1920-1921 nearly 100 years ago does not refute the empirical evidence that most prices do not have this degree of flexibility today.”
You mean when we have a central bank that prevents prices from falling as a matter of policy, results in an economy where prices don’t fall to clear the market?
Tell us more about the flaws of the free market LK.
“Oh really? And what is your evidence for this statement that “prices adjust” if savings increase and demand falls?”
Yes, magic.
http://research.stlouisfed.org/fredgraph.png?g=seN
Exactly, you can point to but a small number of episodes since 1945, where prices have moved downwards.
Since 1945, only 1949, 1955, and 2009 have had annual negative inflation rates.
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
And even then it simply does not follow that prices were flexible enough to clear markets.
Even in the 1930s depression, deflation was highly uneven: Gardiner Means found that the administered pricing sector of the US economy had price declines of only about 10% during the depression, whereas the more competitive or flexprice sectors had seen price falls of about 40 to 60% (Means, Gardiner C. 1975. “Simultaneous Inflation and Unemployment: A Challenge to Theory and Policy,” in Gardiner C. Means et al., The Roots of Inflation: The International Crisis. Wilton House Publications, London) — already a clear disparity thwarting this alleged market clearing tendency from price flexibility.
Here is the link to the article:
http://www.rollingstone.com/politics/news/five-economic-reforms-millennials-should-be-fighting-for-20140103
Trashing this article is like shooting dead fish in a barrel. It’s ridiculous and sounds almost like a parody written by a high school for the annual joke issue of the school paper..
problem: “Unemployment blows!”
solution: Guaranteed govt work for everybody (with all the benefits of govt work of course)
problem: “Employment blows!”
solution: universal basic income, in which the government would just add a sum sufficient for subsistence to everyone’s bank account every month. (aka free money for everyone so they can get a life)
You give all that free stuff to people and they would find something else to complain about. That’s just human nature.