Monday, August 23, 2010

Assault of Thoughts - "Macro Theory Edition" 8/23/2010

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Arnold Kling talks about a statement by Kocherlakota on job vacancies. It's kind of just a collection of thoughts, some of which I wish he'd develop more. For example, he writes this about Okun's Law - "We are getting stronger output growth than employment growth, which suggests that the job openings are not for end-stage production workers." Why does it suggest that, exactly? They call them the "national income and product accounts" because it's not "end-stage production" that's counted - it's all production or all income (the method of counting is interchangeable). I'm not quite clear on how you infer what stage of production has job openings from Okun's Law, but maybe I'm missing something. In the last paragraph he juxtaposes a "matching problem" with an "aggregate demand problem". I think this makes sense, but we still have low job openings relative to peak. Kling acknowledges this and concludes we still have a major demand problem.

- Paul Krugman has a great post on the bond market. He's actually had a series of good posts that deserve some reply from people who were predicting disaster about a year and a half ago. He uses some pretty standard techniques and some pretty standard data to point out that we're going to have these low rates for a while. What he makes a point of, though, is that the rates are only low nominally. Rates should be negative right now. From a purely Wicksellian perspectives, we have tight monetary policy and that's a major problem. The very scary thing is that many people who call themselves economists don't even seem to realize this.

- The NEP-DGE blog links to a paper on a "frictionless model of job flows and the Beveridge Curve". A modified Diamond-Mortenson-Pissarides model is presented that does a better job tracking the cyclical behavior of job flows and vacancies. This matching/job flow work makes mush out of these silly claims you hear out of places like the Mises Institute that other economists are blinded by aggregates conceal the most fundamental mechanisms of change. Before taking those claims at face value, people who are inclined to parrot Mises Institue broadsides should familiarize themselves with the literature they're critiquing, and then critique it for something that actually makes sense (i.e. - too much math or an empirical disposition) rather than concealing the most fundamental mechanisms of change. You'll still be wrong, but at least you won't come across as not understanding that which you critique.

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