"4a. Germany has a choice. Accept huge indirect public claims on Italy
and Spain, plus a drastic revision of strategy — basically, to give
Spain in particular any hope you need both guarantees on its debt to
hold borrowing costs down and a higher eurozone inflation target to make
relative price adjustment possible; or:
4b. End of the euro."
I am sick and tired of hearing people say things like "Keynesians don't care about microeconomic factors" or "Keynesians don't think about relative price adjustments". It's wrong - it's simply wrong. If you hear it from somebody they're either ignorant or they have an ideological axe to grind. And the latter case usually has a hefty dose of the former anway.
The whole problem with depressions and liquidity traps in particular is that relative price adjustments can't be made. Right now every relative price adjustment just twists the knife that the financial crisis plunged into effective dmand.
Sunday, May 13, 2012
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Let's not pretend like the "relative price adjustments" Krugman is talking about are the same as what Austrians talk about.
ReplyDeleteWhy not? I'm not sure I understand Jonathan. If anything he has a broader view of relative prices in mind that includes any particular prices Austrians care about.
DeleteWhy not? While Keynesians may talk about "microeconomic factors" and "relative price adjustments", they ignore the central concepts of human exchange and economic [mis]calculation.
DeleteLol Daniel. Are we now going to pretend that Krugman believes there is a structure of production with multiple states, each with prices that depend on the rate of consumption (in an inverse relationship to that understood by Keynesians)?
DeleteOf course Krugman understands production has multiple stages Jonathan. Did you ever doubt that. And those are some of the many relative prices he's referencing.
DeleteHe doesn't do much theorizing about that particular relative price, it's true. But you can't infer that he's not talking about the whole suite of relative prices just because he's not an Austrian. Austrians aren't the only people that know the pretty obvious fact that production takes place over time.
There's a difference between the idea that production takes place over time and dividing production into stages. In the latter case, there's an element beyond time: it's that production of the final consumer good not only requires time, but also a series of capital goods (most indirectly related) that must be produced independently prior to the production of said final consumer good. And then there needs to be an understanding of how these different prices are formed. I'm sorry, but the argument that Krugman recognizes and understands this is not just unconvincing, it's straight laughable.
Delete"there needs to be an understanding of how these different prices are formed," as if you had any idea about what you are talking about.
DeleteLast time I looked, Wal-Marts puts stuff on its shelves with a price. People buy or they walk on bye.
What do you think happens. Do the bar coded labels with prices come from a print shop run by the Church of Predestination?
Daniel, seriously, why would you ever reply to this dude?
If relative price adjustments aren't possible in a depression then how can they turn the knife? And how come the world hadn't been mired in a permanent depression up until the early 20th century?
ReplyDeleteWhy would we be mired in a permanent depression??
Deletehow come the world hadn't been mired in a permanent depression up until the early 20th century?
Deletenews to you---it was
The industrial revolution seems to have passed some people by....
Deletemake relative price adjustment possible
ReplyDeleteDo you mean reducing real wages Daniel?
All of the debate here lacks sufficient detail. I would be really interested to see a paper by Keynesians (or Market Monetarists) for that matter laying out what effect they see their policies having on prices. By prices I mean in the price level of output and things like relative prices, capital prices and so on.
ReplyDeleteIn fact, I'd like to see Austrians be a lot clearer on the subject too. Hayek talks about capital prices increasing in a boom along with a bunch of other things that happen. Mises talks about the prices of investment goods falling in a recession without the real output of investment goods falling as far. It's all very patchwork though, especially when recessions different from ABCT induced recessions are brought into the picture.