At Vox.com Jared Bernstein has a post on four economic theories that have fallen on hard times that I think is worthy of your consideration. The theories are:
- Going below the natural rate of unemployment could spark an inflationary spiral
- Everybody wins with globalization
- Deep budget deficits will crowd out private investment
- A higher minimum wage will only hurt workers
The first is the well-known “Phillips Curve”, proposed in 1958 and taught as gospel when I was taking economics classes. Although it seemed to be predictive from the post-war period through the early 1970s, the relationship bwtween unemployment and inflation seems to have stopped working. Milton Friedman thought it only applied over the short run. No one really knows whether that was the case, it was just a fluke, or if circumstances have changed so that it no longer applies. I suspect there’s some relation between sluggish increases in productivity and unemployment which explains why the relationship between inflation and unemployment no longer seems to hold.
The second is the neoliberal theory of international trade that has guided our trade policy for decades. I think that it remains true all other things being equal but that is also possible for a country, particularly a very large country, through careful application of mercantilist policies to arrange for itself to gain while everyone else loses and that the authorities of an unnamed country have succeeded in doing just that.
The third theory that doesn’t seem to be holding true is “crowding out” and it depends on whether credit is a scarce commodity or not. IMO it is possible that there are multiple carrying capacities for credit—personal, local, national, regional, global—and that while the theory may not be working as expected today it may well tomorrow. Feel lucky, punk?
I would never claim that a higher minimum wage only hurts workers and never helps them. I think that I would say that whether it helps, hurts, or both depends on, among other things, the price elasticity of labor. I also think that treating human beings as though they were cogs in a machine is immoral. Helping some workers while throwing others permanently out of work is simply not the right thing to do, particularly when there are other alternatives.
At any rate you may find Mr. Bernstein’s post as interesting as I did. In particular check out the section on the wage effects of loose and tight labor markets.
Hard to crowd out when money is pumped in. The interest rate has been managed down.
Open question: who believes the Feds really want to inflate away the debt? If you don’t, do you believe we can live in a state of perpetual over and/or increasing leverage? Shit happens you know.
Only possible when credit is not a scarce resource.
The idea that globalization benefits everyone is false, and obviously so, if you would care to look around the Midwest.
The fundamental trend of open borders and free trade is that all incomes are forced toward the global mean. That is unavoidable. It is the plain purpose of globalization.
In the case of the US, globalization brought working class Americans into direct competition with low income foreigners, both in the foreign countries and as legal and illegal immigrants. Hence the Rust Belt.
There has also been some direct competition between American professionals like programmers and engineers. American programmers have been displaced by cheap Indians, both here via H-1B visas and by outsourcing. Silicon Valley.
It is not commonly realized but large American engineering companies maintain staffs in countries around the world, and they use that staff to complete designs over the internet. Boeing is a good example, and the 737 MAX (and NG) and 787 are the expected results.
I haven’t written much Boeing’s fustercluck. IMO it was due to a combination of factors:
– the drive to keep costs low
– offshoring of engineering
– management’s failure to provide the degree and type of management necessary for the offshore team
The reality of offshoring is that cultures really are different. An Indian company gave Boeing an offer they literally could not refuse and Boeing was unprepared to provide the minute, obtrusive management which would have been necessary to utilize the offer effectively.
I blame Boeing’s management. The entire topmost team should have been fired. That they were not is board incompetence—IMO one of the gravest problems in the U. S. is corporate governance. There are too many incompetent, corrupt boards of directors.
Boeing
I was assured that no company would allow their customers to be killed. It is bad for business. The same people assured me that no bank would approve a mortgage to anybody not creditworthy. Banks do not want to be in the real estate business.
Sometimes reality has a nasty habit of falsifying one’s talking points.
economic theories
See above.
These are hard money concepts, and in a world of credit-backed currencies, they are quaint anachronisms.
@Dave Schuler
credit is not a scarce resource
When the credit supply is greater than credit demand, the price of debt will fall until supply and demand are equalized.
@Drew
… do you believe we can live in a state of perpetual over and/or increasing leverage?
No, but it can seem like it can be perpetual..
Shit happens you know.
Yep. At some point, there will be a credit crisis.
Re Boeing
We should be precise “the desire†to cut costs.
I know of two general ways to cut costs (there maybe more). The first way is to invest in more efficient methodologies; an example is the adoption of just in time inventory management by Toyota. The second is invest less; whether in people or in products.
Boeing management pursued the 2nd way for far too long; but the (catastrophic) results only appeared after the management that pursued the policies had all retired. If you look carefully; all the key decisions that led to the issues were made starting 10-15 years ago.
“The same people assured me that no bank would approve a mortgage to anybody not creditworthy. ”
Those were the same people that were perfectly OK with banks handing out to loans to people when they didnt even know if they had any income.
Steve