tag:blogger.com,1999:blog-6245381193993153721.post5019714369343745316..comments2024-03-28T17:08:15.784-07:00Comments on Social Democracy for the 21st Century: A Realist Alternative to the Modern Left: Colin Rogers’ Money, Interest and Capital, Chapter 1Lord Keyneshttp://www.blogger.com/profile/06556863604205200159noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-6245381193993153721.post-91216517181826968312014-06-08T08:35:00.343-07:002014-06-08T08:35:00.343-07:00LK, on point (1) he is talking about some form of ...LK, on point (1) he is talking about some form of the EMH. He is not being clear on this because he is not clear about the arguments in his own mind. But remember my argument that the natural rate of interest is dependent on the EMH? That is what is going on here. He is trying to put forward a theory of "neutral" financial markets that, in the long-run, balance savings and investment at a full employment equilibrium. Nonsense, of course. And the fact that some "economists" are still making this case as the dotcom bubble and the housing bubble burst within a decade of one another says how freely these guys float away from the real world. I don't bother engaging with these guys any more. They're fossils. The behaviorists have moved the mainstream quite a way away from them.Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-6755468968230768242014-06-08T07:23:51.642-07:002014-06-08T07:23:51.642-07:00I think the existence of nominal debt contracts is...I think the existence of nominal debt contracts is a very convincing argument why money cannot be neutral in the short run, even with completely flexible prices. I have argued that myself several times, although I think most money neutrality advocates accept this point even if they often ignore it. <br /><br />The idea here is that nominal flow quantities could in theory adjust very quickly if prices were flexible, but nominal stock quantities cannot. Changing nominal stock quantities generally has to involve flows taking place over a period of time. This can have very significant real effects. Nevertheless, money neutrality advocates would argue that the real equilibrium value of those stocks is independent of the price level so that, in time, money neutrality must reassert itself. This is the usual argument I face.<br /><br />A few points. First, as you point out, there is the question of how long we are talking about. If it is going to take 500 years for money neutrality to work, then we can effectively forget about it. Would it take that long? Actually, I don't know and I haven't seen anyone argue convincingly either way.<br /><br />More fundamentally, the argument for long run neutrality relies on the idea that there is a long term real equilibrium. Even if you believe in equilibria, there are problems here. We are never actually at a long run equilibrium; we are only ever moving towards one and the target is moving. There is also no general reason to believe there are not multiple equilibria, so given the short run real effects we could quite easily end up moving towards a different long run equilibrium. One short run impact of money non-neutrality is a redistributive effect. As people are not all identical in their actions and preferences, this will also affect any long run equilibrium. Furthermore, many things like technology and productivity may well be path dependent, so short run effects can turn out to be permanent. I'm sure there are many more reasons.<br /><br />I do generally consider myself to be a post-Keynesian, but I am keen not to be confined by a label. I decide for myself what to believe and what not, and that's not always the post-Keynesian view.Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-90947419587607715522014-06-08T03:55:09.286-07:002014-06-08T03:55:09.286-07:00(1) "True, but once errors are exposed, price...(1) <i>"True, but once errors are exposed, prices revert to their true values. "</i><br /><br />What "true" values are these supposed to be? Market clearing prices?<br /><br />We know most prices -- given that they are mark-up prices -- do not gravitate towards market clearing values as defined in neoclassical theory.<br /><br />(2) <i>"Nor do I deny that this can be incredibly painful.(Which in part depends on how friendly bankruptcy laws are to debtors) ..</i><br /><br />Edward, this admission utterly refutes the standard neoclassical theory that flexible wage and price adjustment is what will reliably and rapidly lead to full employment.<br /><br />It is precisely that nominal contracts -- above all, debt contacts -- generally are not adjusted to reflect other nominal values or real forces that, amongst many reasons, refutes neoclassical theory.<br />Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-35597496623111538762014-06-08T03:17:16.269-07:002014-06-08T03:17:16.269-07:00Also, I just noticed that you say on your blog:
...Also, I just noticed that you say on your blog: <br /><br />"My main inspiration comes from the work of Wynne Godley, my supervisor at Cambridge in the 1980s." <br /><br />That must have been very interesting.. I am impressed!<br /><br />The Post Keynesian view -- and I would be surprised if Wynne Godley departed from it -- is that money can never be neutral in either the short or the long run.<br /><br />E.g., Paul Davidson, 1988. “A Technical Definition of Uncertainty and the Long-Run Non-Neutrality of Money,” <i>Cambridge Journal of Economics</i> 12 (3): 329-337.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-59153397717223490632014-06-08T03:10:32.263-07:002014-06-08T03:10:32.263-07:00Are we talking about some imaginary "long run...Are we talking about some imaginary "long run" where money is neutral by definition, or a long term period of time in the real world?<br /><br />All nominal debts contracts are not automatically adjusted to reflect other values in the real world, even in the long run. Do you really think nominal debts even in the long run are, for example, carefully and automatically adjusted for inflation?<br /><br />It is not true. In the real world, it is the case that debtors with long tern debts often do benefit from inflation as it erodes the real value of their principal and interest payments.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-31444455382796740922014-06-08T02:53:23.644-07:002014-06-08T02:53:23.644-07:00Here. Look very closely at the periods you cited a...Here. Look very closely at the periods you cited and you will see that although the interest rates diverge (who argued that they may not) they are nevertheless CORRELATED which is the important thing for economic argument (take a course in statistics if you don't understand why this is):<br /><br />http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=CQn<br /><br />The differences in the strengths of the correlation have to do with the perceptions that exist in the market as to where the Fed is about to move the rate. But there's no way I'm going to get into liquidity preference theory with you before you have even shown yourself capable of reading a correlation or understand how we make causal arguments in economics.Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-28484931330262476182014-06-08T02:48:33.735-07:002014-06-08T02:48:33.735-07:00"What are YOU talking about? There are severa..."What are YOU talking about? There are several points on your graph where the Moody Corporate Bond yield and the 30 year conventional mortgage rate diverge from the fed funds rate: namely in 1971, 1976 and 1982 (all after recessions)"<br /><br />Obviously you do not understand bond markets at all. Interest rates across markets gravitate toward the overnight rate WITH A LAG and SUBJECT TO UNCERTAINTY AS TO WHERE THE OVERNIGHT RATE WILL MOVE IN THE FUTURE. I am not going to explain why this is. If you do not understand the reasons for this then take a course in bonds in a financial economics department or read a good writer on the topic of bond markets. For the purposes of the empirically dubious claim you made earlier it is clear from the data that interest rates across the market are following the overnight rate. This implies that the overnight rate has the most sway on actual yields and thus that the idea that there is some "real" forces moving the market in line with some outdated economic theory is totally false.<br /><br />As to my arguments on Money Illusion you obviously didn't understand them because you are unable to summarise them. In fact, you appear unable to summarise anything. All your posts come across as someone who has learned a few key words about economic debates but been unable to digest the debates themselves. I think you need to hit the books, pal, both on bond markets and on the debates you hope to intervene in.Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-54898924023183288332014-06-08T02:29:38.136-07:002014-06-08T02:29:38.136-07:00I don't believe in long-run money neutrality e...I don't believe in long-run money neutrality either. However, the reasons you are giving here are ones that I normally associate with the question of short-run neutrality. Doesn't the long run mean enough time for nominal debt adjustments to have taken place? Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-420224803485650642014-06-07T12:31:57.329-07:002014-06-07T12:31:57.329-07:00Philip Pilkington,
""I'm not talking...Philip Pilkington,<br />""I'm not talking about central bank responses to control inflation by raising "benchmark" interest rates, even when the prime rate was lowered, in high inflation decades such as the seventies, rates all across the economy stayed extremely high."<br /><br />Empirically wrong. Interest rates followed overnight rate. Duh.<br /><br />http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=CNe<br /><br />What are YOU talking about? There are several points on your graph where the Moody Corporate Bond yield and the 30 year conventional mortgage rate diverge from the fed funds rate: namely in 1971, 1976 and 1982 (all after recessions)<br /><br />""And no Philip Pilkington, this has nothing whatsoever to do with fixed exchange rates- the U.S. went off the gold window and fixed forex in 1971, and interest rates remained extremely high."<br /><br />What on earth is this guy talking about? His comment is entirely incoherent…"<br /><br />You appeared on the blog of the Moneyillusion.com making incoherent arguments with the blog owner on interest rates in hyper inflationary countries with "fixed currencies" <br />You're wrong againEdwardnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-79314751382358158682014-06-07T12:26:04.414-07:002014-06-07T12:26:04.414-07:00"on the Fisher effect, the fact that nominal ..."on the Fisher effect, the fact that nominal interest rates might be adjusted in anticipation of inflation changes hardly proves that money is neutral in the long run."<br /><br />Yes, you see it does. The Fisher effect states that the nominal interest rate equals the real rate plus inflation. Unemployment would not have skyrocketed in the 70's if there were a permanent inflation employment tradeoff.<br /><br />"For one thing, we live in a world of uncertainty, and people's expectations may be wrong -- sometimes badly wrong."<br /><br />True, but once errors are exposed, prices revert to their true values. Markets reveal their own errors more swiftly than governments.In the U.S. in 2007 late in the year, markets saw the subprime crisis' severity before government did, and the bailout of Bear hardly reassured them.<br /><br />"Secondly, neutral money would require much more than mere adjustment of nominal interest rates in relation to inflation. E.g., if asset prices, prices and wages collapse, then the principals of nominal debts would have to adjusted too."<br /><br />Not necessarily. (Again, long vs short run.)<br /><br />"If you think all or even most nominal debts really are regularly adjusted like this in the real world, you may as well live in Narnia and spend your time dancing with centaurs."<br /><br />Don't mistake me for an RBC theorist. (Nor an Austrian) i don't deny that this can take a long time, Nor do I deny that this can be incredibly painful.(Which in part depends on how friendly bankruptcy laws are to debtors) This is why I prefer stimulus than letting markets clear on their own.<br /><br />But saying the clearing process is incredibly painful is different than saying it doesn't happen entirely<br /><br />Edwardnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-72892261533381618642014-06-07T06:58:18.809-07:002014-06-07T06:58:18.809-07:00"I'm not talking about central bank respo..."I'm not talking about central bank responses to control inflation by raising "benchmark" interest rates, even when the prime rate was lowered, in high inflation decades such as the seventies, rates all across the economy stayed extremely high."<br /><br />Empirically wrong. Interest rates followed overnight rate. Duh.<br /><br />http://research.stlouisfed.org/fred2/graph/fredgraph.png?g=CNe<br /><br />I also like the appeal to authority in the form of Krugman. Very amusing.Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-73305982606489524782014-06-07T06:23:40.009-07:002014-06-07T06:23:40.009-07:00"And no Philip Pilkington, this has nothing w..."And no Philip Pilkington, this has nothing whatsoever to do with fixed exchange rates- the U.S. went off the gold window and fixed forex in 1971, and interest rates remained extremely high."<br /><br />What on earth is this guy talking about? His comment is entirely incoherent...Philip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-67214514909343458542014-06-07T06:22:26.636-07:002014-06-07T06:22:26.636-07:00"The ordinary theory of distribution, where i..."The ordinary theory of distribution, where it is assumed that capital is getting now its marginal productivity (in some sense or other), is only valid in a stationary state. The aggregate current return to capital has no direct relationship to its marginal efficiency; whilst its current return at the margin of production (i.e. the return to capital which enters into the supply price of output) is its marginal user cost, which also has no close connection with its marginal efficiency."<br /><br />https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch11.htmPhilip Pilkingtonhttp://fixingtheeconomists.wordpress.com/noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-66494581711526762982014-06-06T15:11:40.757-07:002014-06-06T15:11:40.757-07:00(1) I disagree.
(2) on the Fisher effect, the fac...(1) I disagree.<br /><br />(2) on the Fisher effect, the fact that nominal interest rates might be adjusted in anticipation of inflation changes hardly proves that money is neutral in the long run. For one thing, we live in a world of uncertainty, and people's expectations may be wrong -- sometimes badly wrong. <br /><br />Secondly, neutral money would require much more than mere adjustment of nominal interest rates in relation to inflation. E.g., if asset prices, prices and wages collapse, then the principals of nominal debts would have to adjusted too. <br /><br />If you think all or even most nominal debts really are regularly adjusted like this in the real world, you may as well live in Narnia and spend your time dancing with centaurs.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-7056527056085303432014-06-06T11:26:10.045-07:002014-06-06T11:26:10.045-07:00"It would require perfect adjustment of all q..."It would require perfect adjustment of all quantities expressed in money units --- prices, wages, debt contracts, and in fact all nominal contracts of any type in money terms -- instantly or nearly instantly in response to changing conditions."<br /><br />It would require nothing of the sort. "Instantly or nearly instantly, do you seriously not understand the difference between the short and the long run? Debt can be defaulted on and contracts renegotiated.<br /><br />"It would furthermore require the abolition of uncertainty and the shifting types of liquidity preference that characterise capitalist economies, and, above all, the holding of money as a hedge against future uncertainty."<br /><br />???????? Complete non sequitur. Liquidity preference and Loanable funds are both true. <br /><br />"That you are trying to defend neutrality speaks volumes."<br /><br />It speaks to my common sense. And I noticed you didn't address the Fisher effect during the seventies because you can't. It doesn't fit your absurd model. <br /><br />One more caveat: Expectations are never neutral. A sadistic government that constantly subjects the private market to exogenous shocks in an unpredictable manner can stretch the short run into a very, very, long run. But in this case the problem isn't money. its the incompetence and tyranny of government. When expectations are stable money is long run neutral.<br /> Edwardnoreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-50403048825356447282014-06-06T11:03:32.816-07:002014-06-06T11:03:32.816-07:00The notion of the neutrality of money in either th...The notion of the neutrality of money in either the short and/or long run is an utter absurdity. <br /><br />It would require perfect adjustment of all quantities expressed in money units --- prices, wages, debt contracts, and in fact all nominal contracts of any type in money terms -- instantly or nearly instantly in response to changing conditions.<br /><br />It would furthermore require the abolition of uncertainty and the shifting types of liquidity preference that characterise capitalist economies, and, above all, the holding of money as a hedge against future uncertainty.<br /><br />That you are trying to defend neutrality speaks volumes.Lord Keyneshttps://www.blogger.com/profile/06556863604205200159noreply@blogger.comtag:blogger.com,1999:blog-6245381193993153721.post-24053457026208887552014-06-06T10:30:58.020-07:002014-06-06T10:30:58.020-07:00Boy Oh Boy,
Where do I begin?
First, what exactly ...Boy Oh Boy,<br />Where do I begin?<br />First, what exactly did the Cambridge Capital Controversies accomplish? Paul Krugman, (!) not exactly a beacon of free market conservatism and libertarian thought, says "And what’s going on here, I think, is a fairly desperate attempt to claim that the Great Recession and its aftermath somehow prove that Joan Robinson and Nicholas Kaldor were right in the Cambridge controversies of the 1960s. It’s a huge non sequitur, even if you think they were indeed right (WHICH YOU SHOULDN"T {Emphasis mine}) But that’s what seems to be happening." <br /> http://krugman.blogs.nytimes.com/2014/05/01/hangups-of-the-heterodox-vaguely-wonkish/?_php=true&_type=blogs&_r=0<br /><br />Second, explain the "Fisher effect" of rising interest rates all across the economy in periods of high inflation and ngdp growth if money isn't long run neutral . I'm not talking about central bank responses to control inflation by raising "benchmark" interest rates, even when the prime rate was lowered, in high inflation decades such as the seventies, rates all across the economy stayed extremely high (And no Philip Pilkington, this has nothing whatsoever to do with fixed exchange rates- the U.S. went off the gold window and fixed forex in 1971, and interest rates remained extremely high. (By the way there were two separate oil shocks, 1973-1974, and one in 1979, in between those periods, the negative supply shock had temporarily ended, yet inflation remained high. This was demand pull, not cost-push, ngdp growth was also exorbitant in the 1970s)<br /><br />Going back to the Cambridge Capital Controversies for a moment, what exactly where they supposed to prove? That you can't add distinct forms of capital together, even their monetary values to get at the wildly and weirdly misnamed absurd "rate of profit" But you can! You can say that aggregate demand regulates the rate of RETURN (I refuse to use that ridiculous Marxian expression) across the whole economy and all capital goods sectors, and the MPC describes a singular class of capital.(Discounting its net present value, purchase price, and the risk free rate, etc) What exactly, is the problem here?<br /><br />Edwardnoreply@blogger.com