Re: Reals, Nominals and Louis

[rrotheim@xxxxxxxxxxxx (roy rotheim)]

One last time, and then I'm off the network for a while:  real
measures ARE important; labor leaders, public officials, sociologists,
and anyone else who is interested in seeing how they did relative to
others and to the past.  In other words, they give interesting and
important information AFTER THE FACT.  I say this, also, in the spirit
of Keynes who WAS interested in real wages as the EFFECT of changes in
effective demand on the price of wage goods.  But as economists we
should be interested in understanding generative mechanisms (notice I
did NOT say "laws") that help us understand tendencies, processes,
etc.  And as operational variables, real measures just don't hack it.
In any theory of effective demand, there are simply too many
tendencies and countertendencies to predict real anythings.  Ergo, no
rational individual would dare to make calcuations based on a
particular real wage, interest rate, asset price etc.  That's all I'm
trying to say.  It is the neoclassical (austrial and new Keynesian?)
perspective(s) which insist that individiauls are only interested in
AND only bargain in real terms.  I might agree with the former, but
the latter simply cannot be implemented in a world where individuals
make decisions today, where th results (which define real things) are
not independent of all of the decisions made by  ALL participants.
That's the essence of the theory of effective demand.  Be back in a
month,  Roy






John Gelles writes:
>
>
> 	The discussion of real measures of economic performance
> 	has not been easy to read, remember and be glad about.
>
> 	Alan Isaac and John Gelles and, perhaps some others,
> 	without agreeing with each other, have promoted the
> 	use of real rates of return as fundamental (at least
> 	for me); agreeing, however, that they require a record
> 	of both nominal prices and a deflator (misspelled by
> 	me as deflater -- and misrepresented by one scholar as
> 	candy bars).
>
> 	Now comes Louis Rukeyser to our side.  He showed last
> 	night the nominal performance of the Dow Jones Industrial
> 	Average from 1903 to 1996.  It moved from the bottom of
> 	the TV screen to the top looking ever so much like a path
> 	from sea level to the top of the Rocky's.  Then he super-
> 	imposed on the screen its real path.  It moved hardly at
> 	all:  Reaching a slight high in 1966.  And repeating that
> 	high again this year.
>
> 	Louis, Alan and I, say, "Get real."  Without the deflator
> 	we make mountains out of molehills.
>
> 	John Gelles     -     jjgelles@xxxxxxxx
>
> 	p.s.  I called Louis and got through.  I asked if he had
> 	used candy bars, cup cakes, cars, or bars of steel.  He
> 	said he used government figures -- they were sweet enough.
>
>
>

Roy J. Rotheim                  INTERNET: rrotheim@xxxxxxxxxxxxxxxxxx
Department of Economics         BITNET:   rotheim@xxxxxxxxxxxxxxxx
Skidmore College                PHONE:    (518) 584-5000 Ext.2350
Saratoga Springs                FAX:      (518) 584-3023
New York 12866

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