Re: Nairu and FEAPS

[bill mitchell <ECWFM@xxxxxxxxxxxxxxxxxxx>]

>So there are two points I wish to address:
>
>First, recognizing that the US gov will continue
>to set q (via the budget)and let p float,
>it is reasonable to ask "what is the nairu, does it
>move, and, if so, what moves it?"
>That is, given current policy, there IS a
>theoretical 'nairu,' even though specific levels
>may be difficult or impossible to determine.
>
>Second,
>Why chose the option to set q?  Why not chose
>an option, like the elr, that sets p, like
>any rational monopolist would?
>
>Monopoly theory tells us there
>is a nairu, or something similar, given the
>choice we have made to set q.  We need
>to set p and let q float to not have a nairu
>type condition.
>
>So I suggest we reexamine the position of denying
>that some (low) level of unemployment will lead
>to accelerating inflation with current policy of
>letting all prices paid by govt be market determined.
>

Warren

this is pretty hazy reasoning.

IN the development of my BSE model (which is similar to ELR) the important
thing i am working on right now is the relationship b/tw this option and
the Phillips curve (PC).

without BSE practice, there is a NAIRU - which is a reflection of a conflict
btw labour and capital over real income shares - that level of the UR which
temporarily renders the claims for real income compatible. it is not a
harmonious or natural rate of UR - it might last, conceptually, for a day
before some change to the bargaining relations sets the rate higher or lower
for stable shares.....

so there are a multitude of steady-state URs each defined in terms of the past
history of the economy (state dependence NOT hysteresis) and each as unstable
as the next.

the PC then is defined by a particular state-dependent path.

with  BSE policy, there is no unemployment so there can be no nairu in the
broadest sense. there is only a private sector nairu. my 1987 model (australian
economic papers on the MRU - macro equil. ur) has to be modified.

the reality is with the BSE/ELR wage-price conflict can still occur and so you
can still get pdot. you cannot get macro un though emerging from it.

but you can still get shifts b/tw the private sector and the public sector. the
PrS N/PuS N ratio tells you what the NAIRU used to. when the inflation spiral
is eating into AD (as the govt does not accommodate the pressure), jobs a lost
in the priv. sector but not overall. so we can still define some UR in terms of
current steady state (or compatible) bargaining relations, this UR is a PrS
rate only. significant different inflation-ur (overall) dynamics emerge.

i am modelling this in the book i working on for Edward Elgar (mentioned in my
own seminar) and it is a significant part of my assault on the OECD Jobs Study.

but i think as it stands, warren, you are being less than precise here.

kind regards
bill

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         ####    ##       William F. Mitchell
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