Re: Nairu and FEAPS

[Warren Mosler <mosler@xxxxxxxx>]

bill mitchell wrote:
>
> >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.

Bill,

I may be shooting at the 'straw economist.'  It seemsthat
there is an arguement as to whether or not there is a nairu.
Maybe all do agree there is one, and discuss only what the
number is and how and why it changes.


>
> 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.

Yes.  I would add that fundamentally this stems from the govt, as monopolist,
setting (budgeting) q (spending and lending, and manipulating desired H(nfa)
through monetary policy) and letting p (prices paid by govt.) be at market.
Old micro books that examine this aspect of monopoly should have the same
analysis.
>
> 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.

Yes, this comes from setting one p (bse wage), letting other p's float, and
letting q float.  Again, I'd bet the micro books have this, too, as it is
the most common behavior of the monopolist.  In this case, he sets the price
of his product in dollars, and buys what ever else he needs at market (using
dollars in this case, though theoretically it shouldn't matter if he bot
those other things at market with his product instead of using $ as the medium
of exchange.)

>
> 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.

Yes.  I think this is (weakly) expressed in feaps by 'spreads' that change, as well as
the size of the elr pool.  Again, the monopolist who sets p in dollars is in
the same theoretical position.

>
> 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.

Yes, I was only trying 'lay the logical foundation,' and point out that nairu
is real and will only 'go away' with a different fiscal option.
The govt has a near 'pure'  monopoly.


Keep up the good work.

Warren>
> kind regards
> bill
>
> --
>
>          ####    ##       William F. Mitchell
>        #######   ####     Head of Economics Department
>      #################    University of Newcastle
>    ####################   New South Wales, Australia
>    ###################*   E-mail: ecwfm@xxxxxxxxxxxxxxxxxxx
>    ###################    Phone: +61 49 215065
>     #####      ## ###            +61 49 215027
>                           Fax:   +61 49 216919
>                   ##      http://econ-www.newcastle.edu.au/~bill/billyhp.html

--
Warren B. Mosler
Director of Economic Analysis
III Finance

See:

"Soft Currency Economics"
=========================
And related documents:

http://www.gate.net/~mosler/softecon.htm