Re: clarifying FOMC

[Basil Moore <bmoore@xxxxxxxxxxxxxxxxx>]

Hi Kazuhiro

In my view stagflation was the central cause of the demise of Keynesian
demand management policy. One cannot simultaneously restrict demand, to
counter inflation, and expand demand, to counter unemployment. The 70's
were terrible years for Keynesian economists. (I vividly remember going to
Katmandu for a month, and seriously considering taking up another profession.)

PK's finally realized that inflation was not just caused by excess demand.
Cost or wage inflation occurs whenever money wages grow more rapidly than
the growth of average labour productivity, causing unit labor costs and so
prices to rise, in the absence of excess demand. Stagflation was the result
of restrictive AD policies being used in the attempt to cure cost inflation.

PK'sians recomended incomes policies, to restrain wage increases to the
rate of productivity growth. But these proved only politically possible in
homogeneous countries Asian countries like Japan and Singapore.

In the US excessive money wage growth is now controlled by the market
threat of foreign competition. This goes back to the Fed.'s monetarist high
interest rate policies of 79-82, which caused the dollar to appreciate,
huge import penetration, effectively shut down wage increases in export and
import competing sectors, and fatally damaged union power.

On a completely other matter, I have recently written a paper with one of
my students on why low interest rates have not stimulated AD in Japan since
1990. My explanation is asset deflation. Land prices did not adjust rapidly
like stock prices, but have been falling gradually at about 5-10 percent a
year. The prospect of expected negative future wealth losses, which
homeowners can anticipate but not prevent, has resulted in the crushing of
animal spirits in Japan.

My big problem was in getting and sourcing reliable data on land prices. If
this is a question that interests you, would you be interested in looking
at my paper, with the goal of potential collaboration?

Basil Moore

At 05:55 PM 12/1/00 +0900, you wrote:
>Hello Moore
>
>I agree with your critiques of monetarism. But I think that there is still
>the deficiency in endogenous money approach.
>It is the problem on stagflation. The monetarist criticized the Keynesian
>arbitrary economic policies, and argued that
>the cause of stagflation must be arbitrary economic policies. So they
>proposed the K percent "rule", not policy.
>I think that post Keynesian, especially endogenous money theorist, must
>counter-criticize the monetarist rule in order
>to become truly alternative of mainstream economics. To do so, we must try
>to account for the stagflation. I have been
>thinking about this problem. We couldn't solve this problem by just arguing
>that "prices are determined by markup prices
>setting processes". What do you think about my opinion?
>
> **************************************
>  Kazuhiro Kurose
>  Graduate School of Economics and Business
>  Administration, Hokkaido University
>  Kita 9 Nishi 7, Kita-Ku, Sapporo, Japan
>  060-0809
>    TEL: +81-11-716-2111 ex:2786
> **************************************
>
>