Re: Interest Rates and inflation

["John O'Donnell" <jackodonnell@xxxxxxxx>]

"Alan G. Isaac" wrote:
>
> On Wed, 20 Dec 2000, John O'Donnell wrote:
> > Alan, from his Monday, 18 December message: "The standard
> > Phillips-curve relationship, for example, suggests that
> > *changes* in inflation are correlated with unemployment."
>
> > Yes, one of the
> > "standard" excuses for the failure of the Phillips curve is
> > that the LOCATION of the curve is displaced by expectations,
> > but the curve is still the same -- unemployment vs.
> > inflation.
>
> Of course, that is the standard Phillips curve
> as we draw it for *given* levels of the other
> variables.  But my statement is about the
> predicted correlations in the data.

Alan, aside from the obvious truth that inflation and
unemployment (or any of the historical cites provided in
messages to this thread describing other attempts to refute
the tautological certainties that derive from dQ/dM = 0) ARE
the variables being correlated for the Phillips curve and
not the changes in inflation you cite, the truth remains
that the curve provides NO useful information.

> Please look
> at some of the empirical literature before
> you comment further, since my explanations don't
> seem to be drawing the distinction for you.

I prefer to think for myself rather than waste time finding
the excuses others have used to justify their errors. But
you are right about the last. Your "explanations" don't
distinguish between correlation variables (inflation and
employment) and environmental conditions (the rate of change
in inflation, expected inflation, etc.) that may affect the
particular quantitative location of a Phillips curve.

> > The simple fact is that, as anyone not an economist can
> > readily see, presuming an increase in employment can be
> > obtained by increasing inflation is ludicrous. If such were
> > the case, the relationship would determine hyperinflation to
> > be the be-all and end-all solution to employment, which even
> > the feeble minded can see is silly. If such is not the case
> > and no action can be determined by such a curve, of what
> > value is it?
>
> Economists do not make the claims you attribute to them.

Perhaps you'd like to explain just what use the Phillips
curve is? As often as it is brought forward as such a major
discovery surely there must be some use.

> If you are willing to read a bit, you will learn that.
> In fact your basic complaint was addressed even in Phillips
> original paper, which I have alread suggested that you
> read. Like so many critics of the profession, you simply
> have your sights set on a silly mischaracterization of
> what economists actually do.  And what is the point of that?

The point is that one can hope that some may come to realize
that wasting one's time on irrelevant correlation is not the
way to solve problems. Setting aside these irrelevancies is
the first step in accepting that the answers must lie
elsewhere, staying with them is to deny one even consider
alternatives.

> > Despite what you may think, one can actually experience
> > hyperinflation, let alone inflation, without large sustained
> > increases in money supply.
>
> While this outcome is possible in some models,
> under conditions that are not very interesting,
> PLEASE LOOK AT THE DATA.

The world is not a model! The outcome is not only possible,
it has happened and provides evidence, despite all the
excellent work he has done, that the failure of Friedman's
proposal is not just a failure to "properly" apply the
technique; it has a problem in reality.

> What kind of ``can'' are you offering here?
> Nothing of interest.
>
> > What happened when the Fed tried Friedman's foolishness.
> > Money supply increased at a slow pace wile inflation roared
> > ahead.
>
> Please note the words ``large'' and ``sustained'' in
> my statement. Then look at the US data (freely available
> on FRED). Rather than flail about so desperately in an
> misplaced critique of the economics profession
> (which deserves much critique, just not yours),
> you might spend some time learning what economists
> actually have to say about these things
> ---unless that provides too much of a threat to the
> glib satisfaction you clearly take in considering them
> to be a bunch of silly fools.

Grab at straws, don't dare admit you may have simply
misspoke.

> Alan Isaac
>
> PS Your statement that you are not willing to spend a
> few dollars (or apparently to visit a library either)
> to find out what economists who actually work on this
> stuff have to say suggests you should reconsider your
> commitment to commenting on it, don't you think?

We don't all have a university at hand to supply us with all
the mundane nonsense that academia puts forward in its
publish or perish mentality so I must ration my sources of
argument. But, I do think a lot. I prefer thought as a
method of gaining understanding to the academic habit of
regurgitating the errors of others.

--
			-- jbod

		Tax Privilege, Not People
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