Re: Interest Rates and inflation

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

Bruce McFarling wrote:
>
> On Wed, 27 Dec 2000 15:16:37 -0800, John O'Donnell
> <jackodonnell@xxxxxxxx> wrote, under the title:
> "Re: Interest Rates and inflation",
>
> "Alan G. Isaac" wrote:
>
> <<SNIP>>
>
> >> when unemployment is low workers are more likely to
> >> win wage increases, which will tend to be larger
> >> when inflation expectations are higher.
>
> >But so as to not leave your last "obvious" assertion
> >hanging, I suggest you try to write a rational equation
> >relating the variables you assert to be true "in the short
> >term" that can pass a dimensional analysis. In case you
> >don't understand what that is, it is a very useful method to
> >identify causality. Causality, in turn, is the condition
> >that can not exist for the assertions you make because it is
> >a tautological certainty that it can not exist.
>
> Of course, the challenge is based on the truly bizarre
> premise (but very conventional within mainstream economics,
> which is a reason economics is such an odd duck in the
> social sciences) that an economic relationship does not
> exist unless it can be expressed as an equation.  "Mechanism,
> mechanism, uber alles".

Yes, mechanism, as in causality. Rational equations are a
useful method, but any demonstration of cause will do.
Searching for excuses to maintain a belief in the use of
monetary policy to cause economic progress because it is
more convenient than fiscal policy hardly dispels the
tautological certainty that a dollar's worth of Q is a
dollar's worth of Q no matter how many coincident
correlations may occur between Q and any modification of
that value.

Economists should learn to accept the rule they are fully
aware of -- statistical correlations do not distinguish
among cause, effect or coincidence.

--
			-- jbod

		Tax Privilege, Not People
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