tag:blogger.com,1999:blog-2499715909956774229.post5565531959336433245..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: UI and UnemploymentStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger58125tag:blogger.com,1999:blog-2499715909956774229.post-77046678843742124572013-12-14T15:02:58.102-08:002013-12-14T15:02:58.102-08:00Indeed, they're the ones who make policy, but ...Indeed, they're the ones who make policy, but in most endeavorswe think that policy should be informed by science. Some policymakers think that global warming has nothing to do with human beings.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-90989328120221322742013-12-14T08:22:09.728-08:002013-12-14T08:22:09.728-08:00Apologies. Read your blog, so of course I'm cu...Apologies. Read your blog, so of course I'm curious and will read your book when it falls to hand. Till then, I'll remain hopeful that it contains a discussion of the costs to the whole economy of inadequate resources devoted to reproducing labor at all life stages. <br /><br />Meanwhile, do you really think incrementally reducing UI with unemployment duration is a productive strategy? In my world, when money becomes short, I do my laundry less often, skimp on the more expensive and nutritive fruits and vegetables, and have to pull up my socks more at work, being unable to afford new ones. So, because everybody loves a sinner, the dirtiest, grumpiest, and most resentful unemployed will be most attractive to employers? <br /><br /><br /><br /><br /><br />Ronald Calitrihttps://www.blogger.com/profile/07206853993777529429noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-73158420055247557722013-12-13T22:26:41.935-08:002013-12-13T22:26:41.935-08:00"In order for a school of thought in economic... "In order for a school of thought in economics to be successful, the members of the school have to work on multiple levels to convince everyone. You have to play the academic game and be rigorous about the ideas; you have to play the policy game and convince policy makers; maybe you want to convince lay people."<br /><br /> That's probably how it works today. It's hard to believe that Keynes was able to singehandedly change the world based on just one book-the GT of course in 1936. <br /><br /> I do think that it's possible to have a big impact with policymakers even if you haven't impressed academic economists much. Let's be honest: if someone can influence policymakers that's the name of the game-they are the one's who make policy. If you can have that without the approval of academics you probably wont lose much sleep over it. Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-7435578407733587062013-12-13T22:26:00.109-08:002013-12-13T22:26:00.109-08:00Sorry, but the "New Monetarist" should r...Sorry, but the "New Monetarist" should re-read Keynes' GT chapter 17 before arguing. "A New Monetarist is disinclined to separate assets into ones that are "money" and ones that are not. That isn't useful." Really?<br /><br />Didn't know you had a text. Won't read it. Did you know? "Search" works both ways. In the absence of unemployment insurance, employers become monopsonists, in the sense of Fleeming Jenkins, able to prey on their prospective employees' desperation.<br /><br />Obviously this inefficiency is much more of a moral hazard today than the minimal problems of labor supply you are so disingenuously concerned with.Ronald Calitrihttps://www.blogger.com/profile/07206853993777529429noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-63954632434815353352013-12-13T06:54:09.159-08:002013-12-13T06:54:09.159-08:00Anon 12:55 isn't too bright. He also doesn...Anon 12:55 isn't too bright. He also doesn't seem to be able to write English properly.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-32366190606509587452013-12-12T16:17:55.779-08:002013-12-12T16:17:55.779-08:00The most general way to tell the story (using a se...The most general way to tell the story (using a search model is pretty specific), increasing unemployment duration or benefits decreases incentives to quickly find a job. This means that the labour supply curve shifts inwards, labour goes down, wages goes up.<br /><br />Same result as you got but with some of this oh-so-unsophisticated undergraduate thinking. Ironically Krugman' general equilibrium story point is better than your partial equilibrium search model stuff (which doesn't take into account the positive effects of a more generous unemployment insurance upon agg.dem.).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-56942403221382652342013-12-12T15:33:03.958-08:002013-12-12T15:33:03.958-08:00I'm not sure you want to throw everything in t...I'm not sure you want to throw everything in the model at once. Too much going on, especially at that level. But maybe there's a way to do it.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-10386424393297814822013-12-12T15:18:47.357-08:002013-12-12T15:18:47.357-08:00Steve, yes, I enjoyed going over the search model ...Steve, yes, I enjoyed going over the search model with students using your book. I would take it a step further though. I think the search model should eventually replace the competitive model in general equilibrium models. What is the point of teaching the search model, then reverting back to the competitive one? CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-19656073095321311552013-12-12T15:17:02.331-08:002013-12-12T15:17:02.331-08:00I agree on the label "New". Also, "...I agree on the label "New". Also, "neo" and possibly "post". "Moneyness" economics would sound strange as well though.Wonks Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-42552551849420997602013-12-12T12:55:19.585-08:002013-12-12T12:55:19.585-08:00Sorry, I was not implying that we should use labor...Sorry, I was not implying that we should use labor markets to explain the dysfunctional markets. I was referring indeed to the context where you said search theory would be useful. Namely, how has financial markets collapse led to the unemployment. Isn't this the topic worthy of study? <br />Is it not likely to show that current unemployment is not due to high reservation wage but rather what the financial industry did and does. Is it not likely to demonstrate that we should stop bashing the current unemployed to be too comfortable and instead target the legitimately guilty?<br /><br />I think it would be very interesting if economists would use Diamond's and Pissarides or any other model to find out <br />what happens in an economy where the markets are looking to produce financial goods and products - namely <br />producing money with money and producing more and more debt with capital. In particular, it would be useful to see what <br />the reservation wage of workers who produce/trade financial products is and to <br />compare its value with the reservation wage of a worker who produces standard products. <br /><br />The analysis could then be generalized to compare two categories of workers in a single economy - namely, workers which <br />work for an industry which earns 30%/yr on equity with workers which have return on equity equal to real interest rate <br />(-2%) in the economy. It would be instructive to calculate the ratio of the equilibrium wage of the workers in the two industries? <br /> Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-18105572905652157062013-12-12T11:53:02.073-08:002013-12-12T11:53:02.073-08:00I should add that it's about time that undergr...I should add that it's about time that undergraduate students in economics learned about search and unemployment. The current edition of my book has a chapter on it:<br /><br />http://www.pearsonhighered.com/educator/product/Macroeconomics/9780132991339.pageStephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-44261257664030314272013-12-12T11:46:25.978-08:002013-12-12T11:46:25.978-08:00Here's a conference where some of what was dis...Here's a conference where some of what was discussed is the relationship between labor market frictions and financial markets:<br /><br />http://research.stlouisfed.org/conferences/moneycreditfriction/<br /><br />Search is a useful way for thinking about how the labor market works. That doesn't mean that to understand dysfunctional financial markets I need to integrate that with labor search. Of course, if I want to understand what the financial crisis has to do with the recent performance of the labor market, search could be very helpful.<br /><br />Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-74547357517590117502013-12-12T11:41:30.449-08:002013-12-12T11:41:30.449-08:00Of course it came up. To my knowledge, it's no...Of course it came up. To my knowledge, it's not taken seriously in the Fed system.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-53599893417390997982013-12-12T09:41:51.368-08:002013-12-12T09:41:51.368-08:00I wonder if he's had some success with policym... I wonder if he's had some success with policymakers-although certainly not rigorous academics. I think even the Fed looked at NGDP at one point. Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-9887292936795686962013-12-12T09:30:08.449-08:002013-12-12T09:30:08.449-08:00If the search models are so powerful, I think the ...If the search models are so powerful, I think the readers would like to know the results of search model analysis as applied to an economy which is driven by bubbles, tens of trillions dollars invested in derivatives trading, bad-banks, multi-billion bonus industry, etc. etc. Shouldn't we be analyzing the effects of frictions caused by these agents on inflation, unemployment and GDP growth. I think this would be more fruitful than to worry about the small effect of reservation wage on current unemployment. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48262250482939324452013-12-12T09:26:28.550-08:002013-12-12T09:26:28.550-08:00I am willing to offer Scott Sumner options contrac...I am willing to offer Scott Sumner options contracts that specify the number of top 50 economics faculty who subscribe to MM; he pays if there are none. He is delusional to think that MM has been successful and will attract any serious economists.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-24522943498832750172013-12-12T07:42:48.740-08:002013-12-12T07:42:48.740-08:00Claiming that you're a school of thought is a ...Claiming that you're a school of thought is a little dangerous. For example, at least one of my good friends who works in monetary economics thinks it was a bad idea to introduce the "New Monetarist" label. Someone else I know (an auction theorist) thought it was dumb to call anything "new" as it quickly becomes old. The whole school-of-thought idea can be a little weird in any scientific field where ideas are constantly evolving. That said, it helps to give yourself a name so that people sit up and take notice.<br /><br />But, suppose that we can divide the world into schools of thought. In order for a school of thought in economics to be successful, the members of the school have to work on multiple levels to convince everyone. You have to play the academic game and be rigorous about the ideas; you have to play the policy game and convince policy makers; maybe you want to convince lay people. Perhaps Sumner has had some success on the latter dimension through his blog, but convincing lay people is second order. You can't get traction without doing the serious science and convincing the policymakers.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-10857828890403175392013-12-11T21:20:19.539-08:002013-12-11T21:20:19.539-08:00Thing is SW is I used to not like you as all I rea... Thing is SW is I used to not like you as all I really knew about you is that you seem to really not like Krugman-whom I do like. <br /><br /> However, I'm starting to see there's a lot more to you. For one thing you have a rival Monetarist school which might tone down some of the Market Monetarist triumphalism. <br /><br /> So funny enough it seems that maybe it's possible to like both Krugman and Stephen Williamson. One thing you have over him is you've actually answered comments of mine-that would never happen with Krugman though I don't really think that's because he's a bad guy. Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-62396919473900369402013-12-11T21:15:23.522-08:002013-12-11T21:15:23.522-08:00Here is Sumner and Nick whining that you took New ... Here is Sumner and Nick whining that you took New Monetarist first. I love it. <br /><br /> "So can we (market monetarists) now have the “new monetarist” label that we deserved all along?<br /> "Update: Nick Rowe had a similar reaction."<br /><br /> http://diaryofarepublicanhater.blogspot.com/2013/12/bob-murphys-touching-concern-for.htmlMike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-9994442269651201142013-12-11T21:14:10.101-08:002013-12-11T21:14:10.101-08:00Anon's right. The only person less equipped to... Anon's right. The only person less equipped to write a model is me! Here is the kind of triumphalism he sometimes spouts that makes me enjoy the idea that you took the New Monetarist handle before he did. <br /><br /> "Does that mean progress is not possible? No, at the end of January I plan to do a long post carefully explaining exactly why the market monetarist framework has been far more successful in explaining the past 5 years than any of the competing frameworks. I’ll explain what went wrong with our competitors, and why. I hope that when bright young students at schools like Michigan and Princeton see that we are more successful, market monetarism will gain new adherents. That’s how progress is made. Successful schools of thought get everyone to talk their language."<br /><br /> "The older people stuck in their ways? One funeral at a time . . ."<br /><br /> http://diaryofarepublicanhater.blogspot.com/2013/12/stephen-williamson-vs-nick-row-in-epic.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29Mike Saxhttps://www.blogger.com/profile/01360689916550576484noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-46386106385422843552013-12-11T19:39:01.775-08:002013-12-11T19:39:01.775-08:00That would require skills that Sumner does not pos...That would require skills that Sumner does not possess.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-46202368805047432412013-12-11T12:40:18.188-08:002013-12-11T12:40:18.188-08:00I would like to see Sumner write down a serious mo...I would like to see Sumner write down a serious model in which there is an NGDP futures market, monetary policy is implemented in the way he says it should be, and it turns out this is a good idea. In its current form, the idea is just chit-chat.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-46867298157569201082013-12-11T10:34:46.782-08:002013-12-11T10:34:46.782-08:00"Doesn't seem to understand that this has..."Doesn't seem to understand that this has to be done with policy decisions and directives to the New York Fed about how to intervene in financial markets."<br />Ah, what Nick Rowe calls the "people of the <a href="https://www.google.com/search?ie=UTF-8&oe=UTF-8&q=%22concrete+steppes%22&domains=worthwhile.typepad.com&sitesearch=worthwhile.typepad.com&btnG=+Google+Search+" rel="nofollow">concrete steppes</a>". I believe Sumner's proposal for an NGDP futures market does include policy actions to be taken by the Fed that will change nominal income.Wonks Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-42710483197812857142013-12-11T06:43:44.895-08:002013-12-11T06:43:44.895-08:00Yes, I had in my mind UI going up. But, suppose th...Yes, I had in my mind UI going up. But, suppose that UI benefits go down. It's not in all ways like an increase in labor supply in a competitive model. First, we know that wages will be lower, because the bargaining position of workers is weaker (higher opportunity cost due to lower UI). Second, an unemployed worker who is searching will search harder, and be less picky about the jobs he or she accepts, which reduces unemployment duration and lowers the unemployment rate. So, what happens to labor force participation? Not clear. Because wages are lower and UI benefits are lower, the expected payoff to entering the labor force is lower, and so participation will tend to go down. But, since wages are lower, this induces firms to post vacancies, which will make the labor market tighter, which induces more labor force participation. In the usual Mortensen-Pissarides setup, you don't have the labor force participation effect.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-83674303172393214862013-12-10T18:36:58.534-08:002013-12-10T18:36:58.534-08:00Steve, I think he is talking about cutting unemplo...Steve, I think he is talking about cutting unemployment insurance, not implementing it. In this case the effect on wage and employment in the search model is not different than that resulting from an increase in labor supply in the competitive model. <br /><br />In fact, I think that in general the two models deliver similar predictions, expect that the search model sheds light to additional details. For example, it distinguishes between unemployed workers and those not in the labor force, it explains the co-existence of unemployment and vacancies, and so on. But the effect of an increase in unemployment insurance or productivity on employment and the wage is the same. I am not sure about an increase in government spending though.CAnoreply@blogger.com