At 08:18 AM 4/02/03 -0800, Bill Ryan wrote: >For domestic spending, no, it doesn't ever have to. >It only has to compensate for an excess in effective >demand. The example of the movie theatre that can >seat 100 and that we have printed out 80 tickets for >is exactly right: as long as we do not print out 21 >extra tickets, there is not a problem. >------------------------------
>The question becomes: Assuming perfection is unattainable, >is it better to print out 21 or 19 tickets? >To carry the ticket metaphor a bit further, airlines >routinely overbook. They do that to increase the odds of >filling all the seats. They have mechanisms in place to >deal with the awkward situation when too many passengers >show up. >Which brings us to the concept of the nairu, which I would >say, as a general explanation, is an utter and complete >fallacy. I don't think its a fallacy. It's more like, "if I tie my shoelaces together, how fast can I run?". NIARU is the non-inflation accelerating rate of unemployment *if there are no policies in place to constraint mild inflationary pressures*. >Yet throughout history there are many examples of >uncontrollable, accelerating inflation. >How do we explain them? Uncontrolled accelerating inflation are due to a serious and ongoing effort to write 120 or 200 tickets to get into the theatre, and then letting people bid how many tickets they are willing to use for how many seats, and then once the price per seat is set at 1.2 or 2 tickets each, multiplying the number of tickets you write by the same amount trying to stay ahead. Policies to keep a lid on mild inflationary pressures couldn't hold the line against that for very long. Germany: under post-WWI reperations, Germany had massive hard currency payments to make. Yet the victorious powers had carted off much of their productive equipment, and the core of the pre-war export market in middle europe lay in ruins after the war, so it was not possible to meet the payments. Net exports to the victorious powers or net finance from the victorious powers or a combination of both was the only non-inflationary way to make the reperations, and neither was forthcoming. The only alternative was for the monetary authorities to trump local demand for overseas hard currency, pushing down the exchange rate in the process and putting the Mark in a free fall. Its a lot similar to the inflation experience in ASEAN countries in the Asian financial crisis, except that the "debt" was ongoing and cumulative, so there was no way to stop the process without halting reperations, and post-WWI there was no IMF that was able to step in to provide liquidity at the cost of wrecking your domestic economy and laying your country supine for the process of globalisation. ==^================================================================ This email was sent to: archive@mail-archive.com EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^================================================================
