This article offers an alternative narrative on contemporary inflation and policy responses to it. It argues policy responses to inflation have been driven by unfounded beliefs underlying current inflation myths and phobia. These are rooted in neoliberal ideology and dogma, especially influential since the neo-classical counter-revolution against Keynesian macroeconomics. They prevent better understanding of the nature and causes of inflation, leading to inappropriate policy responses exacerbating the situation. Misdiagnoses, policy confusion and anti-labour bias are exposed before offering an alternative narrative and concluding remarks.
{"title":"Inflation phobia, myths and dogma exacerbate policy responses*","authors":"A. Chowdhury, J. Sundaram","doi":"10.4337/roke.2023.02.03","DOIUrl":"https://doi.org/10.4337/roke.2023.02.03","url":null,"abstract":"This article offers an alternative narrative on contemporary inflation and policy responses to it. It argues policy responses to inflation have been driven by unfounded beliefs underlying current inflation myths and phobia. These are rooted in neoliberal ideology and dogma, especially influential since the neo-classical counter-revolution against Keynesian macroeconomics. They prevent better understanding of the nature and causes of inflation, leading to inappropriate policy responses exacerbating the situation. Misdiagnoses, policy confusion and anti-labour bias are exposed before offering an alternative narrative and concluding remarks.","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":" ","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43119549","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In macroeconomic policy discussions, the supply side of the economy is usually represented as a level of potential output, reflecting the real resources available for production. It is often assumed that aggregate demand and potential output evolve independently, and that the task of macroeconomic policy is to keep demand-determined output close to the level corresponding to the economy’s productive potential. A number of developments have made this representation of supply constraints less satisfactory. The failure of output and employment to return to its previous trend following the financial crisis of 2007–2009 suggests that demand-induced changes in output can have permanent effects. On the other hand, it has become clear that supply constraints come into play in response not only to increases in aggregate expenditure, but also to changes in its composition. We argue that these developments call for a reconceptualization of supply constraints. Rather than limiting the level of output, we should think of them as limiting the rate of change of output, both in the aggregate and in its composition. Substantively, we should think of supply constraints in modern economies as fundamentally reflecting limited capacity for coordination by markets.
{"title":"Rethinking supply constraints","authors":"J. W. Mason, Arjun Jayadev","doi":"10.4337/roke.2023.02.07","DOIUrl":"https://doi.org/10.4337/roke.2023.02.07","url":null,"abstract":"In macroeconomic policy discussions, the supply side of the economy is usually represented as a level of potential output, reflecting the real resources available for production. It is often assumed that aggregate demand and potential output evolve independently, and that the task of macroeconomic policy is to keep demand-determined output close to the level corresponding to the economy’s productive potential. A number of developments have made this representation of supply constraints less satisfactory. The failure of output and employment to return to its previous trend following the financial crisis of 2007–2009 suggests that demand-induced changes in output can have permanent effects. On the other hand, it has become clear that supply constraints come into play in response not only to increases in aggregate expenditure, but also to changes in its composition. We argue that these developments call for a reconceptualization of supply constraints. Rather than limiting the level of output, we should think of them as limiting the rate of change of output, both in the aggregate and in its composition. Substantively, we should think of supply constraints in modern economies as fundamentally reflecting limited capacity for coordination by markets.","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":" ","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48227984","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Inflation in the US after World War II peaked at 19.7 per cent in the 12 months to March 1947. The US economy reoriented itself from its wartime to its post-war structural configuration. The Federal Reserve did nothing at all. Inflation went negative in 1949 at the onset of a minor recession. Inflation revived in 1951, and was in some ways a reverse of 1947 – not a demobilization but a remobilization inflation. Again, the Federal Reserve did nothing. And, again, the inflation wave passed. Then came the long siege of moderate inflation that took place between 1966 and 1980, as the Federal Reserve dithered before the Volcker disinflation. What policy you think would have been and will be appropriate for the Biden Administration and the Yellen–Powell Fed depends on which of these past historical episodes provides the best model and analogy for the state of the US economy today. The odds right now seem to me to be on the first two, rather than the third.
{"title":"The first inflation problem of the twenty-first century","authors":"Brad Delong","doi":"10.4337/roke.2023.02.01","DOIUrl":"https://doi.org/10.4337/roke.2023.02.01","url":null,"abstract":"Inflation in the US after World War II peaked at 19.7 per cent in the 12 months to March 1947. The US economy reoriented itself from its wartime to its post-war structural configuration. The Federal Reserve did nothing at all. Inflation went negative in 1949 at the onset of a minor recession. Inflation revived in 1951, and was in some ways a reverse of 1947 – not a demobilization but a remobilization inflation. Again, the Federal Reserve did nothing. And, again, the inflation wave passed. Then came the long siege of moderate inflation that took place between 1966 and 1980, as the Federal Reserve dithered before the Volcker disinflation. What policy you think would have been and will be appropriate for the Biden Administration and the Yellen–Powell Fed depends on which of these past historical episodes provides the best model and analogy for the state of the US economy today. The odds right now seem to me to be on the first two, rather than the third.","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":"1 1","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"70743442","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Sellers’ inflation, profits and conflict: why can large firms hike prices in an emergency?","authors":"Isabella M. Weber, Evan Wasner","doi":"10.4337/roke.2023.02.10","DOIUrl":"https://doi.org/10.4337/roke.2023.02.10","url":null,"abstract":"","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":"8 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135077450","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The theoretical construct of pure inflation is of no use in understanding the price events of 2021 and 2022 in the United States. By extension, the conventional tools of the Phillips Curve, NAIRU, potential output and money–supply growth are equally useless. By further extension, the ‘anti-inflation’ policies of the Federal Reserve have acted on asset markets (which are not part of theoretical inflation) while taking credit for the end to a price process in produced goods that was transitory in any event. The Federal Reserve is now stuck in a posture guaranteed to destabilize economic activity sooner or later, while the economy remains vulnerable to additional potential price shocks emanating from the same sources already seen, including real resources, supply chains, wars, pandemics and the policies of the Federal Reserve itself. These can be dealt with, if at all, only by policies in each specific area.
{"title":"The quasi-inflation of 2021–2022: a case of bad analysis and worse response","authors":"J. Galbraith","doi":"10.4337/roke.2023.02.04","DOIUrl":"https://doi.org/10.4337/roke.2023.02.04","url":null,"abstract":"The theoretical construct of pure inflation is of no use in understanding the price events of 2021 and 2022 in the United States. By extension, the conventional tools of the Phillips Curve, NAIRU, potential output and money–supply growth are equally useless. By further extension, the ‘anti-inflation’ policies of the Federal Reserve have acted on asset markets (which are not part of theoretical inflation) while taking credit for the end to a price process in produced goods that was transitory in any event. The Federal Reserve is now stuck in a posture guaranteed to destabilize economic activity sooner or later, while the economy remains vulnerable to additional potential price shocks emanating from the same sources already seen, including real resources, supply chains, wars, pandemics and the policies of the Federal Reserve itself. These can be dealt with, if at all, only by policies in each specific area.","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":" ","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44308204","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Book review: Jonathan Levy, Ages of American Capitalism: A History of The United States (Random House, New York, NY, USA 2021) ISBN 978-0812995015, 944 pp.","authors":"S. Ali","doi":"10.4337/roke.2023.02.09","DOIUrl":"https://doi.org/10.4337/roke.2023.02.09","url":null,"abstract":"","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":" ","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45379171","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The dominant view of inflation holds that it is macroeconomic in origin and must always be tackled with macroeconomic tightening. In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices. Such firms are price makers, but they only engage in price hikes if they expect their competitors to do the same. This requires an implicit agreement which can be coordinated by sector-wide cost shocks and supply bottlenecks. We review the long-standing literature on price-setting in concentrated markets and survey earnings calls and compile firm-level data to derive a three-stage heuristic of the inflationary process: (1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create windfall profits and provide an impulse for further price hikes. (2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures. (3) Labor responds by trying to fend off real wage declines in the conflict stage. We argue that such sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions. Policy should aim to contain price hikes at the impulse stage to prevent inflation from the onset.
{"title":"Sellers’ inflation, profits and conflict: why can large firms hike prices in an emergency?","authors":"Isabella M. Weber, Evan Wasner","doi":"10.4337/roke.2023.02.05","DOIUrl":"https://doi.org/10.4337/roke.2023.02.05","url":null,"abstract":"The dominant view of inflation holds that it is macroeconomic in origin and must always be tackled with macroeconomic tightening. In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices. Such firms are price makers, but they only engage in price hikes if they expect their competitors to do the same. This requires an implicit agreement which can be coordinated by sector-wide cost shocks and supply bottlenecks. We review the long-standing literature on price-setting in concentrated markets and survey earnings calls and compile firm-level data to derive a three-stage heuristic of the inflationary process: (1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create windfall profits and provide an impulse for further price hikes. (2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures. (3) Labor responds by trying to fend off real wage declines in the conflict stage. We argue that such sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions. Policy should aim to contain price hikes at the impulse stage to prevent inflation from the onset.","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":" ","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-04-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47042280","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper builds a fully specified parsimonious Sraffian supermultiplier stock-flow consistent model (SSM-SFC) with two non-capacity-creating autonomous expenditures: residential investment and capitalist consumption. Our model represents a closed economy without a government sector with workers and capitalist households and only the latter are not credit-constrained. The introduction of residential investment implies that our SSM-SFC model has two real assets: firms’ productive capital and households’ real estate. In our model, the residential investment growth rate responds to changes in house price inflation, and capitalist consumption is financed out of financial wealth. The numerical simulation experiments show that our model adheres to the main results of the standard Sraffian supermultiplier growth model. As a particular result, an increase in the residential investment growth rate implies a decrease in real estate share in total real assets. Our numerical simulations can reproduce some stylised facts such as residential investment leading the business cycle and capital accumulation and a clockwise pattern between non-capacity creating autonomous expenditures and capacity utilisation rate.
{"title":"Long-run effective demand and residential investment: a Sraffian supermultiplier based analysis*","authors":"","doi":"10.4337/roke.2023.01.05","DOIUrl":"https://doi.org/10.4337/roke.2023.01.05","url":null,"abstract":"This paper builds a fully specified parsimonious Sraffian supermultiplier stock-flow consistent model (SSM-SFC) with two non-capacity-creating autonomous expenditures: residential investment and capitalist consumption. Our model represents a closed economy without a government sector with workers and capitalist households and only the latter are not credit-constrained. The introduction of residential investment implies that our SSM-SFC model has two real assets: firms’ productive capital and households’ real estate. In our model, the residential investment growth rate responds to changes in house price inflation, and capitalist consumption is financed out of financial wealth. The numerical simulation experiments show that our model adheres to the main results of the standard Sraffian supermultiplier growth model. As a particular result, an increase in the residential investment growth rate implies a decrease in real estate share in total real assets. Our numerical simulations can reproduce some stylised facts such as residential investment leading the business cycle and capital accumulation and a clockwise pattern between non-capacity creating autonomous expenditures and capacity utilisation rate.","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":" ","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45404414","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In an overlooked essay extending John Maynard Keynes’ The General Theory, Joan Robinson set out a theory of the Phillips curve based, in line with Keynes, on a realistic account of human behaviour that acknowledges the difference with which people value gains and losses. People are happy with a gain, such as an increase in money wages, and are very unhappy, indeed indignant, with a loss, such as a cut in money wages. This realistic behaviour anticipated the concept of loss aversion, developed 40 years later by Kahneman and Tversky. Robinson inferred from her ‘realistic’ account that the inflation–unemployment relation had a more or less vertical slope at full employment and a negative-to-horizontal slope at high rates of unemployment. Phillips’ empirical investigation, 20 years later, confirmed this pattern, although he did not refer to the link with Robinson’s description of realistic behaviour. However, 30 years later, Friedman, Phelps and Lucas derived a natural or equilibrium rate of unemployment from the unrealistic account of human behaviour in which there is no marked contrast between gains and losses so that the inflation–unemployment relation is significantly negatively sloped at both low and high rates of unemployment. By making this unrealistic assumption, they and their followers went backwards.
在一篇被忽视的延伸约翰•梅纳德•凯恩斯(John Maynard Keynes)《通论》(The General Theory)的文章中，琼•罗宾逊(Joan Robinson)提出了一种菲利普斯曲线理论，与凯恩斯的观点一致，该理论基于对人类行为的现实解释，承认人们对得失的价值判断存在差异。人们对得到的东西，如货币工资的增加感到高兴，而对损失，如货币工资的减少，感到非常不高兴，甚至愤怒。这种现实行为预示了40年后卡尼曼和特沃斯基提出的损失厌恶概念。罗宾逊从她的“现实”描述中推断，在充分就业时，通胀-失业关系或多或少具有垂直斜率，而在高失业率时，通胀-失业关系具有负向水平斜率。20年后，菲利普斯的实证调查证实了这一模式，尽管他没有将其与罗宾逊对现实行为的描述联系起来。然而，30年后，弗里德曼、菲尔普斯和卢卡斯从对人类行为的不切实际的描述中得出了一个自然的或均衡的失业率，其中收益和损失之间没有明显的对比，因此通货膨胀-失业关系在低失业率和高失业率下都明显呈负倾斜。通过做出这种不切实际的假设，他们和他们的追随者倒退了。
{"title":"Joan Robinson’s Phillips curve","authors":"","doi":"10.4337/roke.2023.01.04","DOIUrl":"https://doi.org/10.4337/roke.2023.01.04","url":null,"abstract":"In an overlooked essay extending John Maynard Keynes’ The General Theory, Joan Robinson set out a theory of the Phillips curve based, in line with Keynes, on a realistic account of human behaviour that acknowledges the difference with which people value gains and losses. People are happy with a gain, such as an increase in money wages, and are very unhappy, indeed indignant, with a loss, such as a cut in money wages. This realistic behaviour anticipated the concept of loss aversion, developed 40 years later by Kahneman and Tversky. Robinson inferred from her ‘realistic’ account that the inflation–unemployment relation had a more or less vertical slope at full employment and a negative-to-horizontal slope at high rates of unemployment. Phillips’ empirical investigation, 20 years later, confirmed this pattern, although he did not refer to the link with Robinson’s description of realistic behaviour. However, 30 years later, Friedman, Phelps and Lucas derived a natural or equilibrium rate of unemployment from the unrealistic account of human behaviour in which there is no marked contrast between gains and losses so that the inflation–unemployment relation is significantly negatively sloped at both low and high rates of unemployment. By making this unrealistic assumption, they and their followers went backwards.","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":" ","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43682798","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Godley–Tobin Memorial Lecture","authors":"P. Krugman","doi":"10.4337/roke.2023.01.01","DOIUrl":"https://doi.org/10.4337/roke.2023.01.01","url":null,"abstract":"","PeriodicalId":45671,"journal":{"name":"Review of Keynesian Economics","volume":" ","pages":""},"PeriodicalIF":1.6,"publicationDate":"2023-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44060883","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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