tag:blogger.com,1999:blog-2546602206734889307.post9017678521741056125..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Heterodox economics, mainstream macro and the financial crisisMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger46125tag:blogger.com,1999:blog-2546602206734889307.post-17228261286116873362016-09-07T14:40:32.231+00:002016-09-07T14:40:32.231+00:00I'll just give a final follow up with some bul...I'll just give a final follow up with some bullet points:<br /><br />(1) My reason for disliking DSGE models is that they are inherently backward looking, since crises come from exogenous shocks. Exogenous shocks may be useful sometimes but it's not like you need DSGE to model the kind of network effects you are talking about - ABM in particular is well suited to this.<br /><br />(2) Related but distinct, I see it as a plus for a framework if it predicts that X will happen because of reasons Y, versus a framework which does not predict that X happens but after X, says 'oh yes, Y is important' and tries to incorporate it.<br /><br />(3) I'm actually not that bothered about fitting models to data at the moment, especially with questionable techniques like calibration and HP filters. It is better to be roughly right than precisely wrong, and this is where I think the non-DSGE approaches are getting more right and are a promising avenue of research. Don't forget the disparity in the amount of intellectual resources that have been poured into each approach - we should not expect the challenger to be completely developed, only to highlight a few key shortcomings/blind spots of the incumbent, which I think Keen, ABM and SFC all do very well.<br /><br />(4) If you in principle are happy with including ABM and SFC, as well as potentially other approaches in curricula/research, then we don't disagree on that much.Unlearningeconhttps://www.blogger.com/profile/13687413107325575532noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-3984423487605079892016-09-06T17:55:55.556+00:002016-09-06T17:55:55.556+00:00Luis,
Perhaps I was too curt, hence your confusio...Luis,<br /><br />Perhaps I was too curt, hence your confusion. I'll elaborate. I was responding to your question to UE<br /><br /><i>'...if you think that mainstream macro needs to learn from the crisis [and ? ] change, doesn't that mean you want to see "post hoc tinkering" '</i><br /><br />What I meant was that instead of post hoc tinkering within the existing (DSGE) framework, the people who constitute the mainstream ought to encourage other approaches <i>within</i> the mainstream. After all, a new theoretical framework will not suddenly drop fully formed from the Heavens. Usually there has to be a fairly lengthy exploratory period.<br /><br />So, for example, you wanted to work on ABM for your PhD but were talked out of it, presumably because it would have hurt your career prospects. What I am asking for is that this situation within the mainstream should change; that working on approaches like ABM should be encouraged and should not harm the career prospects of students or young academics,Hermannoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-24935768447473363552016-09-06T14:19:37.360+00:002016-09-06T14:19:37.360+00:00sorry UE accusation of confusion above unfounded. ...sorry UE accusation of confusion above unfounded. Or maybe a different confusion. By 'rationalise anything' I did not mean it is possible to make sense of any old nonsense - DSGE cant' do that either. Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59182845612784891662016-09-05T17:29:01.651+00:002016-09-05T17:29:01.651+00:00Also UE you seen to have confused "everything...Also UE you seen to have confused "everything can be rationalised with words" with "every verbal rationalisation is true"Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-6849933024615918002016-09-05T10:13:43.572+00:002016-09-05T10:13:43.572+00:00Herman
if you meant individuals and social contex...Herman<br /><br />if you meant individuals and social context not techniques/DSGE I find it hard to make sense of what you meant by "What is being asked for is a different theory"<br /><br />Unlearning. <br /><br />you have something in mind that you think good theory ought to be able to do. How do you know DSGE won't do it? I don't have strong views, but I do think you are being inconsistent. If you have not begged the question by assuming DSGE needs to be abandoned, why object to DSGE theorists continuing to work in that framework to see if it can account for whatever you think it needs to account for in ways that you find satisfactory? What on earth does it mean to think that the fact DSGE can rationalise financial crises as a "flaw" in DSGE? <br /><br />I think you misunderstand me. I am a fan of ABM (I wanted my PhD to be ABM but was talked out of it) and think SFC can also be useful (I was introduced to Godley's stuff years before crisis, he was old friend of my in-laws), and also other work which doesn't really fall into the DGSE camp (e.g. work by Michaillat and Saez). The last thing I am is a DSGE fundamentalist. <br /><br />I just don't think the alternatives are hands down winners over DSGE and haven't already concluded DSGE is a deadend. I just think you're kidding yourself if these other approaches are intrinsically any better at making falsifiable predictions etc. and also that I think you are mistaken if you think making good out of sample predictions that is even such a clean notion - every model inevitably misses so much out, and things don't pan out as model says, you can never say if that's because the mechanism in the model is wrong or because something the model excluded was responsible for what was observed. True for ABM, true for SFC. I am not ignoring fact/claim that Keen predicted crisis but his models in particular are no stronger than mainstream on methodological grounds or on being falsified/confirmed by data in the way critics demand from DSGE (Keen's model say debt build up=>crisis but all models can get one thing right like that whilst also falling down on other scores). Some models get some things right, but what does making accurate out of sample predictions even mean for a theorist working on financial-macro now? We come back to the most basic problem of economics, we cannot run experiments to test things, and we can never conclusively confirm reject models that knowingly only include a fraction of what goes on in the world from observational data. <br /><br />So of course you have to think about what different models get right and what they get wrong and why, where the might be useful and where not etc. and I am suggesting anything daft like you never abandon particular models as useless - for example, I'd say rep agent models are rubbish for most of the questions macro is concerned with, but I have used them myself in settings where those aspects don't matter so much and I just needed the machinery to allow me to focus elsewhere. <br /> <br />I am forever writing that mainstream macro was never in the business of explaining where crises come from because it just assumed exog shocks, but I am not going to assume that it's impossible to say something useful about where shocks come from within the DSGE frameworks (or some other useful policy-relevant insight). That could mean endogenous deterministic shocks or it could mean showing how the financial sector is capable of getting itself into such a state that a small shock outside the sector itself is capable of knocking over the house of cards. Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18758408186112825342016-09-05T04:29:45.646+00:002016-09-05T04:29:45.646+00:00@Luis
"that's begging the question."...@Luis<br /><br /><i>"that's begging the question."</i><br /><br />Only if you define 'mainstream macro' by the its techniques (DSGE framework). I am using a social defintion: 'mainstream macro' = the individuals and social context that makes up the mainstream.<br />Hermannoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-88038556716094975692016-09-05T04:04:09.796+00:002016-09-05T04:04:09.796+00:00@Luis
" you can rationalise everything with a...@Luis<br /><i>" you can rationalise everything with an argument constructed of words, you can rationalise everything with a mathematical model that does not try to build from microfoundations and impose whatever else characterizes DGSE, whatever else 'heterodox' economists have to offer is going to be capable of rationalising everything. Nobody would say a "fatal flaw" of using words is that they can ratiionalize everything. The point is that you have to *say something* that has some content, and if that thing is falsified then that thing you said is wrong. How is working within the framework known as DSGE different? "</i><br /><br />It is important to remain clear about the distinction between a (DSGE) model and (DSGE as) a framework.<br /><br />A model is solvable and has all the relevant details specified. <br />A framework is provides a structure but has lots of blanks left to be filled in. <br /><br />However any framework will still impose certain definitions, transformations and restrictions including parametric restrictions and perhaps cross equation restrictions. The question is, where do these come from?<br /><br />Broadly accepted frameworks are not created out of thin air. Simplifying a bit, the usual temporal sequence for the development of a widely accepted framework is this:<br /><br />Preliminary hypotheses -> models -> repeated empirical validation -> theory -> framework based on the theory.<br /><br />Of course even a preliminary hypothesis will have an associated framework, however, rationalising or interpreting data in terms of models built within such a framework which is not based on an empirically validated theory is not justified, and open to the Popperian criticism. Neither is the convergence of practitioners on a single such framework justified.<br /><br />A major problem with the DSGE framework is precisely this: that it is not associated with an empirically validated theory, and many of the restrictions it imposes are quite arbitrary. This last point is what is emphasised in the Kocherlakota post I linked to above.<br /><br />And one final point: the Popperian distinction is *not* about valid or invalid models or theories, but about scientific vs non-scientific theories. A theory can be scientific andd still wrong if it is falsified. A non-falsifiable theory in the Popperian sense is not wrong, it is <i>not even wrong</i>, ie it is non-scientific. The same holds for frameworks built from empirically non-validated theories.<br /><br /><br /><br /><i>"The point is that you have to *say something* that has some content, and if that thing is falsified then that thing you said is wrong."</i><br /><br />Yes, agreed, but with the proviso that the content has to be meaningful in terms of real world observables, and not just internally in terms of the definitions used in the model.<br />Hermannoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-34489153526831942242016-09-04T12:03:05.952+00:002016-09-04T12:03:05.952+00:00Luis, you're just ignoring my point that heter...Luis, you're just ignoring my point that heterodox models/thinkers quite clearly did anticipate the crisis, making ex ante predictions about key trends, relationships and timing. This clearly 'has some content' and was falsifiable - but it was not falsified, it was borne out. <br /><br />It may or may not be possible to rationalise anything in a heterodox model ex post, but this is not what heterodox economists did. This is why I favour these approaches over a backward-looking one which assumes crises are exogenous shocks and doesn't seem to have produced any novel insights into the crisis or the years before and after. <br /><br />And you can't rationalise anything with words. You can't make the statement 'if trees are green, this implies my mum doesn't like cats' make sense. <br /><br />Saying critics are 'begging the question' by assuming DSGE needs discarding is absurd. Heterodox economists clearly have a number of substantive objections to DSGE models and I won't bother repeating them. The only example of begging the question here is the assumption that DSGE is the necessary framework for macro, come what may. The real question is this: what would have to happen for you to abandon DSGE? Unlearningeconhttps://www.blogger.com/profile/13687413107325575532noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-90882777263595234502016-09-04T10:35:30.096+00:002016-09-04T10:35:30.096+00:00I agree with your second para, and its a point I&#...I agree with your second para, and its a point I've made many times. But it argues for a dual approach, with both non-microfounded aggregate models and DSGE. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-49092516615698510582016-09-03T22:25:09.208+00:002016-09-03T22:25:09.208+00:00Yes and that makes pricing impossible,its always b...Yes and that makes pricing impossible,its always been guess work, loaded in one sides fav,but for good economics such information is paramount to every other equation,since that is the ceiling set,bankers obviously work of it to set their pay,others can't & don't & the economic has and does suffer because of it!paulhttps://www.blogger.com/profile/03431327179470830789noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-15434581815091277772016-09-02T11:24:33.961+00:002016-09-02T11:24:33.961+00:00That BoE paper is the best attempt I've seen, ...That BoE paper is the best attempt I've seen, but ultimately DSGE is hamstrung because there always has to be an equilibrium solution to the optimisation problem. This makes it incredibly difficult to add complications without disrupting the solution (hence why it has taken decades and a crisis to incorporate a financial sector). And ultimately every new innovation has to make further unrealistic assumptions to satisfy the end goal of finding a solution. For example in that BoE paper banks do not make any profit and there is no government debt. And the paper still uses exogenous shocks to model the crisis itself.<br /><br />SFC and ABM models share that it is quite easy for even the most junior research to add in comprehensive financial sectors, different types of behavioural functions, and different sectors of the economy. This isn't the only reason I prefer them, but it is definitely a plus compared to the slow-moving mainstream macro literature, which seems to lag behind developments in both non-mainstream economics and the real world itself. <br /><br />Unlearningeconhttps://www.blogger.com/profile/13687413107325575532noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-81363539740029046002016-09-02T11:09:31.307+00:002016-09-02T11:09:31.307+00:00Herman expressed most of my viewpoint quite clearl...Herman expressed most of my viewpoint quite clearly, so I won't dwell on every point.<br /><br />"A model might say, here's why I think crises happen and thus here's what I think could be done to prevent them. For example. What's the out of sample prediction you are going to test how?"<br /><br />As I said, some testable predictions for what happens after the crisis would do the trick. Basically anything that makes a 'prediction' beyond being model #243 to get something that sort of looks like the crisis in response to an exogenous shock, which is no explanation at all.<br />Unlearningeconhttps://www.blogger.com/profile/13687413107325575532noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-43029964015361472372016-09-01T09:58:02.788+00:002016-09-01T09:58:02.788+00:00further: you can rationalise everything with an ar...further: you can rationalise everything with an argument constructed of words, you can rationalise everything with a mathematical model that does not try to build from microfoundations and impose whatever else characterizes DGSE, whatever else 'heterodox' economists have to offer is going to be capable of rationalising everything. Nobody would say a "fatal flaw" of using words is that they can ratiionalize everything. The point is that you have to *say something* that has some content, and if that thing is falsified then that thing you said is wrong. How is working within the framework known as DSGE different? <br /><br />And how exactly do you think the DSGE framework would be better in any sense, if it was incapable of capturing endogenous crises in the financial sector? Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-48243897756731367822016-09-01T09:55:15.302+00:002016-09-01T09:55:15.302+00:00edit:
Link to Kocherlakota:
On the Puzzling Prev...edit:<br /><br />Link to Kocherlakota:<br /><a href="https://sites.google.com/site/kocherlakota009/home/research/puzzling-puzzles" rel="nofollow"> On the Puzzling Prevalence of Puzzles </a><br /><br />https://sites.google.com/site/kocherlakota009/home/research/puzzling-puzzlesHermannoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-54630424828261676532016-09-01T09:49:53.472+00:002016-09-01T09:49:53.472+00:00"What is being asked for is a different theor..."What is being asked for is a different theory"<br /><br />that's begging the question. If you don't start by assuming DSGE needs discarding, you don't object to attempts to see whether DSGE can be adapted to make it fit for purpose<br /><br />Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-16040746981761234862016-09-01T07:43:47.550+00:002016-09-01T07:43:47.550+00:00@Luis
'...if you think that mainstream macro ...@Luis<br /><br /><i>'...if you think that mainstream macro needs to learn from the crisis change, doesn't that mean you want to see "post hoc tinkering" ' </i><br /><br />No.<br /><br />What is being asked for is a different theory. Initially, of course different hypotheses.<br /><br /><i>'... isn't being able to rationalise things within a DSGE framework a good thing? '</i><br /><br />No. It is probably a fatal flaw.<br /><br />I suspect you are confusing an accounting argument for a modelling/theoretical argument. See points (3) and (4) below.<br /><br />Also, from Narayana Kocherlakota:<br /><a rel="nofollow"> On the Puzzling Prevalence of Puzzles </a><br />------------------<br /><br />(1) It is easy to obtain confirmations, or verifications, for nearly every theory-if we look for confirmations.<br /><br />(2) Confirmations should count only if they are the result of risky predictions; that is to say, if, unenlightened by the theory in question, we should have expected an event which was incompatible with the theory--an event which would have refuted the theory.<br /><br />(3) Every 'good' scientific theory is a prohibition: it forbids certain things to happen. The more a theory forbids, the better it is.<br /><br />(4) A theory which is not refutable by any conceivable event is nonscientific. Irrefutability is not a virtue of a theory (as people often think) but a vice.<br /><br />[Karl Popper, Conjectures and Refutations]<br /><br />One doesn't have to take every thing Popper says about falsification and esp induction too literally. Falsification is a much more nuanced issue than the above quote would suggest. However to a first approximation the points above are taken seriously across scientific and engineering disciplines.<br /><br />NB: I cannot speak for heterodox economics because I have very little familiarity with various varieties it. I am coming from outside economics.Hermannoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-70770700387025729142016-08-31T15:54:43.321+00:002016-08-31T15:54:43.321+00:00What you say makes as lot of sense to me. IMO the ...What you say makes as lot of sense to me. IMO the role of fraud needs to be given due consideration in this context. IIRC the Congressional investigation concluded that there was fraud on an industrial scale in the US markets. Sadly we shall never know for sure now as the authorities chose not to pursue the leads they were given by various brave whistleblowers - too much in thrall to the PTB on Wall Street perhaps?. Shame that the auditors did not spot it. Or did they and just keep quiet?<br /><br />I am no expert on national accounting but assume that if banks balance sheets are showing grossly overvalued assets (e.g. worthless junk assessed as AAA assets) then this must flow through to national accounting and the data economists use? Then when you discover the size of the 'bezzle' (as Galbraith terms it) this must presumably kick a hole in national accounting figures? William Cnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-48032668572468232502016-08-31T15:07:45.568+00:002016-08-31T15:07:45.568+00:00The problem with macro-economic models is that we&...The problem with macro-economic models is that we're very, very bad at predicting the behaviour of large groups of people. We can make some assumptions that hold true when nothing interesting is happening, but we are singularly unable to explain or capture any of the interesting dynamics.ABnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31085633266733023292016-08-31T11:59:41.517+00:002016-08-31T11:59:41.517+00:00Neoclassicals adding the financial system is like ...Neoclassicals adding the financial system is like Ptolemaics adding another epicycle: it doesn't flow from the logic of the framework, it has to be imposed ad hoc after the crisis of the century hits you in the face. To me this is the indictment. You can stitch-fix a model or two, but it doesn't address that the framework is dysfunctional. Neoclassicals still don't know *why* the financial system matters. Vide Krugman babbling on how banks intermediate between savers and borrowers and his Eggertson paper he touts modeling that nonsense - accounting 101 would show him that banks create money ex nihilo but apparently he never took it. Patrick Ghttps://www.blogger.com/profile/15422323193200428136noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31909076582907285502016-08-31T11:59:18.012+00:002016-08-31T11:59:18.012+00:00Neoclassicals adding the financial system is like ...Neoclassicals adding the financial system is like Ptolemaics adding another epicycle: it doesn't flow from the logic of the framework, it has to be imposed ad hoc after the crisis of the century hits you in the face. To me this is the indictment. You can stitch-fix a model or two, but it doesn't address that the framework is dysfunctional. Neoclassicals still don't know *why* the financial system matters. Vide Krugman babbling on how banks intermediate between savers and borrowers and his Eggertson paper he touts modeling that nonsense - accounting 101 would show him that banks create money ex nihilo but apparently he never took it. Patrick Ghttps://www.blogger.com/profile/15422323193200428136noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31397855613925587012016-08-31T10:26:01.414+00:002016-08-31T10:26:01.414+00:00if you think that mainstream macro needs to learn ...if you think that mainstream macro needs to learn from the crisis change, doesn't that mean you want to see "post hoc tinkering" and also isn't being able to rationalise things within a DSGE framework a good thing? How would it be better if the DSGE was unable to account for financial crises?<br /><br />also, what do you have in mind by novel out of sample predictions? A model might say, here's why I think crises happen and thus here's what I think could be done to prevent them. For example. What's the out of sample prediction you are going to test how?Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-82917028291295687422016-08-30T21:11:32.291+00:002016-08-30T21:11:32.291+00:00From where I sit, the problem macro-economists hav...From where I sit, the problem macro-economists have is fundamental laziness.<br /><br />Model: Empirics + simplying assumptions = Expected Result<br /><br />When reality not equal Expected Result, then simplifying assumptions are wrong --- the economist's job is to then find out which assumption(s) are wrong and then figure the basis information required to change that assumption into empirical data and the relationships that govern them.<br /><br />The excuse is always that it's too complex or the required data isn't available. The latter is now the excuse for not having known about the complex derivatives market and leverage.... since it was "proprietary" to banks or "private". But if a couple of guys could discover well before the fact that the market was screwed up and short the mortgage market, then so could macro-economists have figured it and included it in the models before the fact. <br /><br />It was all empirically knowable and quantifiable information. It was a distribution of existing capital + leverage terms. So why didn't macro-economists make known that this information was a critical part of macro modeling and that if the data wasn't available then seek to get it made available because it was critical data to include in the models.<br /><br />But rather than do that , they made simplifying assumptions because, from where I sit it was "easier" and that means the macro profession was just lazy. I mean it's not like this kind of stuff hasn't happened before in economics... so what excuse for not making the effort to include it? Longtoothhttps://www.blogger.com/profile/08844066558431822440noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-87136876336810044282016-08-30T21:08:34.996+00:002016-08-30T21:08:34.996+00:00This may simply follow from things already said, b...This may simply follow from things already said, but I do not see putting financial frictions into DSGE models as being at all satisfying the complaints by those citing Minsky (who, btw, was not around for the crisis of 2008 and did not forecast it as some others of us did). The problem, which also relates to Simon's critique of the Godley-Lavoie models, involves the nature of the microfoundations, which he is very keen must still be there and don3 very properly. The real problem is that these oh so proper microfoundations for DSGE models assume rational expectations (and often also, although not always, representative agents). We know ratex is simply false, so having behaviorally accurate foundations would be superior.<br /><br />This is probably the biggest problem with this post in my not-so humble view.<br /><br />Barkley Rosser rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-24574150761347624572016-08-30T17:01:38.997+00:002016-08-30T17:01:38.997+00:00I am going to repeat myself but I feel the point i...I am going to repeat myself but I feel the point is important... can 'mainstream economists' please advocate for stronger auto stabilisers? That seems to be what is 'the difference' or 'missing.'<br /><br />You seem Simon to have a real cognitive dissonance blind spot about them - because of course they inject government money automatically into a system on demand, but they do it via the fiscal authority not the monetary one (which just plays a passive role of clearing the cheques) and only to the poor and dispossessed rather than free money to the wealthy. <br /><br />Eg higher interest rates = paying free money to rich people that will 'trickle down.'<br /><br />It is the logical route rather than trying to increase the power of the central bank.<br /><br />Here in MMT land we advocate for the JG which is a *very* strong auto stabiliser. If the living wage was set at £10 per hour and you worked 37.5 hours a week you would get a gross wage of £375 per week. That’s five times the current rate of Job Seekers Allowance of £73.10 per week. When you start a Job Guarantee the first thing you do is pay people the wage while you ramp up the job side. That money given to people will in the short term bring the effective demand of the economy up to speed causing the economy to hire any remaining skills off the pile – reducing the number of people on the Job Guarantee.<br /><br />Only when that effect subsides do you then look for and create jobs *that match the people* on the Job Guarantee. That’s the key difference of JG that solves the matching problem. Find people something to do, not come up with something to do and find the people.<br /><br />There are several important effects (ii and iii in particular):<br /><br />(i) People can choose to go onto social security via the JG. This disciplines the standard economy. All of a sudden ‘no deal’ is an option in the normal business jobs market and that makes the job market behave, well, like a market.<br /><br />(ii) Because they are working, the number of people on a JG becomes less of a social issue – no more ‘bring down unemployment’, no more ‘shirkers’. Therefore normal businesses can be allowed to go bust, not pay redundancy, etc because the JG will catch people who lose their jobs during a retrenchment. That disciplines the spending and wage channels since there need be no bailouts or the ‘special industries’ that pump-priming requires. Overpaid workers get an imposed wage cut when they are forced to move to the JG as do greedy bosses. ‘Corporate confidence’ is no longer of overriding concern.<br /><br />(iii) People on the JG are working and producing output – so they are more socially productive than on unemployment benefit or income guarantees. In addition they have something to do with their day, so they are unlikely to be isolated or be exploited by extremists. And because they are seen to be working they become *cheaper to hire and more productive* from a normal business’s point of view (there is always less hiring risk if you know people are working.) That eliminates a current risk cost completely from the economy (the ‘long term unemployed’ issue.)<br /><br />(iv) Forcing businesses to compete for staff should accelerate the capital development of the economy, and replacing jobs with better machines is what we want the private sector to do. People need to be expensive to use and valued, and jobs in the normal business jobs market must not be sacrosanct. Business models that fail, must be allowed to fail without any sentimentality. We need to ensure that businesses in a capitalist economy are treated like cattle, not pets.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-42491355828071849982016-08-30T14:59:18.568+00:002016-08-30T14:59:18.568+00:00" which is why there has been an explosion of..." which is why there has been an explosion of DSGE and other microfounded analysis putting a financial sector into macromodels"<br /><br />Before that it was unsuspicious to ignore 14% of GDP, or 8% or 4% of GDP as financial sector was 100 years ago!!!!<br /><br />Enough said!Critical Tinkererhttps://www.blogger.com/profile/08540226813192385645noreply@blogger.com