NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/sci/econ/9852

Internet Message Format | 1993-01-25 | 3.5 KB

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From: [e-mail] (Not a Boomer)
Newsgroups: sci.econ
Subject: Re: inflation vs employment
Message-ID: <[e-mail]>
Date: 25 Jan 93 18:41:33 EST
References: <[e-mail]>
Distribution: na
Organization: ACME Products
Lines: 66

In article <[e-mail]>, [e-mail] (Steven E Soar) writes:
> Here's an issue that I don`t see being discussed but seems pertinent to the
> state of our economy today: the proper balance between inflation and
> employment.
>
> Economics seems dominated by two major philisophical camps with different
> emphases and predictive powers but diametrically opposed outputs.
>
> In one camp we find the Keynesians, who can reiliably stimulate growth, but at
> the added expense of inflation.  Inflation is inefficient because at higher
> levels, it confuses future price/cost levels in the market.
>
> In the other camp we find non-Keynesians (Austrians, monetarists,
> supply-siders) who can who can reliably  control inflation, but at a huge
> expense of unemployment.  I believe that Blinder comments that if we ran the

    I think supply-siders demonstrated an aptitude for reducing both
inflationand unemployment.

> economy at 5% unemployment rather than 7% for the last decade, we would have
> produced approx $10K per capita more GNP.  This ignores the other significant
> social costs (UI benefits, break-up of families, suicides, etc).  So high
> levels of unemployment are also inefficient.

    It came down from 11% in '82 to 6% in '88.  Speaking of averages is a
little misleading, and hoping for 5% is a little unrealistic.  There is a limit
to what a good economic expansion can achieve :).
    We might as well wish for 3% unemplyment and 3% inflation.  But
that will have to wait until Kemp gets elected :).

    Seriously, though, I don't think it's an either/or proposition.

> The exsistence of two confliciting curves implies simple math could find an
> optimum operating point, if only we knew the shape of the curves.  At only
> 500K
> jobs created in the last four years (all in the government sector) and 3%

    Isn't it a net loss of jobs?  And a mix in where they are?

> inflation we must be far down the unemployment curve, implying stimulus would
> be desireable.  Yet, as far as I can see, there is no consensus on this point.

    As I said, I don't think it's a case of employment or low inflation.
We had both just 3 decades ago.  People then were worried that 3% inflation was
"too high".

> This seems a rather basic question for economists to answer. (Yes I know about
> the Phillips curve.  But what good is it if we can't know the shape of the
> darn
> thing?  Furthermore, what about the shape of the other curve, the
> inflationVSeffeciancy curve?  I've never even seen that one described
> anywhere.)
>
> Is there an answer?

    Stimulate the economy in the right places (ie, by making the creation
of supply easy) while paying down the debt and controlling government spending.
The economic boost provided by the private sector will bring unemployment down
while the fiscal policies of the government will keep the lid on inflation.
    In other words, let's see a repeat of 83-90 with better control of
government spending.

Brett
________________________________________________________________________________
    "There's nothing so passionate as a vested interest disguised as an
intellectual conviction."  Sean O'Casey in _The White Plague_ by Frank Herbert.