tag:blogger.com,1999:blog-5154389358831836369.post5981582495062687544..comments2024-03-29T02:09:24.633-04:00Comments on The Slack Wire: Are Recessions All About Money: Quasi-Monetarists and Babysitting Co-opsJW Masonhttp://www.blogger.com/profile/10664452827447313845noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-5154389358831836369.post-39097362102159774432011-09-16T11:02:18.535-04:002011-09-16T11:02:18.535-04:00Two random questions:
1.) Can you really do the K...Two random questions:<br /><br />1.) Can you really do the Keynesian Cross without money? How does the behavioral equation have a positive intercept? Without money, wouldn't positive consumption without output require an offsetting disinvestment?<br /><br />2.) Wouldn't durable goods imply cycles of demand? Think autos. Once there's a sufficient stock of used cars, demand for new cars be a function of the age and condition of the stock, in a way that will make new car demand cycle. If production capacity is dedicated, those cycles will ensure that output varies in relation to capacity. (maybe rsj is making a more general point along these lines)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-90228210024841593102011-09-13T20:27:18.906-04:002011-09-13T20:27:18.906-04:00JW: "Of course it's true that if firms wa...JW: "Of course it's true that if firms wanted to produce more, they would have trouble converting the incremental output into money. But that's (almost) always true, no?"<br /><br />It's almost always harder selling (most) goods than buying goods. More people work in sales than work in purchasing. I think that's because of monopolistic competition. (I'm very much a New Keynesian in that regard).<br /><br />But it gets harder still in a recession, and a little less hard in a boom.<br /><br />And then there's labour, which is always a bit hard to convert into money, but gets very hard in a recession.<br /><br />We can't just look at the bond market to tell us money is tight or easy. That was the point I was trying to make in my "Peanut theory of recessions post". If the price of peanuts was perfectly flexible, you would always be able to convert peanuts into money. But the peanut market wouldn't be able to tell you if money was tight or loose. (The price of peanuts might even rise in a recession, if peanuts were an inferior good).Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-69225326381769872612011-09-13T19:41:17.853-04:002011-09-13T19:41:17.853-04:00Thanks, Nick.
You may be right that in practice, ...Thanks, Nick.<br /><br />You may be right that in practice, recessions look more like money-hoarding models than pure coordination problem models. I'm agnostic about this as a general point the money-hoarding dynamic certainly is the main story in some cases at least. The main thing I want to establish is just that the notion of demand constraints, in the sense that over some horizon changes in output are driven by changes in desired expenditure, is not logically equivalent to the existence of excess demand for money. In principle we can talk about the former without the latter.<br /><br /><i>in real world recessions (it seems to me) buying is easier than normal, and selling is harder than normal (for most goods). (In other words, in a recession, selling *money* is easier than normal, and buying *money* is harder than normal.)</i><br /><br />This is what I'm not sure about. Yes, it's definitely true in a crisis, or in the transition from a higher to a lower equilibrium. But is it necessarily true once expectations have stabilized at a new, lower level? <br /><br />What do we expect to see, if money, or liquidity, is harder to buy? Well, higher interest rates to begin with, since the interest rate is just the price of liquidity. Credit ration; less market liquidity, i.e. assets that could formerly be easily converted to money via sale or hypothecation, no longer can be. That all happens in financial crises, including the one in 2008; it's almost constitutive of them. But three years on, it seems to me that it's actually pretty hard to find indicators of the ease of converting command over goods into money, that look significantly worse than pre-recession. And yet the output gap remains much larger. <br /><br />Of course it's true that if firms wanted to produce more, they would have trouble converting the incremental output into money. But that's (almost) always true, no?<br /><br />You're right, at this level of abstraction we could just as well talk about worker-firms; that's what we have in the babysitting co-op. I just didn't want the parallel with the labor-market search model to suggest that there was some specific failure of matching between workers and prospective employers, like you get with these skill-switching stories.<br /><br />Why Lucky Jim? It's from a passage where he mocks himself savagely for the obscurity of the academic article he's writing. (Tho in fact, the article sounds kind of interesting.) Here it signals a momentary awareness that one is writing a blog post about someone else's blogpost responding to another person's post on "quasi-monetarism," which seems to be getting a bit far away from the central problems of life.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-33705959209412121072011-09-13T18:15:48.017-04:002011-09-13T18:15:48.017-04:00Why Lucky Jim? I read that book ages ago.Why Lucky Jim? I read that book ages ago.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-58130906868272905322011-09-13T18:12:18.802-04:002011-09-13T18:12:18.802-04:00Very good post. A couple of random thoughts.
1. I...Very good post. A couple of random thoughts.<br /><br />1. It's like a disco, where the boys only go if they expect the girls to go, and the girls only go if they expect the boys to go. Multiple equilibria for for number of dance partners. Barter model. Like Diamond, as walt says.<br /><br />2. But it misses what to me is a crucial empirical feature of recessions. In your model, it's hard to both buy and sell in a recession. Buying *is* selling in your model, so both must be equally hard (or easy). But in real world recessions (it seems to me) buying is easier than normal, and selling is harder than normal (for most goods). (In other words, in a recession, selling *money* is easier than normal, and buying *money* is harder than normal.)<br /><br />Theoretically I have no problem with your model. Empirically it doesn't work as well as a model with monetary exchange.<br /><br />3. I find it easier to think of self-employed worker-firms, rather than a separate labour and output market. Everything, both labour and output, gets harder to sell and easier to buy in a recession.<br /><br />4. I think of excess supply/excess demand as just the limiting case of harder to sell/harder to buy in a search model.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-27264712286838771222011-09-13T17:30:56.933-04:002011-09-13T17:30:56.933-04:00You know, I was going to add a line at the end say...You know, I was going to add a line at the end saying, "A real economist would probably talk about this in terms of a search model," but for whatever reason I didn't. <br /><br />But we don't want to think of the coordination failure being (primarily) in the labor market, do we? at least not if we want to tell a story about aggregate demand. In the real world, the coordination failure is among firms setting output levels, not between firms and workers looking for the right employment match.JW Masonhttps://www.blogger.com/profile/10664452827447313845noreply@blogger.comtag:blogger.com,1999:blog-5154389358831836369.post-33889396641827556142011-09-13T17:20:19.290-04:002011-09-13T17:20:19.290-04:00This is pretty close to the Diamond general equili...This is pretty close to the Diamond general equilibrium search model of unemployment.waltnoreply@blogger.com