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2/13/2013 9:08:56 PM
5
I disagree with this, even though Krugman is most likely cumming over this new development. Damn new-Keynesian economics. According to their principles, unemployment goes up as the minimum wage goes down during times similar to our economic climate.
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Unemployment goes down but so does the quality of jobs and the standard of living.
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Edited by Telec: 2/13/2013 11:58:12 PM[quote]Damn new-Keynesian economics. According to their principles, unemployment goes up as the minimum wage goes down during times similar to our economic climate.[/quote]Hi, my name is Telec and I'm a New-Keynesian. The description of New-Keynesianism that you describe doesn't ring any bells, I'm afraid. Would you care to elaborate? Oh, and what economic model would you prefer? Real Business Cycle?
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[quote]Oh, and what economic model would you prefer? Real Business Cycle?[/quote] I just noticed your edit, haha. Actually, yes, I would. I don't view recessions as purely market failures, but rather the product of naturally occurring ups and downs of the market. In many cases, the recession can smooth itself out. However, I do concede that sometimes government intervention is needed. But New-Keynesian economics isn't a viable long term solution. I mean, of course, it would incredibly stupid to just cut off all government spending, as our economy is too dependent on the spending to survive. As I've said before, market economies are slower to adapt. You can't just cut off the pipeline and expect things to get better. Over time, the government ought to cut it's spending down.
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Real Business Cycle theory has some interesting features. For starters, it is based on two assumptions: 1) perfectly flexible nominal wages 2) perfectly flexible nominal prices - neither of which exist. Wages are sticky, prices are sticky, everything is sticky. As a consequence of this, RBC holds that there is no involuntary unemployment. If someone is out of work, it is because they do not wish to work at the prevailing wage rates. Which is just silly - there are a whole ton of people who would work if they could find a job - any job. As to policy stuff: compare the Great Depression with the Great Recession. The recession was initially pretty much the same as the depression, albeit a little bit more extreme. But then you have two major differences in policy - the first is the whole gold standard thing (compare countries which didn't have the gold standard with those that did) and the second is that policy response to the recession was governed predominantly by New-Keynesian policies, whereas the Great Depression was governed by [i]laissez-faire[/i] (until Roosevelt got in, anyway), which is essentially RBC in action.
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[url=http://krugman.blogs.nytimes.com/2011/09/03/broken-windows-ozone-and-jobs/]Fourth paragraph[/url]
