Monthly Archives: June 2011

The Wisdom of Solon

Somewhere in the blogosphere (bilbo?), a poster quoted from Will and Ariel Durant’s “Lessons of History”, and I thought a larger excerpt more appropriate:

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Pushing on a String (Supply-Demand Version)

In response to a query about the “Pushing-On-A-String” post, I thought it would be helpful to post some pictures clarifying the elasticity argument.

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Consumption, Part 1

I’ve been distracted from fleshing out my two good model by the work on consumption by Christopher Carroll, specifically buffer-stock savings models, consumption concavity, and the equivalence of credit constraints and prudence. I’m going to post a few notes on this work here.

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Benefit Games

In correspondence (and discussions), I’ve received complaints that the chart showing stagnation of real wages does not take into account benefits — particularly healthcare benefits — so that total real compensation has been rising.

The problem with that analysis is that if you are paid $20 per hour, then you can deflate by CPI to get a real wage, but if you are paid $20 per hour and a voucher for $10 of medical care, then you cannot deflate $30 by the CPI to get the real wage. You have to deflate the medical care voucher by the price deflator for medical care — only the cash can be deflated by the general price index.

So just because health-care benefit costs have been rising, pushing up total employer costs, does not mean that real wages, including benefits have been increasing. And if you take into account that defined benefit pensions were common in the past, whereas they are virtually non-existent in the private sector, then there is no reason to believe that benefits, in real terms, have been increasing. If anything, previous generations received more benefits, but the cost of those benefits, particularly in terms of pension plans and medical plans for retirees, are only being realized now.

Nominal Prices and Output Gaps

This post is my attempt to respond to the SRW’s graphical model of Keynesian and monetarist recessions. In particular, I have a different take on what is a Keynesian recession. I don’t think it has necessarily anything to do with sticky prices or leverage —  although these are all important in the real world, you don’t need them to describe variations in output and employment; you don’t need real productivity shocks, either.

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