Macroeconomics from the P³

The scale of underemployment in the economy is massive, and the unemployment data simply does not reflect that. Until that slack is picked up there is no chance of inflation.

So., is it possible to have inflation without full employment?

Is there full employment in Venezuela? Zimbabwe? Do they have inflation?

Ah, well, inflation is possible without full employment then, isn’t it?

But of course those are places that can’t do the miracle of MMT.

Hmm – in the UK in 1984 inflation was 8% and unemployment 12%.

So, err, the insistence is, well, it’s P³, isn’t it?

Haldane has predicted that the UK is like a coiled spring, just waiting to spend. As I have said before, maybe he and his rich mates in the City are. But they are not representative of the population at large. As data on the sectoral balances used in my talk for Keele last night shows, consumers took more than five years to recover their confidence after 2008.

And as every economist has been shouting, was in fact shouting back then, recessions resulting from a financial market – or resulting in – crash take much longer to recover from.

But neither of us see the Phillips Curve kicking in right now with upward inflationary pressure resulting, simply because the data on which those who use that curve to make inflation predictions are pumping false unemployment and consumer optimism data into their models.

But the inflation predictions aren’t based upon the Phillips Curve. They’re based upon the money supply…..

That’s not an inflationary environment. And QE is going to be with us for a long time to come.

Err, yes, that’s the worry, that QE is inflationary…..

6 thoughts on “Macroeconomics from the P³”

  1. Is it strange that this economics genius is unaware of the great macroeconomic debate of the 1970s – the coexistence of high inflation and high unemployment and how neither standard Keynesian demand-pull or newfangled cost-push theories could explain it? It shunted the Phillips curve off to the sidelines for a few decades as well. Why doesn’t he stick to things he is good at, such as wearing nasty shirts and bonking Polly?

  2. NZ’s economy shows that the return is, if anything, quicker than predictions.

    The damage done will mostly be quite temporary. Except the government debt — that will be around for decades. And our government runs a surplus most years.

    For governments that run a deficit a reckoning is coming.

  3. The extent of the underemployment in the hyperinflationary late-70s was truly massive. When National Power was preparing for denationalisation the chairman told us that they had 3 men for every two unionised jobs claiming that he would create the largest redundancy programme in the history of the world (PowerGen had a comparable one but smaller as it was smaller), NCB had around one-third of its “workforce” on light duties “surface” because they were unfit to work at the coalface due to silicosis, BT took out *five* layers of management when it was privatised (according to a friend who worked for BT’s HR department so presumably knew), British Rail: well how could a rail journey cost more than a coach journey if it wasn’t massively overstaffed? BBC incredibly inefficient according to a contractor who had worked there …

    There was massive inflation under Wilson without the underemployment slack being taken up. Why? A government in hock to the public sector unions.

  4. For BT, project sovereign took out 5 layers. When I joined, in 1991, people told me that, a few years earlier, I would have had a drinks cabinet and television in my office. Instead, I shared a cubicle. It makes you wonder

  5. From my personal example, without the idiot lockdowns I’d have certainly flown over to Perth and down to Canberra and Sydney to see my family.

    It sounds like he’s complaining that since the government stopped me spending my money, I’ve wickedly not spent my money.

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