Exploring Inequality: Real Wages and Productivity Growth

inequality

I recently had an argument with a few New Keynesian types in the comments section of Lars Syll’s blog. I won’t get into the nuances here as they are not very interesting. Basically the New Keynesians were trying to defend the idea that, in the long-run, wages are indeed flexible. The argument went nowhere partially, I think, because they misunderstood what the phrase “wages are flexible in the long-run” means.

To me that means that wages are both flexible in the sense that they will clear labour markets in the long-run (i.e. in the long-run there will be full employment so long as the correct level of interest rates is maintained in line with some Taylor Rule, as New Keynesian theory states) and it also means that wages adjust in line with the marginal productivity of labour.

You cannot really prove either of the above (dubious) assumptions with recourse to data. They are strictly a priori assertions, articles of the faith and any attempt to prove them empirically will run into unavoidable problems. Anyway, one of my interlocutors suggested that you could (and then added the caveat that you probably couldn’t) by looking at real hourly wages and real hourly output per worker.

Anyway, I decided to crunch the numbers to see what we would find. After some messing around with nominal wage growth rates my interlocutor pointed me toward real wage growth measure. The results do not say much for the idea that hourly work is compensated in line with hourly productivity. I broke the growth rates down into 8 year periods (because the data starts in 1965 and, as everyone knows, real wages started to stagnate in 1973) and here is what I found:

WAGEprodUS

Or, to give you the same data in graph form:

WAGEprodUSchart

As we can see there is certainly no linear relationship here. In 1965-1973 wages and productivity chugged along nicely but after this productivity continued rising while wages stagnated. Only during the Clinton boom era (here included in the 1997-2005 aggregation) did wages actually start growing again but these were far slower relative to productivity than in the 1965-1973 era.

Marginalists can avoid this data in any number of different ways by engaging in sophistical arguments. But the fact of the matter stands: trying to explain wages by appealing to productivity measures is extremely problematic. In a world where worker bargaining power is strong we may well see wage gains keep up with productivity but this is not due to some sort of market distributing resources in line with marginal productivities. Rather it is due to unions — probably being advised by economists who are tracking productivity growth — pushing for their living standards to keep pace.

Many economists today, in the post-Piketty world, are interested in inequality. (Economists are generally shallow types with watery convictions who want to bandwagon on every trend that comes their way). But they are also unwilling and unable to drop the stupid assumptions that were spoon-fed to them in university. They will try to bend these assumptions in all manner of different ways but at the end of the day they are just not up to discussing inequality in any rational or, dare I say, productive manner.

Update: This post was, as I indicated, partially a response to someone on Lars Syll’s blog. His name is Pontus and I had already told him quite clearly that he needed to dis-aggregate the data to get an idea of how wages and productivity are related. What followed was a rather nice illustration of bad data analysis. In the original comment I wrote:

Your regression results are spurious because you used too long a time period. Divide it up into six 8 year periods and you will get different results for each time period. This will suggest that you do not find a linear relationship and the relationship between wages and productivity is to be explained by some basket of confounding variables (to find out which ones, close Eviews and open a history book).

I thought that this was pretty clear. I quite clearly stated that if he divided up the data into six different time periods he would “get different results for each time period”. Pontus instead divided the data up into six time periods and ran a regression on these six datapoints.

In effect, he lessened the number of observations and then re-ran a regression he had already run. Why did he do this? What did he think he was proving? I’m not altogether sure. From the comments below it appears that he thought I was trying to “trick” him into getting worse results through using less datapoints. (That wouldn’t be much of a trick if you ask me).

So, what did I mean? Well, why not quote Keynes here in his critique of Tinbergen’s econometric study?

Put broadly, the most important condition is that the environment in all relevant respects, other than the fluctuations in those factors of which we take particular account, should be uniform and homogeneous over a period of time. We cannot be sure that such conditions will persist in the future, even if we find them in the past. But if we find them in the past, we have at any rate some basis for an inductive argument. The first step, therefore, is to break up the period under examination into a series of sub-periods, with a view to discovering whether the results of applying our method to the various sub-periods taken separately are reasonably uniform. (Professor Tinbergen’s Method, pp566-567)

So, how is this quote relevant to our present discussion? Well, the original argument was whether there was some sort of law-like relationship between wage growth and productivity growth. This is what a regression study should try to prove (or disprove). But, as Keynes implies, you cannot simply pile the data into a blender and then smugly read off the R-squared. Well, you can get away with this in the journals but they are void of any real empirics.

Rather you have to reorganise the data in line with your specific argument and then lay it out. That is what I did above. I said clearly that it was well-known that the wage growth:productivity growth ratio was far close together in the period 1965-1973 than it was afterwards. This suggested that something else (a confounding series of variables, to use statistics-speak) was causing their divergence in the other time periods. What’s more this something else must have been having enormous effects in different time periods because the two rates diverged so sharply. You can see this extremely clearly in the graph below that reproduces the first graph but puts in another indicator that shows the divergence of the wage rate and the productivity rate from one another.

DifferentialsAs we can see, in the periods 1965-1973 the rates only diverged by about 1% while in 1973-1981 and 1997-2005 they diverged by 2.5-3.0%.

In economics if we want to make a meaningful causal argument we must be able to establish, as Keynes said, whether “various sub-periods taken separately are reasonably uniform”. If they are we can make a strong causal argument about the relationship (in this case that wages are set largely in line with productivity). But if they are not we can tell pretty much instantly that we are missing a key part of the story.

Anyway, the above confusions speak loudly to the problems with econometrics that Syll and I often highlight on our blogs. Most economists are not very good at establishing causal arguments and use advanced statistical methods as a crutch on which to prop up their flimsy arguments.

Update II: There were some problems with the new graph. This is a sometimes counterintuitive argument to make with data. All is fixed now. For real this time.

Update III: One final note before I’m done with this. What was the correlation that Pontus was picking up in his original regression? Why is it that wages do move to some extent with productivity? The answer to that is rather simple. It is because both wages and a certain measure of productivity are very strongly correlated to another variable. No prizes for guessing what: yep that’s right… Real GDP.

REALGDPoutput

There was some divergence after 1980 but this is due to the ensuing relatively high unemployment years and we shall not discuss this here.

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About pilkingtonphil

Philip Pilkington is a London-based economist and member of the Political Economy Research Group (PERG) at Kingston University. You can follow him on Twitter at @pilkingtonphil.
This entry was posted in Economic History, Economic Policy, Economic Theory. Bookmark the permalink.

120 Responses to Exploring Inequality: Real Wages and Productivity Growth

  1. Funky says:

    “I recently had an argument with a few New Keynesian types in the comments section of Lars Syll’s blog. I won’t get into the nuances here as they are not very interesting. Basically the New Keynesians were trying to defend the idea that, in the long-run, wages are indeed flexible.”

    Reading skills are essential. I wrote numerous times that New Keynesian models are bullshit (and anti-Keynesian) as they imply that more wage and price flexibility would undo the existence of underemployment equilibria.

    • I was talking about Pontus. I don’t even know what you are. Some weird would-be Keynesian who likes marginal productivity theory.

      • Funky says:

        “would-be Keynesian who likes marginal productivity theory”

        Keynes wrote the term “marginal efficiency of capital” dozens of times in the General Theory. So if you wanna argue against this kind of stuff you cannot use the name of Keynes.
        If somebody is anti-Keynesian here and does not pay attention to what Keynes actually wrote it is the guy who denies that productivity has any influences upon wages at all and who denies that the long run exists (Keynes clearly thought otherwise which is why he labeled his book General Theory and not New Theory).

      • And what does the theory of marginal productivity have to do with Keynes’ “marginal efficiency of capital” pray tell?

        This should be interesting…

      • Funky says:

        If you don’t know it you better read the GT. Or you can go on calling other people would-be Keynesians while you are in fact ignoring or contradicting essential points of Keynes. Itz is your choice but I am definitely done with your lies and bullshittery.

      • Oh… you mean the General Theory chapter 11 where Keynes writes:

        How is the above definition of the marginal efficiency of capital related to common usage? The Marginal Productivity or Yield or Efficiency or Utility of Capital are familiar terms which we have all frequently used. But it is not easy by searching the literature of economics to find a clear statement of what economists have usually intended by these terms….

        Finally, there is the distinction, the neglect of which has been the main cause of confusion and misunderstanding, between the increment of value obtainable by using an additional quantity of capital in the existing situation, and the series of increments which it is expected to obtain over the whole life of the additional capital asset; — i.e. the distinction between Q1 and the complete series Q1, Q2, … Qr … This involves the whole question of the place of expectation in economic theory. Most discussions of the marginal efficiency of capital seem to pay no attention to any member of the series except Q1. Yet this cannot be legitimate except in a static theory, for which all the Q’s are equal. The ordinary theory of distribution, where it is assumed that capital is getting now its marginal productivity (in some sense or other), is only valid in a stationary state. The aggregate current return to capital has no direct relationship to its marginal efficiency; whilst its current return at the margin of production (i.e. the return to capital which enters into the supply price of output) is its marginal user cost, which also has no close connection with its marginal efficiency.

        Do you mean that General Theory?

      • Funky says:

        Thanks, I read the GE, no need to quote it. Still missing the passage where Keynes claims that wages (or the MEC) is not influenced by productivity/technology or that his theory also holds in the long run (unless we are suffering secular stagnation).

        About the passage you quoted, all that Keynes says in Ch.11 is that expectations matters and that the entire time series of future expected returns matter of determine the MEC. This has long ago been incorporated ino economics. I don’t know any model which does not work like this, the only discussion nowadays is about what expectation mechanism to use.

      • Oh dear… you’re getting in a bit deep now.

        (1) Keynes does not discuss wages in Chapter 11.

        (2) Keynes claims that expectations are subject to uncertainty and that investment is subject to beauty contest dynamics. This implies that they cannot be modeled.

        Funky, you may be a good economist, I don’t know. But you’re not a very good Keynes scholar. And before you go into the wide world pretending to be an expert, take a deep breath and step back. Because you will get burned in public. And it will be embarrassing.

      • Funky says:

        You claim the entire time that wages are entirely due to political economy whereas I claim that they are also influenced by productivity. Gee, this is the key issue at hand so how the fuck can you forget it.

        As I said, your are doing postmodern critical theory, obfuscating the issue or just bluntly lieing.

      • Funky, Funky, Funky, you seem to be getting yourself into a right… funk. In your last post you wrote:

        Still waiting for your argument that keynes claimed that returns to capital and labour are entirely due to political economy…

        So, you said that I said that Keynes said that returns were due to political economy. But now you write:

        You claim the entire time that wages are entirely due to political economy whereas I claim that they are also influenced by productivity. Gee, this is the key issue at hand so how the fuck can you forget it.

        But now I say that wages are due entirely to political economy (are you sure I even said this!?). So, which is it: did I say that Keynes said this or did I say it myself?

        You really must learn to think more clearly on these matters.

    • Funky says:

      “Oh dear… you’re getting in a bit deep now.

      (1) Keynes does not discuss wages in Chapter 11.

      (2) Keynes claims that expectations are subject to uncertainty and the investment is subject to beauty contest dynamics. This implies that they cannot be modeled.”

      Thanks, I know my Keynes. Of course his points about Knightian uncertainty are right but when you draw the conclusion that you cannot model investment at all you basically give up demand management which is the real-world reason we do this entire stuff in the first place. So, to use Mankiw’s terms, the scientific macroeconomist has to roll with Keynes but the engineer-economist who works for a CB or in the finance ministry has to make decisions about monetary and fiscal policy … and he better uses an imperfect model to guide him in the decision process than no model at all (I don’t wanna rely on the intuition of anybody when it comes to the employment of millions of people.

      Now back to the original topic, you have basically evaded the issue. Still waiting for your argument that keynes claimed that returns to capital and labour are entirely due to political economy and that his theory holds also in the long, i.e. that there basically is no long.run. I will probably wait until doomsday because Keynes never made this points. So have the courage to admit that you disagree with Keynes here (just like I disagree with him concerning Knightian uncertainty) or go on lieing. This is after all what you do the entire time.

      • Of course his points about Knightian uncertainty are right but when you draw the conclusion that you cannot model investment at all you basically give up demand management which is the real-world reason we do this entire stuff in the first place.

        Why do you “give up demand management”? Keynes did not model investment and he advocated it. Rather successfully, I might add.

        Still waiting for your argument that keynes claimed that returns to capital and labour are entirely due to political economy…

        Could you please quote me verbatim making this point? I will answer it when you prove that I said that Keynes said this. I want a source too.

        So have the courage to admit that you disagree with Keynes here (just like I disagree with him concerning Knightian uncertainty) or go on lieing. This is after all what you do the entire time.

        Are you under the age of 20 by any chance?

    • Funky says:

      “Why do you “give up demand management”? Keynes did not model investment and he advocated it. Rather successfully, I might add.”

      Qualitative theory suffices for the theoreticians but in the practical application you might want to have quantitative estimates of the fiscal multiplier before you engage in deficit spending. And as much as I appreciate what Keynes has written, he was one of the first guys (Kalecki and Wicksell are IMO the other two important ones) who analyzed short-run underemployment equilibria and how to get out of them … but the GT is practically worthless for macro-engineers, these guys needs qualitative models.
      And while we are at it, can you offer better macroeconometric than the stuff we had? Because mentioning The Treatise of Probability and rambling about ergodicity are fine for a the scientific macroeconomist but the macro-engineer needs a model to work with.

      • No, Funky, macro-engineers (is that what you guys call yourselves? with no sense of humour at all, I presume…) will not like me very much. I think, as Keynes did mind you (you really should read him a bit more, Mr. Expert) that what macro-engineers, as you so eloquently call them, do is absolute and utter rubbish. A complete waste of time and energy and produces material of equivalent worth to what haruspices came up with when they cut open the stomachs of goats to read their entrails.

        May I give you some advance warning too: most practical people working in macro agree with me. No, your professors won’t agree with me — they have to get paid, right? — but most people working on macro problems day-to-day will. How many interviews have I attended where I asked the fateful question “do you guys do macroeconometric modelling?” and they answered “no, we do not do garbage-in garbage-out analysis here”. The ivory towers of academia are a comfortable place for the macro-engineers, Funky, but don’t get too warm in there. For the real world is altogether more chilly.

  2. Funky says:

    What I find most funny is that you cannot argue about economics without labels (Do I seriously care whether Koo is a Post-Keynesian and whether Stiglitz is a Classical? No, I care about tgood economics and not tribal identity) and distortions (How often do I have to point out that I am not agreeing with the New Classical notions that wages are entirely influenced by market forces? This is true for the wages of some jobs but the majority of people works for large corporations or the state and here bargaining / political power are definitely a significant factor that influences wages.).

    • No tribal identity except being a “radical leftist”.

      Anyway, let’s do some economic theory then. Answer my question above.

      • Funky says:

        I am not the one entertaining anti-Keynesian positions or spouting out postmodern nonsense like MEC does not contrain the work marginal.

        This is getting utterly preposterous and as productive as talking with economists near the Great Lakes.

      • Okay. Nice one. You got me.

        But let’s get back to that quote from Chapter 11 above. What is it that (the True) Keynes is implying when he writes:

        The ordinary theory of distribution, where it is assumed that capital is getting now its marginal productivity (in some sense or other), is only valid in a stationary state.

        Is he implying, perhaps, that his is not a static theory and that the “ordinary theory of distribution” does not apply, perhaps?

      • Funky says:

        Already told you what it means. Now if you wanna do more critical theory and pretend that Keynes made any arguments about distribution, go ahead. It will not be the Keynes of the real world but of course nobody prevents you from taking a quote out of context and misuse it to rationalize whatever funky theory you have in mind.

        As I wrote numerous times, I entirely agree with you that political economy has a tremendous effect upon distribution and mainstream models don’t show this effect. Nothing new for me and I’d be surprised if you could easily model the political economical effect.
        What I cannot stand though is your postmodern bullshit: ignoring what Keynes said or misquoting him. And what I can’t stand even less is the ridiculous notion that labour demand and supply do not matter at all. They matter to a lesser degree than most mainstream economists think but they are nonetheless the most important factor that influence wages besides the political economical factor.

      • Funky, I couldn’t care less what you “can’t stand”. In fact, I find it infinitely amusing that my “postmodern bullshit” annoys you.

        But that doesn’t change what is and what is not in the General Theory. I said that you were a would-be Keynesian who liked marginal productivity theory. You wrote:

        Keynes wrote the term “marginal efficiency of capital” dozens of times in the General Theory.

        But as I have shown above, Keynes presented the “marginal efficiency of capital” against marginal productivity.

        Step back. Take a deep breath. Think about all this. Don’t make an ass out of yourself.

    • Funky says:

      “But as I have shown above, Keynes presented the “marginal efficiency of capital” against marginal productivity.”
      Nope. Read the passage again and again and again, then you will understand that Keynes did not blow up the notion of marginal productivity but modify the current theories which did not include dynamics and expectations. Nowadays all theories that deal with the return on capital are dynamic and include expectations (e.g. dividends = discounted stream of future expected profits).
      Keynes amended a notion which is why he did not name his new notion, MEC, totally different. If you knew anything about Keynes you’d know that he was a British liberal and his politics also influenced his economics: reform and not revolution, (a more) General Theory and not a New Theory. So much about you being a grand Keynesian scholar, 😀

      • Yes, and once you add uncertainty you cannot model those expectations. This also implies, as Keynes says later on, that there is no “natural rate of interest”. Anyway, I’m not getting into this here as you seem rather young. But I would encourage you to continue reading Keynes. It is encouraging at least.

        I would also encourage you to stop using the term “postmodern” without understanding the meaning. It comes off rather silly.

  3. Pontus says:

    I should probably, for the record, mention that the relationship between wages and productivity modeled as

    w = a+b*z+e

    where z is productivity has an estimated b of 1.4 which is significant at the 5% level, and an R-square of 0.7. This despite using only six data points.

    • What are you talking about, Pontus?

    • Oh, hang on… did you take the six observations laid out in this post and plug them into that equation? Please don’t tell me you did that… for the love of God don’t tell me you did that…

      • Pontus says:

        I did. I’m sure you thought that reducing the sample to six points was a clever way to get out of the embarrassing mess you got yourself into. But if you plot the data instead of using a bar chart you’ll see the relationship. And there is no problem regressing w on z even if there are few observations. Of course, only a very strong relationship would show up as significant. And guess what, this relationship is that strong.

      • Hahaha! I can’t believe you did that! That is hilarious!

        Oh man, if I ever needed a better confirmation of a trained economist confusing statistical tests with causal arguments, I now have it. Thanks for the anecdote, Pontus. I’ll be using it in future.

      • Pontus says:

        Eh, who spoke about causality? (And how do you even confuse “statistical tests” with causality? I thought people confuse correlation with causality)

        So maybe you can explain what is wrong with a statistical approach, and what’s right with you eye-balling a bar chart (“As we can see there is certainly no linear relationship here.”)?

        And what is wrong with plotting the data? You seem to believe in eye-balling charts, so why not eye-ball a scatter plot. And why wouldn’t measure the correlation if you can? And provide test statistics if they are available?

      • Oh God, Pontus…

        I’ll do an update and try to be clearer on the argument. Although I’ve stated it twice now pretty clearly so…

      • Pontus says:

        Please do, I am genuinely interested of what kind of craziness may come next. A pie chart?

        As for your ramblings about marginalism etc., that is missing the point. The data is not related to any marginal productivity, it’s simply average productivity per hour. That is, output per hours worked, averaged over all agents in the economy. That is measurable and is in the data. I think the fact that there is such a strong relationship between wages and productivity — both in the long and in the short run — supports some notion of long-run wage flexibility. You can repeat the exercise with unemployment if you wish, but the same will be there.

  4. philippe101 says:

    sounds like Pontus Rendahl.

    • Yes, it’s Pontus Rendahl… Give him a few more comments and he’ll start bragging about being a Professor at Cambridge like he did on Syll’s blog.

      • Pontus says:

        It’s useful to clarify what constitutes “bragging” here:

        Phil: “I suppose I should insert some ad hominem attack in here about Cambridge but I only slag people off when they’re being silly, stubborn or intransigent.”

        Me: “Give it your best shot. Say that Cambridge is a shitty university and that Kingston is much much better. It will definitely hurt.”

        Phil’s logical conclusion: “He bragged about being a Professor at Cambridge on Syll’s blog!!”

        Phil’s next step: “I am examining the Swedish property market for an article I’m writing outlining a new set of policy tools for the Sveriges Riksbank”

        [Disclosure: I’m not a Professor at Cambridge.]

      • That wasn’t bragging. That kid said that I was a postmodernist that did not engage in policy questions. Just pointing out I was wasn’t.

        You brought up Cambridge all on your own. Then you started “comparing universities”. You sounded more like a couple of mothers gossiping than anything else. It was pretty sad. You should check that in future.

      • Pontus says:

        “You brought up Cambridge all on your own.”

        No I did not. A quick search reveals that Lars Syll first wrote:

        “That got to be some weird Cambridge joke …”

        Link: http://larspsyll.wordpress.com/2014/05/02/james-galbraith-on-flim-flamming-new-keynesianism/#comment-12488

        then you wrote

        “I suppose I should insert some ad hominem attack in here about Cambridge but I only slag people off when they’re being silly, stubborn or intransigent.”

        Link: http://larspsyll.wordpress.com/2014/05/02/james-galbraith-on-flim-flamming-new-keynesianism/#comment-12509

        and THEN I wrote

        “Give it your best shot. Say that Cambridge is a shitty university and that Kingston is much much better. It will definitely hurt.”

        Link: http://larspsyll.wordpress.com/2014/05/02/james-galbraith-on-flim-flamming-new-keynesianism/#comment-12515

        Stop lying please.

      • I wrote this:

        “I suppose I should insert some ad hominem attack in here about Cambridge but I only slag people off when they’re being silly, stubborn or intransigent.”

        In response to you trying to implicitly compare your university education to mine when you wrote:

        “Is Kingston college a place for special people? I’ve never heard of it before.”

        Why on earth do you insist on doing this? It is very embarrassing all together. The need to paint the Other as not just wrong, but an evil manipulative liar. You seem to be oozing with Bad Faith, my friend. You should check that.

      • Pontus says:

        So then even you admit that I did not “bring up Cambridge all on my own”, but in fact that you did, and that you just made that up? Very well, apology accepted.

        The implicit part is of course nonsense. I did not mention my employer nor my alma mater before you and Lars did. I intentionally use only my first name as arguments should stand on their own two feet and not rely on authority. The rest comes from the voices in your head (“The Other”, “Bad Faith”).

        What about the possibility that you’re actually a very mediocre economist with little to no understanding of economics, but with a big ego and a barking loud mouth? That your university degree, your tone, and your posturing reflect that? Ever considered that? I guess it’s a scary thought. Unfortunately Phil, it’s true.

      • I guess it could be true. It also may not be true. I’m not sure that there is a final arbiter who can make that call — although you seem to think that you are just that. I’m not sure what you’re trying to achieve here, Pontus. Are you trying to win an argument or are you trying to “break me” emotionally or something? Your motivations are unclear to me. But I don’t think you’re just interested in having an economic discussion.

      • Pontus says:

        Jesus, Phil. Have you ever listened to yourself? Just from this conversation:

        “And before you go into the wide world pretending to be an expert, take a deep breath and step back. Because you will get burned in public. And it will be embarrassing.”

        “You really must learn to think more clearly on these matters.”

        “Are you under the age of 20 by any chance?”

        “Step back. Take a deep breath. Think about all this. Don’t make an ass out of yourself.”

        “Hahaha! I can’t believe you did that! That is hilarious!”

        “Give him a few more comments and he’ll start bragging about being a Professor at Cambridge”

        “You sounded more like a couple of mothers gossiping than anything else. It was pretty sad. You should check that in future.”

        “What age are you, Funky? I’m thinking from your foul mouth and your sense of dynasty that you must, oh, between 18 and 20. Am I correct?”

        “Ah, the teenage mind. Always looking for the Holy Grail.”

        “That’s fine, but please stop wasting my time and energy with whatever emotional need this satisfies.”

        “You are an angry young man, indeed. About what, I wouldn’t dare to try to speculate.”

        “Go on now, back to your blackboard squiggles and your regressions and leave the adults to discuss economic policy.”

        “Are you sure that YOU have been reading the New Keynesian literature, Pontus? Hahahaha!”

        “My only hope is that your pathetic need to outcompete with other people — in this case, me — will make you so stubborn that you won’t change your mind on this issue and you will sink into obscurity.”

      • Oh Good Lord, it’s unbearable to look at… truly unbearable… I can’t believe I sound like…

        Um, no. Not really. I’m comfortable with who I am and what I say. You? I’m not as sure.

        Have you ever heard of the encounter groups that took place in the 1960s by radical psychotherapists, Pontus? Your style reminds me of the video footage I saw of them a while back. One of the members would stand up and get really emotional and start pointing out all the flaws in those they saw around them. They would really tear into them. Then the psychotherapist would stand up and point out that a good deal of the criticisms could just as easily be turned around on the person who was criticising. The videos are fascinating. You should check them out.

      • Pontus says:

        “One of the members would stand up and get really emotional and start pointing out all the flaws in those they saw around them. They would really tear into them. Then the psychotherapist would stand up and point out that a good deal of the criticisms could just as easily be turned around on the person who was criticising. The videos are fascinating. You should check them out.”

        Maybe. But tell me, how come you’re exempt from this psychological behaviour?

      • I’m not. No one is. But I realise that. That’s why I’m not desperately attempting to attack your character to prove something to myself.

    • Funky says:

      Pontus: ” I’m sure you thought that reducing the sample to six points was a clever way to get out of the embarrassing mess you got yourself into. But if you plot the data instead of using a bar chart you’ll see the relationship”

      Phil: “You are making the same mistake as Pontus when he took the six observations and regressed them.”

      Your reading skills still suffer. Pontus worked with the ENTIRE DATA wheras you built AVERAGES and did not even regress them but just report the mere numbers.

      • Me: “Oh, hang on… did you take the six observations laid out in this post and plug them into that equation? Please don’t tell me you did that… for the love of God don’t tell me you did that…”

        Pontus: “I did.”

        You’re in out of your depth here, Funky. Please stop.

  5. Funky says:

    Pontus is right, regressing the growth wage of wages on the growth rate of productivity is better than what you did, comparing the averages over some years of the two respective growth rates. Of course both suffer from including only one independent variable, productivity growth, and are thus horribly inadequate … sowhat Pontus did is superior (meaning less bad) than what Phil did.

    I mean, gee, these are not complex arguments about econometrics or whatever, it is just the simple argument that using the entire data set is better than compressing it arbitrarily into averages and thus losing information (e.g. working with an entire income distribution is superior to working with Gini coefficients as the former includes more data).

    • Oh Funky, it does look like you need to read your Keynes a bit more. I would have expected a great Keynesian scholar like yourself to be familiar with Keynes’ inductive method (laid out in A Treatise on Probability) and how he saw it relating to econometrics, as he laid out in Professor Tinbergen’s Method. I think you have a bit more reading to do before you write the definitive biography of the man (and before you engage in arguments about how to establish causal laws using data).

      Besides, I thought you maintained that wages were in part set by bargaining power etc. If you think that then you would surely be a bit taken aback by the high R-squared Pontus reported, no?

      • Funky says:

        Your reading skills still suffer. Which part of “both [are] horribly inadequate” do you not understand?
        My only point was that what you did is worse than what Pontus did, his regression is superior to your comparison of averages. Once you admit this I am eager to discuss more complex statistical questions (but it obviously makes no point to delve into them while you disavow the basic errors you commit like ussing averages instead of the entire data set).

      • You clearly do not understand the argument. You are making the same mistake as Pontus when he took the six observations and regressed them. The point was that he should take each of the six 8 year periods and run regressions on them separately. Then he would have seen that the correlation between wages and productivity was not homogenous over time and thus he could not infer that there was any solid causal law running through the data. Again, you really must read Keynes on these empirical issues if you want to proclaim yourself to be his heir.

  6. Funky says:

    Normally it is only right-wing cocksuckers working for right-wing think tanks who molest the data until they get the desired result. But thanks for having taught me that many heterodox half-wits are just as horrible.
    But it is not just horrible statistical skills (“wages don’t move” while the data shows wage growth), their post-modern bullshittery (there is no labour market, we cannot model investment, everything is ergodic) makes macro-engineering impossible. For them it is an intellectual game whereas for practical Keynesians like Krugman, Stiglitz or Leijonhufvud (obviously many Post-Keynesians are brilliant, not all of them are rotten) what matters most is application of the theory: massive deficit spending during liquidity traps to employ tens millions of people and thus make their lives far better.

    • What age are you, Funky? I’m thinking from your foul mouth and your sense of dynasty that you must, oh, between 18 and 20. Am I correct?

      • Funky says:

        Absolutely. Only 18 year olds know economics and don’t give a shit about political correctness and politeness (which you, of course, care so deeply about).

        Anyway, nice to see you finally going ad hominem. The final straw that people grab when they lose their argument (if one can call your pathetic attempt to deflect from your inability to distinguish between nominal and real variables or you use of arbitrary averages arguments).

      • It’s not ad hominem. You just come across rather young. (You even seem unable to tell the difference between political correctness and swearing which is deeply unusual — I’m fairly sure that I could have distinguished between them in my mid-to-late teens).

        My advice to you would be continue to read broadly. Gain some appreciation of how the policy world actually works (hint: I have written policy documents for a few governments despite being what you call a ‘postmodernist’, you have not despite being a self-proclaimed ‘macro-engineer’). And try to approach treating economics as a set of engineering problems with some degree of skepticism.

  7. Funky says:

    My advice to you would be to repeat your undergraduate studies in order to learn the difference between nominal and real variables and learn why bar charts and eye-balling are inferior to least squares.

    • Yes, I’ll be sure to look up the difference between nominal and real variables.

      As to statistical presentation, it really depends. Please read more Keynes before you continue to tout yourself as an expert (while hiding behind an internet handle, of course…).

  8. Funky says:

    And you really gotta work on your reading skills, I never claimed to be a macro-engineer. I merely contrasted that, to use Mankiw’s terms, a macro-scientist and a macro-engineer approach a problem differently … and your practical inabilities (of course you know the difference between real and nominal variables but it is just abstract knowledge and not flesh and blood, otherwise you would not commit such basic errors) show that you are merely thinking like a theoretician.

    • Yes, Funky, sure they do. They don’t have anything to do with the fact that while I was arguing with you and Pontus I was examining the Swedish property market for an article I’m writing outlining a new set of policy tools for the Sveriges Riksbank, so my attention wasn’t exactly focused this morning.

      Cool your jets, kid. Take a breather. Read some more. And get real about how the world works lest you find yourself squiggling on a blackboard for the rest of your life.

      • Funky says:

        You really have serious ego issues. if you have to portray me as a dumb kid and yourself as the guys, successful guy who works for a CB. As I said, appeal to authority had to appear somewhen.

        But all your posturing and deflections will not undo the basic errors you made.

        Anyway, have a nice time. You are probably not a bad guy, just making elementary errors and suffering from an overblown ego. If it weren’t for that I totally would not mind to read some of the stuff you wrote (I might be a mainstream economist but I’d lie if I claimed that Koo, Minsky and Leijonhufvud were not among the economists I learned most from during the last years).

      • No, I hate to brag. But you seem to think of me as some sort of airy-fairy philosopher and yourself as some practical hands-on political maverick. But the reality of the situation is that it is you that get nothing done and me that writes reports for the governments etc. I just thought that this was worth making crystal clear.

      • Pontus says:

        I can only guess that the “report” is completely unsolicited and unpaid. It would be extremely odd for a CB with its own research department to request a Master student at some obscure London university to develop “a new set of policy tools for [them]”.

        Can you please substantiate? I think you’re full of shit.

      • It’s not a “report” Pontus. As I wrote: it’s an article. For a newspaper. Again, my point was merely that I do engage with policy questions, contrary to what the kid implied.

        You really do like comparing yourself to others to try to prove something to yourself, don’t you? The measure of the man, I suppose.

      • Pontus says:

        Woops, so you don’t work at all for the Riksbank?

        It’s interesting as Funky wrote: “You really have serious ego issues if you have to portray me as a dumb kid and yourself as a successful guy who works for a CB. [my corrections]” And you didn’t bother to correct him that you, in fact, does not work for a central bank. Instead you wrote “No, I hate to brag”.

        It is almost as if you were trying to give the impression that you were writing an article for the Riksbank, and giving yourself much more prestige and importance than you really have. Weird. But that’s not you, Phil, is it? You would never do such a thing, would you?

        Perhaps you can tell us: What were you really bragging about? You know, that that you hated so much to brag about? Please share with us influential-Phil. Please share.

      • Good Lord, Pontus. Tone it down. The bile is just seeping through this morning, isn’t it. You are an angry young man, indeed. About what, I wouldn’t dare to try to speculate. Chill out.

      • Pontus says:

        Yeah, I guess it’s time to ask me to “tone it down” when you’ve just been caught with your trousers down, intentionally deceiving people into thinking that you’re writing articles for the Riksbank.

        I think it would infinitely wiser for you to stop pretending you’re someone you are not, instead of me “chilling out”. As Lars Syll often say, pointing out that the emperor is naked can never be a waste of time.

      • Imagine a world where the Other is Evil. Every move they make must be scrutinised. Every omission is a lie and a deception. Every silence, a slight, an insult or an attempt to project untruths into the world. Welcome to the mind of Pontus.

        He who fights with monsters should look to it that he himself does not become a monster. And when you gaze long into an abyss the abyss also gazes into you. — Nietzsche

        Forgive me if I try to slide seamlessly out your sickly web here, Pontus. Let’s talk data and economics, shall we?

      • Pontus says:

        “But the reality of the situation is that it is you that get nothing done and me that writes reports for the governments etc.”

        Hold on Phil, you write REPORTS for GOVERNMENTS? This must be different from that ARTICLE you are writing for a NEWSPAPER about the Riksbank?

        Can you please explain to us which governments you are writing reports for, and where we can lay our hands on these reports. Again, I think you’re full of shit. Posturing and bragging again.

      • Scottish government. I gave them an alternative proposal for their monetary system.

        But let’s stop this, please Pontus. I know you have something to prove. But I really don’t. I’m only interested in discussing economics. I’m not looking for an emotional vent and I would prefer if you did not use this comments section as a psychiatric clinic. Thank you.

      • Pontus says:

        Hold on here Phil. You were the one bringing up the article written for the Riksbank, and the reports written for governments. But now you want to talk about something else, claiming that my questioning implies that I’m using the comments section as a psychiatric clinic? (btw. didn’t you stop with ad hominem attacks when you were 16?)

        Anyway, would the Scottish government also claim that Phil is writing reports from them. Or is this you just submitting policy proposals for free like a true crank?

      • Pontus, you’re obviously not very plugged into the real world, so let me give you some free advice: libel laws apply on the internet. I’m not going to sue you but if you carry on with these buffoonish antics someone will someday.

        One of the easiest ways to win a defamation case under British Law is to prove that the published statements heard by a third party are damaging to the professional credentials of the victim. If you can make that case in front of a judge, you’ve won the case and you can take the other guy to the cleaners. Ask some of the nice legal faculty in Cambridge and they’ll tell you I’m right.

        You’ve made about four statements on here that I could likely win a libel case with. This one would be a sure win:

        What about the possibility that you’re actually a very mediocre economist with little to no understanding of economics, but with a big ego and a barking loud mouth? That your university degree, your tone, and your posturing reflect that? Ever considered that? I guess it’s a scary thought. Unfortunately Phil, it’s true.

        That’s a defamation case in the bag, Pontus. Don’t believe me? Take it over to the legal faculty in Cambridge and ask them.

        Again, I’m not going to actually take court action against you because I’m not that type of guy. But I’ve seen you on Syll’s comment section and someone will eventually nab you on this and you’ll find yourself and your career in serious hot water.

        You obviously have a bit of a hot head. We can all see that. It’s mildly amusing at first — everyone loves a good back and forth — but it quickly descends into such bile, such nastiness that, well, you don’t come across very well to say the least. But beyond how this reflects on your character you really must be careful with this. You make people your enemies and then give them the rope they need to hang you. It wouldn’t even take a court case. Maybe just an email to a certain department head.

        Cool it down. Buy a punching bag. Hit the gym. Get laid. I don’t know. Do something. Because you’re putting yourself at serious risk writing this stuff on the internet. I’m not kidding.

      • Pontus says:

        Oh please Phil, go on and sue. It would be hilarious. I called you a bad economist, that you overstate your credentials, and that you have a big ego, and you think that’s a case for libel? Please, the court is not your mother whose shoulder you can cry out on. That’s not defamation, that’s querulous.

        I wonder who’s not “plugged in to the real world”. Jeez …

      • I wouldn’t, Pontus. But you do need to grow up in this regard. You have a marked tendency to say very silly things indeed. And these will get you into trouble someday. If you ever do end up in the dock listening to the prosecution read out Article 2 of the 1952 Defamation Act remember that Nietzsche quote from earlier. Because the anger, the need to tear people down, that’s in your head. It’s not out here.

      • Pontus says:

        You wouldn’t because you couldn’t. It’s amusing to see how thin-skinned you really are despite all the relentless yapping.

      • Pontus, you can say whatever you like about me. I honest to goodness don’t mind. I don’t think you’re a serious person. I think you’re an overgrown child with issues about your self-image that you project onto others, insulated in academia who has no conception of how the real world works. So, your opinion doesn’t bother me all that much. You can write literally whatever you want about me here. I will not censor you.

        I’m just saying that you should watch your mouth out there. Some people are far less patient than me in this regard.

        Now go and have a beer. Meet a girl. Join a gym. Play some sports. Get an outlet man, seriously.

    • Funky says:

      Appeal to authority once again. Your errors are not undone just because you work for a government. In science only your argument counts and not whether you are a beggar or a Noel prize laureate.

      But I don’t wanna get you off your ego trip. Nothing better than an enemy who defeats himself.

  9. Funky says:

    “Please read more Keynes before you continue to tout yourself as an expert (while hiding behind an internet handle, of course…).”

    Ah, the “reveal your real name” nonsense aka appeal to authority. It had to come sooner or later. Thanks for your advice but I read my Keynes. You on the other hand clearly skipped all your statistical classes. I mean, gee, are you really wanting to embarrass yourself totally via denying that bar charts and eye-balling are superior to OLS?

    • It depends what you are trying to convey, Funky. OLS is no more “superior” to bar charts than multiplication is “superior” to addition. They do different things. Ah, the teenage mind. Always looking for the Holy Grail.

      • Funky says:

        “OLS is no more “superior” to bar charts than multiplication is “superior” to addition. ”

        And you wonder why I call such gibberish post-modern nonsense. Of course OLS is better than your bar charts and eye-balling. You did after all not just report some descriptive statistics, you clearly pretended that you can measure the effect of one variable upon the other via eye-balling your chart (“as we can see there is certainly no linear relationship here”).

      • Well, prove me wrong. Put all those six time periods in scatterchart form and see if they have vastly different slopes. If they do you’ll know that my “eyeballing” was correct. (P.S. I’ve already done this, so I know I’m right, but feel free to try to prove otherwise).

    • Funky says:

      “I know that I am right” is an inherently unscientific line.

      Anyway, if you don’t understand why my extremely simply undergraduate level point about OLS vs. eyeballing some arbitrarily picked averages I cannot help you. But I think it’d be extremely funny if you put that eyeballing nonsense in one of your papers. Not that I wanna actively encourage you to commit career suicide… but if you are so convinced that your method why don’t you put your money where your mouth it?

      • Will do. In the meantime, if you want to prove something wrong provide your own data. Put your money where your mouth is and prove what I said false…

        I’ll check back in the morning for your data analysis. Look forward to it. Good night.

  10. Funky says:

    I don’t have to prove that eyeballing arbirtarily picked averages is false, it is just methodological unsound. Somehow you seem one of those New Classical morons who studied maths and then made a PhD in economics. So if you also studied something else before economics I really recommend you to go over the basic stuff again. Unless you really don’t give a shit about mistaking nominal for real or regression for eyeballing des. stats.

  11. Bragi says:

    This is one of the funniest conversations I’ve ever seen. Please keep on going.

  12. pontus says:

    Ok, just to clarify some stuff.

    First, the discussion was about whether or not wages are flexible in the long run. With flexibility I am referring to what extent wages respond to the overall economic climate — not to clear the labor market. The reason for this is that any economic model that takes the labor market seriously, such as the Mortensen-Pissarides model, does not display market clearing even in the long run. But the main framework suggest flexibility of wages with respect to worker productivity, unemployment, aggregate demand ,GDP and so on.

    Analysing the relation between real wages and real output per hour (p.h.) is at least a decent starting point. Notice that real output per hour measures both demand and supply (if demand for a good that a shop is selling, it will look like the shopkeepers output per hour falls as this is measured through sales).

    Second, the problem is of course to look at wages and output p.h. at a quarterly frequency, as this does not say anything about the long-run flexibility. I suggested myself that the long-run kicks in at 10-15 year frequencies. Thus, to filter out the short-run noise one can — and this is not the best practice, but works as a quick and dirty first step — look at moving averages over a particular horizon.

    (As a remark here it is useful to bring up Phil’s own approach to this problem: He first took nominal wages and real output p.h. and compared their growth rates between 1965-1981 and 1981-2013. Anyone who knows US monetary history will know that the Volcker disinflation era started in 1981, and that inflation went from double-digits to around two percent. This is of course reflected in wage growth too. This is a very elementary mistake that most undergraduates would avoid. Phil found my suggestion of focussing on real variables as absurd but decided to “play the game” (us weird neoclassicals, huh, thinking that comparing apples with oranges is a bad idea). So instead he looked at real wages from 1965-1973, and compared that with 1973-2013 (yes that’s right, a 8 year period with a 40 year period). And lo and behold, he got his desired results. Keeping the original dates wouldn’t (I checked). God knows why he changed the time period, but it smells data mining to me.)

    So what I did was I calculated the 15 year moving average from 1965-2013 for both real wages and real productivity p.h. I then regressed wages on productivity. The estimated slope coefficient is 1.59 (with confidence bounds 1.50 and 1.68 at the 5% level), meaning that one percentage point rise in labor productivity growth is associated with a roughly 1.6 percentage point rise in real wage growth. The R-square is 0.9. That’s an incredible fit.

    Third, Phil claims that this relationship is spurious “because [I] used too long a time period”. Well, repeating the exercise with 8 year moving averages doesn’t change anything (I’ve checked that too). But instead, Phil suggest that one should look at averages in periods 1965-1973, 1973-1981, … and so on. That is, to compress a meaty data set into only six observation. This is of course a really stupid thing to do, but even then the pattern is there across periods. And again it begs the question: What about the period 1966-1974? Or 1967-1975? Why intentionally drop them out? It wasn’t my suggestion.

    Fourth, now apparently Phil thinks that one should run regressions within each 8 year sample. That is, going back to square one of looking at short-run relations within relatively short time periods. This means that we’re back at bullet two, and the discussion is obfuscated to meaninglessness. I guess this was the idea to begin with.

    Go heterodox! With friends like these you don’t need any enemies.

    • (1) No, Pontus. Running regressions on each of the 8 year sample period separately (which I was saying all along) will give you vastly different slopes. I tried it briefly last night and I was correct. This suggests that the causal relationship between the two variables will vary over the periods in question. This means, as Keynes pointed out in his Tinbergen paper, that you cannot establish a valid “long-run” causal relationship — i.e. one that can be said to exist not only in the past data studied but that will hold good when the dataset is updated in the future.

      (2) I also noted that both of the variables are really just tracking Real GDP which is likely driving them both. You can run a variety of tests to check this. But even eyeballing the data seems to indicate that it is Real GDP driving the two. Which is not surprising if you think about the variables that you’re using logically (real output per man hour!?).

      • Pontus says:

        (1) No Phil, it doesn’t mean that. Even a very very strong relationship that is not 100% perfect would deliver different slopes. That’s why there are tests developed to check for such structural breaks. And why don’t you show your scatterplots together with the regression lines (with confidence bounds)? That would be hell of a lot informative than your handwaving of “having done so” (but refusing to disclose the results).

        (2) Great. I have no problem with that, as it is perfectly consistent with the theory of long-run wage flexibility. I also don’t have any problem with what is causing what, as it is, again, inconsequential for the theory. And given the tight correlation between employment and output, I’m sure that the same can be said for unemployment. Again, this would not go against the theory.

        But if wages indeed were rigid as you say, we shouldn’t find that correlation, should we?

        As a sidenote I am of course curious to know how you reach the conclusion that it is “Real GDP is driving the two”? Again, it is perfectly consistent with the theory, but I never manage to reach such cocksure conclusions by just looking at the data. Is this part of the set of new tools you are developing for the Riksbank (which I am very eager to read! So please share!)

        Lastly, you would expect very strong comovements in real gdp and real gdp per hour if there was labour hoarding, but not otherwise. The latter seems reasonable.

      • Pontus says:

        Sorry, the former seems reasonable.

      • (1a) I did them rough and ready in Excel just to see the different distribution of the plots in scatter diagrams and quickly fit a curve. I checked this morning. I didn’t save the data. I see no point in repeating it if we are in agreement on what it will show.

        (1b) It does imply that the causal theory is dubious. If you get a slope that suggests that in one period the correlation is for every increase in productivity of 2% we get an increase in wages of 1% and then in the next period we get a slope that suggests that the correlation is for every increase in productivity of 1.5% we get a decrease in wages of -1% the data is obviously not homogenous. The aggregate result will almost certainly not hold into the future. What you think to be a long-run relationship will really just be a retrospective estimation of the correlation that will not hold in the future. (I.e. if you rerun the regression in 15 years time with new data the slope will have changed).

        (2) Of course, GDP could be affecting productivity growth through the Kaldor-Verdoorn law. But then, the productivity-wage relationship could be explained, to some extent, by efficiency wage dynamics. And so on and so on…

      • Pontus says:

        (1a) There is certainly no agreement. So go ahead.

        (1b) What causal theory? It’s pretty well known that few observations tend to give imprecise estimates. So even if the relationship was stable in itself, the estimates will for sure differ when you change from sample to sample. Of course, that is not the point you’re trying to show. But you seem to be eager to exploit wide standard errors to gain support for your claim. And that is of course seriously dishonest.

        I would also request you to remove my surname from above. I wish to keep these discussions google-proof, which is why I only use my first name. I think it’s reasonable to respect this.

      • (1a) Maybe later, I’m busy now. But if we agree on what it will show I see little point. Maybe though.

        (1b) This ties into the critique of econometrics that Syll and I are always going on about. You cannot really use it to establish causal relationships in data. Frankly, I don’t think that econometrics should ever be used that way. In this case, I almost guarantee that if you return here in 15 years with the new data and update your dataset your slope will have changed drastically.

        (1c) Given your behavior you’d want to give me a very good reason indeed to remove a comment from someone else that says absolutely nothing libelous about you. Perhaps you should take responsibility for what you write on the internet. I do. And if you are the White Knight battling the bad guys as you seem to think you are you shouldn’t have a problem, right?

      • Pontus says:

        (1a) I am not sure how I can be any clearer here: There is no disagreement. Please substantiate your claims.

        (1b) I have not made any attempt at establishing any causal relationships. In fact I have not used the word apart from when I repeatedly tell you that I do not attempt to establish causality. Please check for yourself. I use words as “association” for this purpose.

        (1c) Eh, how about respecting what I want here? I write under my own name and you know perfectly well who I am. But since I am not a journalist, I am trying to separate my job as an academic research and a casual writer. If you don’t want to respect that, fine.

      • Pontus says:

        Gosh, “there is no agreement”

      • (1a) Maybe later.

        (1b) You are. You are addressing the issue as to whether wages are flexible with respect to a host of other economic factors. You are then trying to prove this through recourse to real output data. Surely the relationship has to be somewhat consistent through time if this is a reasonable way of proceeding. Otherwise please restate your argument as I haven’t understood it.

        (1c) You have to do better than that. I’m looking for jobs in government institutions right now and I have the balls to write under my own name here. Besides you haven’t given me much reason to feel very charitable toward you. And I didn’t “out” you. Lot’s of people know who you are and they comment. That’s your problem. Be more careful next time.

    • Funky says:

      Thanks for your long substantive post. Put the final nail in the coffin.

      • Pontus says:

        Funky, thanks. It was necessary to sum this up. There is no end to Phil’s unashamed — and unprecedented — dishonest cut-and-paste jobs, quotes out of context, lying, deceiving, incompetence, and rudeness.

      • Oh, I wouldn’t even try to say that I’m polite — I’m not at all. But I find it infinitely amusing that Pontus seems to think that he is a paragon of manners when he is, by all accounts, a rather nasty type of person.

      • Pontus says:

        Phil, I only treat people as they treat others and this goes for you too. I can’t see why you would deserve any other type of response. If you think it stings, well your problem. And perhaps you should focus a little more on getting your arrogance in line with your competence. Right now they’re light years apart.

      • It doesn’t sting at all, Pontus. I think your style of reading things into what other people say to paint them as liars and deceivers says far more about your character than the people you attack. You approach others in a spirit of almost blackened Bad Faith. That’s fine, but please stop wasting my time and energy with whatever emotional need this satisfies.

      • Funky says:

        “Funky, thanks. It was necessary to sum this up. There is no end to Phil’s unashamed — and unprecedented — dishonest cut-and-paste jobs, quotes out of context, lying, deceiving, incompetence, and rudeness.”

        Indeed. I am all for radical critique of mainstream economics. But not when it is based on utter incompetence. I guess this guy got a degree in another discipline and then made his PhD in economics and either went through a bad PhD program or just did not visit the lectures.
        Otherwise it is impossible than an economist with a degree commits basic mistakes like using nominal instead of real variables or distorting statistics into averages and then eye-balling the results instead of doing an actual regression.

      • Hey Funky, I note somewhere above you endorsed the Krugman-esque view that the economy is currently in a liquidity trap. I think you may need to read your Keynes a bit closer in this regard (and some Minsky might help too). Just a thought given that you are the self-proclaimed expert on Keynes of the coming generation…

      • Funky says:

        Funny post, it starts with semantic confusion about what liquidity trap means. Nobody who actually understood the term would ask such dumb questions.. Liquidity is “trapped” in the balance sheet of private players who use it to deleverage and not to increase credit supply (banks), their investments (companies) or their consumption (households).
        This balance sheet view of money and debt is a Post-Keynesian invention so I am surprised that you are not familiar with.

        Then the post ends with total economic confusion. “But the real reason it failed was because it was never a particularly good tool for macroeconomic stabilisation in the first place.” is the stuff I would expect from some braindead Austrian gold bugger but not from a Post-Keynesian.
        “The world we then entered was indeed a strange one.” In other words, you cannot offer any explanation for why GDP growth and employment are still so low in many countries.

        The mainstream view, combined with Post-Keynesian thought about debt and balance sheets, on the other hand offers a very straightforward explanation. We are at the zero lower bound, monetary policy has become virtually ineffective (QE influences long rates to some degree and the purchases of private assets and not public debt helped the respective player to deleverage) as money and T-bills have become nearly perfect substitutes, inflation rates are low so real rates cannot drop as much below zero as they could in a world with higher inflation and private agents are still having to deleverage … so fiscal policy is the only way to kickstart the economy.

        Now this is indeed not what Keynes wrote 80 years ago. But I am not the dogmatic arch-Keynesians who calls other people pseudo-Keynesians while getting many things about Keynes (there is no long run, monetary policy is ineffective) wrong. I am pragmatic economist and not an economic historian so I do not mainly care that this view which I entertained above contains some thoughts of Wicksell (implicitly I stick above to the natural rate of interest concept), Keynes (he might have called it differently but he analyzed what we nowadays call a liquidity trao), Fisher (the first guys who understood that deflation is bad as it makes deleveraging more difficult), Minsky (entertained the notion that a balance sheet recessions is not an anomaly but a regularity), Koo (balance sheet analysis) and Krugman (analyzed what happens now worldwide while it happendd in Japan) and is thus not perfectly in sync with the thoughts of any of these individuals. In science you always build on the good stuff that has come before and discard the bad stuff. Your personal demi-God Keynes has written lot of smart things and some not so smart things but he did not emerge out of nowhere, Marshall and Wicksell are two important economist who have influences him. Not to mention that Kalecki made similar discoveries at the same time while understanding unlike Keynes, probably because he was politically a Marxist and not a liberal, the political opposition to demand management.

      • In other words, you cannot offer any explanation for why GDP growth and employment are still so low in many countries.

        Oh Funky, you are an entertaining young man. I love how you make groundless assumptions about things and then assume they are truth (very poor scholarship, by the way, but I suppose there is not much point in discussing such matters with you). But you should get off this blog and read some more Keynes. After all, you do want to become the preeminent Keynes scholar of the next generation and I fear you have a great deal of work to do.

      • Funky says:

        Lovely contrast between my post about economics and your post about me. 😀
        If you can offer an explanation for why the “strange ” world we are in right now suffers from underemployment I am all ears.

      • Well, it’s very complicated. There are different problems in different countries. But perhaps the best place to start for the UK and the US is in rethinking your marginal productivity arguments and examining how income inequality is affecting the composition of effective demand. Try this.

      • Funky says:

        “I am pragmatic economist and not an economic historian ”

        “After all, you do want to become the preeminent Keynes scholar of the next generation”

        Either your reading skills still suffer or you are still engaged in lieing.

      • Oh shut up Funky. Either engage in substantial argument or go away. I don’t want another Pontus on here acting the buffoon and making a show of himself. Argue economics and stop attacking my person like a child. Continue doing it and I will just block your comments. This comments section isn’t a play pen.

      • Funky says:

        “Well, it’s very complicated. There are different problems in different countries. But perhaps the best place to start for the UK and the US is in rethinking your marginal productivity arguments and examining how income inequality is affecting the composition of effective demand. Try this.”

        In my long post I did not make any “marginal productivity arguments” to explain the crisis.

        About your article, well, I am sympathetic to the thesis that individual saving ratios depend positively on income which would imply that more income equality increases consumption.
        But we are macroeconomists so we have to look at aggregates and since the eighties the aggregate saving ratio of the US has declined while income inequality has increased. Of course this is just one data point and it doesn’t falsify your hypothesis but it indicates that the issue is more complex.

      • Saving rate? You mean the entire saving rate of the whole country? That’s an entirely different issue altogether. Indeed, the mainstream make serious errors when they discuss “national saving” as the work of Wynne Godley and others have shown clearly. But that’s another day’s discussion.

        As to the “liquidity trap” argument. It’s a non-argument. And we’re not in a liquidity trap, properly understood.

      • Funky says:

        “Argue economics and stop attacking my person like a child.”

        Pot calling the kettle back. I wrote a pretty long post about how I would interpret what is happening at the moment and you did not just react to it via a personal attack, you did not even read it and continued to falsely claiming that I aspire to be a Keynes scholar while I am in fact a pragmatic, non-dogmatic economist (I have been educated as a classical economist but I mentioned plenty of Post-Keynesian economist who influenced my thinking in this long post) who does not specialize in the work of one single economist.

      • You did claim the Keynes legacy. You made extensive arguments that you had it right and the Post-Keynesians had it wrong over at Syll’s blog. I was never interested in your opinions — they strike me as bland and underdeveloped — but I was interested in correcting your assertions that you knew Keynes and people like me, Syll and Galbraith are being “anti-Keynesian”.

      • Funky says:

        “Saving rate? You mean the entire saving rate of the whole country? That’s an entirely different issue altogether. Indeed, the mainstream make serious errors when they discuss “national saving” as the work of Wynne Godley and others have shown clearly. But that’s another day’s discussion.”

        Would you mind to elaborate? We are macroeconomists so we normally work with aggregates (I don’t care much for the New Classical / New Keynesian microfoundations nonsense but as I wrote above prefer Post Keynesian style flow of funds / balance sheet analysis.) but of course information gets lost when we aggregate data .
        So let’s take at quick look at disaggregates. Since Saez and Piketty we have known that the incomes of most cohorts have roughly remained stable whereas the income of the top 0.1% has risen. So according to the theory that individuals saving rates depend positively on income all saving rates should have roughly remained equal while the saving rates of the top 0.1% should have increased. This implies that the aggregate savings rate should have increased.
        Now this is just quick and dirty work with stylized data and there could be some aggregation issues I overlooked.

      • Very complicated issue. But for the purposes of the above discussion all you need to know is that, as I said in the Al Jazeera piece, the bottom 95% of the population have been going into debt massively since the 1980s to buttress consumption.

      • Funky says:

        “The Post-Keynesians had it wrong.”

        Please read my long post to understand where I am actually coming from. I was educated as classical economist and as a left-winger I was obviously always most interested in market failures, hence my appreciation for Stiglitz (who is also just a Keynesian, you cannot categorize him as Old-, New- or Post-Keynesian). The key difference between classical economics and the Chicago school is that the former acknowledges market failures while the latter is just political ideology disguised as science.
        But ever since I have been out of academia I have spent the little time I have to read economic literature on all kind of economics. Some Post Keynesian literature, particularly the one concerning flow of funds analysis and balance sheet recessions stroke me as vastly superior to any mainstream stuff … but if a Post Keynesian writers is writing bullshit I point it out just like I point it out when a classical economist is writing bullshit.

        Keen always mentions private debt but this is just one side of the balance sheet, to determine whether debt is stable or instable you have to compare it with assets (this critique is not from the “outside” but totally Post Keynesian) and throw a little bit of Shiller into it to determine whether the prices at which those assets are evaluated reflected fundamentals or not. Most people who predicted the financial crisis did something like this.

      • Again, not that interested in your opinions (I think you have an idiosyncratic definition of ‘classical’ economist for one). I’m more interested in your assertions that you held the True Interpretation of Keynes. As my recent post on the labour market shows, you are simply wrong in that regard. You also use un-Keynesian definitions of the liquidity trap and so on. You are free to hold whatever opinions you want. I don’t care about that. But when you start saying “my views are Keynesian, your’s are not” and you’re clearly talking nonsense then I will call you on it.

      • Funky says:

        “I think you have an idiosyncratic definition of ‘classical’ economist for one.”

        Nope. Stiglitz is a classical economist and a Keynesian. Classical doesn’t mean that you have to think that the market always works. Actually classical economics clearly shows that market failures, be it via imperfect competition, externalities and incentive problems due to asymmetric information, are not the exception but the norm.
        I am still often puzzled by the absence of asymmetric information in many economic discussions. Stiglitz hoped for a paradigm shift but it did not occur.

        But as I said, Post Keynesian literature contains many useful tools as well. I am not dogmatic but pragmatic and do not care about whether I match a certain category or not. But I get pretty pissed off when classical economist like Krugman who use Post-Keynesian ideas (Krugman wrote a paper on debt influenced by Minsky) get labeled dogmatic by morons like Lars Syll. And if you get things about Keynes wrong, like claiming that there is no labour market in the GT (there is an entire chapter!) or that Keynes thought that there is no long run I will point it out. Deal with it.

      • As I thought… idiosyncratic definition of classical economics. In fact, all your definitions reflect idiosyncratic opinions. I can’t do much for you there. Read more, that’s all I can say.

  13. philippe101 says:

    I don’t mind if you delete my comment mentioning Pontus’ surname.

  14. philippe101 says:

    it’s a shame this discussion degenerated very quickly into a slanging match. It ends up making both sides look pretty bad, in different ways…

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