I don’t quite agree with Jason Furman today

I very often do, but I think he overreaches when responding to Steven Landsburg (who himself overreaches).  Jason writes:

…there is near universal agreement (and if it were not for you I probably would not have needed the word "near") that when the economy is operating below its productive capacity the problem is insufficient aggregate demand, and the solution is to temporarily boost spending or investment through monetary or fiscal policy.

Usually, yes.  Sixty percent of the time, I will agree.  But sometimes real shocks and sectoral shifts are the problem.  Can expansionary monetary policy help an economy adjust to sectoral shifts?  Sometimes but not always.  Is Furman correct that deregulation won’t help in the short run?  Yes.  Is "the solution…to temporarily boost spending or investment through monetary or fiscal policy"?  Probably not.  The solution is for the economy to adjust.  The flow of investment is hard to encourage and the best monetary policy can do in such instances is to prevent a deflation.  If the government can do something to help short-run sectoral adjustments, it is usually clarity of expectations and legal and regulatory benchmarking in the interests of transparency.  Today that means clear standards for future lending and securitization.

As an aside, if you are someone who complains about stagnant American median wages, that means many particular nominal and real wages have been falling.  (It could be in theory that the entire distribution is strictly stagnant but in reality no.)  Tricky distinctions between real and nominal wages lie beneath the surface, but overall this flexibility of wages makes it harder to embrace the Keynesian framework.  Keynesianism requires sticky nominal wages and since we have been having low inflation times (until now, at least) that means relatively sticky real wages as well.  Yet it is claimed implicitly that many real and nominal wages have been falling.  Beware the Keynesian who wants to have it both ways (I’m not accusing Jason of this).


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