Liveblogging Bob Hall (Serious Wonks With Paid Subscriptions Only)
.A good discussion of search models of unemployment — which I really need to master — and a great picture about the problem with any attempt to pin blame on productivity (and also a refutation of the idea that lower wages would raise employment):
Bob Hall
If hiring depended on the ratio of labor productivity to the cost of hiring labor, we should be having a huge employment boom!
Very nice words about my 1998 paper.
Nice point about how Ned Phelps declared, 40 years ago, that “we have made a landing on the non-Walrasian continent” and that “the days of Q= min[S(p), D(p)] are over” — when in fact, as Bob says, exactly that story — the short side determines output and employment — is exactly the way we do useful macro, even now.
“It’s a well known fact that 80 or 90 percent of currency is held by drug dealers.” That’s a very Bob Hall-like remark. (I still remember a talk, many years ago, in which he started by saying that “It’s well-known that the IS curve actually slopes up and the LM curve slopes down …”) Actually, I think that’s a high estimate — lots of currency held in cash registers, some in wallets, even now, and not all the 60 percent or so held outside the US is held for illegal purposes. But the drug-dealer part is certainly not a negligible fraction — which puts claims that inflation represents immoral expropriation in a slightly different light.
So the point, as I get it, is that zero-lower-bound models work very well in practice, but have a problem in theory: it’s not at all clear how to reconcile them with Diamond-Mortenson-Pissarides-
My first reaction — but I think it’s wrong — is, so much for DMP. But he’s right: we do need to figure out what’s actually going on in the labor market (although I don’t think I agree with his proposed reconciliation)
“$3 trillion of foregone output because we insist on having currency”
Crowding in!! Not the point Bob was mainly making, but he has this table:
This is saying that when you’re up against the zero lower bound, higher government spending doesn’t crowd out private investment (which in this model responds to Tobin’s q); instead, it leads to more investment. When you’re not up against the ZLB, it’s the reverse.
[Update: or maybe not -- not sure I quite get what Bob was doing here]
OK, my two cents: prices as well as wages are sticky, firms aren’t perfectly competitive, and the marginal revenue product of workers can be very low when the economy is depressed even though their marginal physical product is high.
Time to head home and cook dinner.
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