Will the NIRA be resurrected?

Here’s Izabella Kaminska in the Financial Times:

You see, contrary to popular belief, our working theory is that the crisis results as much from the conjoined effects of a suddenly over-abundant and over-productive world (on account of technology advances) “” something which has been exacerbated by a shortage of safe assets, credit and money relative to goods available “” as it does from credit profligacy in the mid-naughties.  .  .  .

And as strange as it sounds, in a ‘no-growth’ looking glass world like this, it makes sense for people to be incentivised not to go to work, and to be less productive “” all the while being compensated in monetary terms for choosing to consume today rather than to hoard for tomorrow.

In July 1933 FDR tried to incentivize workers to work less, by semi-coercing companies into reduce the workweek.  In the 4 months prior to this program, industrial production rose 56%.  After July 1933, industrial production immediately started falling, and remained below the July 1933 level as late as May 1935, when the NIRA was declared unconstitutional.  Then output immediately began soaring, in a boom that would last until monetary and fiscal policy were tightened in 1937.

Worth another try?

PS.  What exactly does “overabundance” mean?  The end of scarcity?

HT:  Marcus Nunes


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33 Responses to “Will the NIRA be resurrected?”

  1. Gravatar of George Selgin George Selgin
    28. September 2012 at 06:01

    Personally I can’t understand why anyone would take the advise of someone who uses that business-school barbarism, “incentivise.” (I give Scott the benefit of the doubt in assuming that he only uses it here mockingly.)

  2. Gravatar of Ritwik Ritwik
    28. September 2012 at 06:18

    George

    Business school barbars create NGDP too! 🙂

    Personally, I like many such linguistic barbarisms. Operationalise is another favourite of mine that the purists love to hate.

  3. Gravatar of Saturos Saturos
    28. September 2012 at 06:42

    My theory is basically that Izabella Kaminska is bat-shit crazy. Although I’m sure Tyler will have a post explaining how this might be a plausible interpretation. And then Noah Smith will remark that this is just further sign that macroeconomics isn’t a science.

    George, how would you describe an attempt by managers or policymakers to modify people’s constraints in a way that aims to encourage specific outcomes?

  4. Gravatar of D.Gibson D.Gibson
    28. September 2012 at 06:42

    Can anyone really believe that lowing productivity makes people more wealthy? There are lots of good reasons to promote job sharing among equally productive workers (eg, keeps skills fresh,…), but never a good reason to be unproductive. These statements make it clear that most folks can’t comprehend the effects of monetary policy. Clearly, the author should conclude that stickiness and tight money are problems, when productivity is rapidly advancing.

    ps. Finally heard a half-decent expert on Bloomberg. He explained that Federal money was only 15% of money supply in the US and that since 2008 private money (the other 85%) supply had contracted by 7%. He failed to conclude that the Fed needed to their boost money by 50% to make up for the shortfall, but it was interesting.

  5. Gravatar of TravisA TravisA
    28. September 2012 at 06:55

    Ignore everything Kaminska writes. She will lower your IQ by 15 points. Here’s Scott’s take down of something that Kaminska previously wrote:

    https://www.themoneyillusion.com/?p=12404

  6. Gravatar of Greg Ransom Greg Ransom
    28. September 2012 at 07:09

    Keynesian economics is explicitly a version of overproduction economics, explicitly developed in that tradition & propagated in America by overproduction economists at Harvard like Hanson.

    The same deep fallacies embedded in NIRA economics are inherent in Keynesian economics — fallacies MASSIVELY popular in America in the 1920s & 1930s and advocated directly by Sen. Wagner, Pres Hoover & FDR economists — google Foster & Catchings to understand the economics of the era.

  7. Gravatar of Greg Ransom Greg Ransom
    28. September 2012 at 07:11

    This is all explained by Keynes & Hanson & Foster & Catchings — an explanation embedded in the very heart of Keynesian economics:

    “PS. What exactly does “overabundance” mean? The end of scarcity?”

    Haven’t you studies Keynes?

  8. Gravatar of ssumner ssumner
    28. September 2012 at 07:14

    Geroge, Sorry, I forget the scare quotes.

  9. Gravatar of marcus nunes marcus nunes
    28. September 2012 at 07:15

    That´s why I ignored IK´s (BS-C)comments and concentrated on the NYT news archives. That´s what gives value to her piece:
    http://thefaintofheart.wordpress.com/2012/09/28/the-present-sounds-a-lot-like-the-past/

  10. Gravatar of Britmouse Britmouse
    28. September 2012 at 07:20

    Those articles seem to share the views of the MMTers (only the government can create demand! debt! deleveraging! debt! asset swaps!) but also believes that the (developed?) world has hit some kind of terminal supply-side constraint. A curious combination.

  11. Gravatar of George Selgin George Selgin
    28. September 2012 at 07:46

    “George, how would you describe an attempt by managers or policymakers to modify people’s constraints in a way that aims to encourage specific outcomes?”

    “Encourage” is a perfectly good English word for this, known to all except, apparently, the denizens of MBA programs and those innocents who fall victim to their bad examples. The same goes for “incite,” which is the original and perfectly good verb partner of the noun “incentive,” meaning “give incentive for action.” “Inspire” and “promote” are also perfectly good words with long provenances.

    In short, to suppose that “incentivise” is a useful addition to English vocabulary is merely to unwittingly reveal one’s poor grasp of that vocabulary. Come to think of it, that job of revealing something about the intelligence of those who employ it is, so far as I can tell, the one really useful role the word perform.

    So there.

  12. Gravatar of MikeT MikeT
    28. September 2012 at 07:57

    I would not support the idea that people should be less productive and not encouraged to work. The reality is that companies are becoming much more capital intensive and less labor intensive. Therefore we should be targeting higher growth rates to achieve lower employment rates and create more revenue for government services. An economy should encourage and reward hard work, efficiency, and innovation.

  13. Gravatar of Brett Brett
    28. September 2012 at 08:39

    Eisenhorn’s point seems really bizarre, like he’s never heard of intensive economic growth:

    Today’s system is predicated on the progressive conversion of nature into products, people into consumers, cultures into markets and time into money. We could perhaps extend that growth for a few more years by fracking, deep-sea oil drilling, deforestation, land grabs from indigenous people and so on, but only at a higher and higher cost to future generations.

    Isn’t the whole point of technology-driven productivity gains that we get more out of what we have? If that stops while population continues to increase, then we’re in trouble – but it hasn’t.

    And the arguments about how we’re producing “a greater volume of goods and services that society doesn’t need” seems really subjective.

  14. Gravatar of pct pct
    28. September 2012 at 08:53

    If it does get resurrected, and we resurrect the cool blue eagle logo too? That was a masterpiece of Art Deco era design.

  15. Gravatar of Morgan Warstler Morgan Warstler
    28. September 2012 at 09:37

    Please god let’s just Auction the Unemployed and be done with this.

    —–

    And god? What’s it take to get Scott to answer this:

    1. If NGDPLT has to have make-up to work, WHY is it so great?

    2. If it doesn’t need make-up to work, how does the recovery happen?

  16. Gravatar of Saturos Saturos
    28. September 2012 at 10:02

    Morgan, how would your auction be more efficient than the labor market? How would it make people more likely to get hired?

  17. Gravatar of Saturos Saturos
    28. September 2012 at 10:52

    Everybody, the latest post on MR is awesome: http://marginalrevolution.com/marginalrevolution/2012/09/a-query-about-the-dark-knight.html

    Anybody here have ideas? MF?

  18. Gravatar of Major_Freedom Major_Freedom
    28. September 2012 at 11:07

    Anybody here have ideas? MF?

    I would measure up the other two opponents first. I would consider them as individuals and what I suspect their capabilities are.

    If I thought I would win against one but not the other, then I will start a fight with that person, but pretend to be weak, so that the third guy attacks what he views as the stronger guy, so that he will be left with what he perceives as the weaker guy.

    If I thought I would not win against either, then I will wait and hope they attack each other, hoping that the winner has been weakened somewhat.

    If I thought I would win against either, then I will pick the person who attacks first, since they are more likely to be confident about their abilities, and thus more likely to be a larger threat to me.

    If I though I would win against both simultaneously, then the solution is trivial.

  19. Gravatar of o. nate o. nate
    28. September 2012 at 11:15

    Kaminska is kind of the Slavoj Zizek of the econ-blogging world: her writing is a stylish blend of cutting-edge jargon, trendy buzzwords, and fringe theory, suggestively woven together to imply a novel and transformative paradigm shift, but it dissolves in your hands if you try to parse it closely.

  20. Gravatar of Saturos Saturos
    28. September 2012 at 11:39

    On the subject, can anyone make head or tail out of this Noah Smith tweet?
    http://twitter.com/Noahpinion/status/251766755305877504

  21. Gravatar of John Papola John Papola
    28. September 2012 at 11:57

    If there is one thing that seems constant in human history, it is the shocking survival of crude economic fallacies the lucky escape from which is the only reason we have lives as good as we do.

    If only this “cure our slump through poverty, I mean, reduced productivity” meme wasn’t so widespread. Here’s some comparable “batshit crazy” from Tim Jackson via the NY Times:

    http://www.nytimes.com/2012/05/27/opinion/sunday/lets-be-less-productive.html?_r=0

  22. Gravatar of Major_Freedom Major_Freedom
    28. September 2012 at 12:02

    On the subject, can anyone make head or tail out of this Noah Smith tweet?

    My guess is that he means with any choice of NGDP target, an “unnatural”, i.e. non-market derived, nominal component to nominal interest rates will be introduced, and as such, the natural rate(s) will be unobservable, and the only way to acquire knowledge of the natural interest rate(s), is to observe it.

    At least, that is how I have thought about the issue.

  23. Gravatar of Major_Freedom Major_Freedom
    28. September 2012 at 12:05

    John Papola:

    If only this “cure our slump through poverty, I mean, reduced productivity” meme wasn’t so widespread.

    Yes, because there is no such thing as unhealthy, unsustainable investments, and therefore no such thing as any needed time-consuming corrections to such non-existent unhealthy and unsustainable investments, and therefore nobody should ever experience a reduction in their standard of living for any period of time for any reason whatsoever.

    Speaking of the survival of crude economic fallacies…

  24. Gravatar of Major_Freedom Major_Freedom
    28. September 2012 at 12:12

    If there is a natural rate of interest, the Fed might not be able to hit an NGDP target. But I don’t know why there would be one.

    To be clear, the natural rate of interest is not to be understood as the free market rate on loans or debt. It is the difference in valuation between present goods and future goods, which in monetary terms is better expressed by the rate(s) of profit.

  25. Gravatar of StatsGuy StatsGuy
    28. September 2012 at 12:48

    The author is confusing current over abundance with fear of future scarcity.

  26. Gravatar of Morgan Warstler Morgan Warstler
    28. September 2012 at 13:57

    Saturos,

    At a starting bid of $40 per week, every citizen is suddenly able to return ROI. Every single manjack gets bought. What part of auction, don’t you understand?

    That’s why we give them a GI, so we divorce our social commitment to the current ZMP from the value of their labor in global / localized market.

    —–

    ANYWAY, note you still haven’t claimed the $10 Applebees card you said would be so easy to earn:

    1. If NGDPLT has to have make-up to work, WHY is it so great?

    2. If it doesn’t need make-up to work, how does the recovery happen?

    Ya know, once I get this completely answered, and watch the fireworks, there’s only my bet with Scott and only one more subject I can foresee, and we’re kinda done on the subject on NGDPLT.

    it’s all been fleshed out. the only stuff left, is the stuff we’re hiding from.

  27. Gravatar of Peter N Peter N
    28. September 2012 at 14:57

    @ D.Gibson

    This bears repeating, do you have a link.

    “ps. Finally heard a half-decent expert on Bloomberg. He explained that Federal money was only 15% of money supply in the US and that since 2008 private money (the other 85%) supply had contracted by 7%. He failed to conclude that the Fed needed to their boost money by 50% to make up for the shortfall, but it was interesting.”

    What causes problems is whether when someone talks about money they mean only outside money or both inside and outside money (and what forms of debt are included in inside money).

    It’s fine to say low NGDP growth is a sign of tight money, but exactly what sorts of financial instruments are in short supply and why? Can this really not matter?

  28. Gravatar of Peter N Peter N
    28. September 2012 at 15:00

    Reducing working hours seems to be OK if it’s some form of job sharing. IIR Germany did this a while back. There’s a big difference between sharing work and reducing output.

  29. Gravatar of Matt Waters Matt Waters
    28. September 2012 at 15:08

    I think it’s a good sign that as Market Monetarism gains more traction, the arguments for variables other than NGDP causing today’s unemployment become evermore muddled and confused.

    In particular, many arguments of types like Izabella or Felix Salmon have a very chaotic mix of cyclical and structural arguments. In one second, they will say “monetary policy is pushing on a string and cannot increase demand.” In the next second, they will give absolutely tortured arguments about technological shifts or demographics or something other than demand causing unemployment. This post is the best example of such a tortured argument. Indeed, what exactly is “overabundance?”

    The closest she comes to a coherent argument is at the old blog post in one of the links:

    “Indeed, could the jobless recovery be signalling that technology has lead to the sort of abundance and productivity that leaves NAIRU “” the unemployment rate below which inflation rises “” with no choice but to recalibrate higher, if returns on capital investment are to be protected?

    The rationale being, if NAIRU was unnaturally low in the 1990s “” meaning everyone could have a job without there being inflationary consequences since productivity was deflating unit labour costs “” did the buck break on account of capital, not low interest rates or inflationary forces? That’s to say, productivity had become so great, that the economy could no longer afford to keep hiring workers without pushing unit labour costs to a point where goods and output would infringe on profitability directly?”

    Peel back all the layers and she is just saying that RGDP growth in the late-90’s allowed a much tighter labor market despite low inflation. That lines up perfectly with the view NGDP is the real factor in employment and whether it comes from higher inflation or higher RGDP, higher NGDP makes for a tighter unemployment market.

    In the NGDP view, the “NAIRU” didn’t shift at all from the 90’s to the 00’s. NAIRU is the pure structural component of unemployment, which will remain stubbornly there no matter how much you raise NGDP. Instead of the NAIRU increasing however, NGDP growth decreased from the 90’s to the 00’s, which caused cyclical unemployment above the NAIRU.

    This argument, though, is far too concise and has too much evidence backing it to appear on Alphaville unfortunately. The mind block appears to be that a simple nominal variable could not be behind unemployment. It’s the mentality that there MUST be some sort of drastic action we have to take to fix stuff. That drastic action is either extremely large fiscal stimulus from the left or the “liquidate the banks, the farms, etc.” view from the right. The left view is closer to the truth, but still overstates how painful and distortionary government action to increase demand has to be.

  30. Gravatar of John John
    28. September 2012 at 17:13

    That was the dumbest thing I’ve ever read. I feel worse for having read it. How do people get away with writing that kind of crap? Go buy a thinking cap and put it on Izabella Kaminska.

  31. Gravatar of Greg Ransom Greg Ransom
    28. September 2012 at 17:56

    Get George a NY Times grammar & word use column.

  32. Gravatar of Bill Ellis Bill Ellis
    28. September 2012 at 19:51

    Morgan..
    I am not god or Scott…I can’t speak for either…

    But because you are driving me crazy asking the same question over and over I will try an answer. ( I will probably regret it. )

    ” If NGDPLT has to have make-up to work, WHY is it so great?”

    ‘Cuz….NGDPLT or something like it WILL be far more effective than inflation targeting and almost automatic when the economy returns to normalcy. That is “WHY it is so great” We will have more stable “great moderation” to look forward to…

    And now is a Special case. “Make-up to work” is only applicable to Now. The Fed has to address the problems of this messed up economy while switching targets. The Fed has a political obligation to “make up”. But NGDPLT is not going to do it. QE3 is not going to do it.

    All Economist in and out of government, were, when selling their approaches of how to deal with the “great mess”… had to deal with how much, if any, the economy would be stunted by how long it would be off trend.

    Keynesians were arguing that being off tend resulted in permanent lag in trend. Lost years. Like as if were were climbing a ladder… then stopped on a rung half way up… but when the climb started again we would still have to work our way up every rung.

    Others were maintaining that implementing the right policy would jump us back to where we would have been in the trend… That rungs could be skipped . This second view never made any sense to me.

    And now the second view seems to be proved wrong. So there is now some cognitive dissonance. Enjoy the show.

    So NGDPLT is not going to be the be-all-end-all that the M&M’s thought it would be as evidenced by the results of QE3… And the M&Ms have to deal with it…

    But you should be happy… the excuses the M&Ms are going to give as to why their prescriptions are not the elixir they promised will be in the form of suddenly giving weight to supply side arguments… ANYTHING rather than admit that Keynesians were right and that there is value to fiscal stim, and correspondingly that austerity was harmful.

  33. Gravatar of Saturos Saturos
    28. September 2012 at 20:55

    Morgan, workers aren’t chattel slaves. Why would they put themselves up for hire at such low prices, if they aren’t willing to do so already? The labor market is a kind of auction too. You think a formal auction mechanism will produce better market-clearing, and want the government to subsidize it as a public good, fine, but you have to provide the rigorous argument. Somehow you have to show that buyers and sellers of labor will be matched at mutually agreeable prices, in a way that isn’t possible already, due to your mechanism.

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