Answer: not strong at all in þe absence of þe right fiscal & monetary policies, & þe right fiscal & monetary policies are, broadly, þe Keynesian & þe Minskian ones—at least for þose economies þt...
I think you underestimate the malevolence of Team Republican in the US. Perhaps Friedman had an influence on the wrong-headed austerity prescribed by the ECB, but in the US there has been opposition from the Republicans toward anything that will improve the economy during a Democratic administration. I think we saw significant Keynesianism in the US in 2020 because Trump was still President and the stimulus would benefit the Republicans. As soon as the Democrats took over in 2021, the Republicans became anti-Keynesian. Republican economics is dictated by who is in the White House, not by rational mark-to-market economic theory, and they oppose economy boosting Keynesian policy while a Democrat is in the White House.
"You can speak of “natural” forces only if there is an obvious “natural” monetary and fiscal policy baseline, and there isn’t."
Agree with everything. And there doesn't seem to be anything natural about the "natural rate" of any of the relevant variables, particularly the unemployment rate that can mislead about the state of the labor market. (Not to mention the supernatural real interest rate). We haven't done a good job of characterizing the flows, flows of key underlying variables that we think would help restore an "equilibrium." The unemployment rate, for instance, doesn't restore itself to a "natural rate." Unemployment is an outcome, not the underlying variable. The demand and supply of labor has to move to get it there. What are these demand and supply variables? How should we observe them? How should their rates of change be characterized? And of course, your main point is that none of them are independent of policy.
This sounds spot on. There's been a lot of experimental and empirical work showing that wealth tends to accumulate. That's an undeniable economic force. The main countervailing forces have historically been war and disease. War tends to push money downhill where it can be grabbed by soldiers, defense workers and provisioners. Disease cuts the population and raises the price of labor; there are countermeasures but they have their costs.
So much of economic discourse is full of imaginary forces that never seem to evidence themselves empirically or experimentally. Despite this, they are accepted as gospel and used in setting policy. Oddly, those policies tend to further benefit the wealthy, yet another example of one of the few well documented "natural" forces.
"Unfortunately, those people in 2009 included Fed Chair Ben Bernanke,"
What exactly did Bernanke mis-learn from Uncle Miltie? If inflation is always and everywhere a monetary phenomenon, it means that Bernanke had no one but himself and his Board to blame for the Fed failing to push inflation above target after the 2008 crisis. Milton Friedman did not teach him to rely the weak reed of Congress to help him out as they were certainly not going to behave according to NPV>0.
And who knows what "academic scribbler" the ECB was listening to.
I certainly agree that the Fed should _do its job_, promoting stable prices and maximum employment, which in practice means finding the inflation rate that best facilitates equilibrating adjustments in relative prices when prices are not uniformly flexible upwards and downwards. I guess that the strength of the economy's "equilibrium restoring forces" affect the inflation rate the Fed should chose.
Fiscal policy should do what it can to strengthen those forces. In addition, a fiscal policy that is guided by NPV > 0 criteria will _be_ an equilibrating force as unemployment reduces the costs in the NPV > 0 inequality and lower borrowing rates in recession raise the value of future benefits relative to present costs.
First of all, Fisher on Debt-Deflation was the key insight in that it justified and explained deficit spending during a crisis caused by debt and explained why balancing the budget during DD was a very bad idea, something FDR had to be shown.
This was from the Chicago Plan of 1933, ideas Simons had already put forward a few years earlier
“It is worth noting, that the measures required for raising the price-level may be rather drastic, if there occurs a large immediate loss of circulating media in the form of demand-deposits. If policies adopted toward the non-member banks result in the “freezing” of a large part of their deposits, substantial increase of federal emergency expenditures (for unemployment-relief and for public works) might be required even to maintain the present”
— The Chicago Plan and New Deal Banking Reform by Ronnie J. Phillips, Hyman P. Minsky
I doubt Keynes was ahead of these ideas at all. Friedman still has the best response to these issues in his " A Monetary and Fiscal Framework for Economic Stability"
The American Economic Review
Vol. 38, No. 3 (Jun., 1948), pp. 245-264 (20 pages)
Fortunately, I'm inoculated from the view that we see a crisis in the support of liberal democracy by Oakeshott
“In any generation, even the most revolutionary, the arrangements which are enjoyed always far exceed those which are recognized to stand in need of attention, and those which are being prepared for enjoyment are few in comparison with those which receive amendment: the new is an insignificant proportion of the whole.”
— The Meanings of Michael Oakeshott's Conservatism (British Idealist Studies 1: Oakeshott Book 3) by Corey Abel
Take this with a tablespoon of salt, but a lot of people misunderstand Reagan. I always watched what he did, not what he said. He was not only a Keynesian channeling FDR's pre-WW2 military buildup with his 600 ship navy, space laser defense and host of other military spending, but he was also the last true believer in the economic might of communism and underestimated as a feminist.
The Soviet Union spent the 70s staggering under the rising costs of its empire and wheezing economic system, but Reagan felt it was still a powerful threat.. Maybe he took Soviet propaganda too seriously. His response was to run the US economy flat out and rely on capitalism's slight edge at the margin. A much better productive system could simply afford to wait for its inferior to fail, but one with only a small edge could win in a sprint.
He was also a feminist in that he pushed women into the workplace and, unlike FDR, kept them there. Breaking the unions, and working for lower wages ended the age of the single breadwinner providing a comfortable middle class lifestyle. That house in the suburbs meant two working adults. Rising housing prices and falling labor costs got a lot more women working and continuing to work than any popular feminist paperback or obscure academic theory.
If one agrees that natural rates of unemployment are not natural but are results of monetary & fiscal policy choices. Why not try MMT’s call for a dynamic job guarantee(JG) that sovereign governments can fund with out fear of ‘budget constraints’ because they have fiat currencies with floating exchange rates and have since Nixon took us off the gold exchange standard in 1971. By hiring off the bottom of the labor pool with living wages, health care and retirement for those that want work it will force private employers to match the living wag, if their business can’t can’t match then they don’t have a business plan that works.
Then we will see if equilibrium economics works. In meantime the permanent JG can be seen as moving from the balance sheet to the income statement a revival of FDR’s WPA much like Biden’s IRA is a revival FDR’s PWA for private business.
A new perWPA/JG that Federally funds environmentally sustainable and durable streets, like Alston Way in Berkeley, CA, will potentially last
I want to believe your conclusions, but the piece could be more convincing.
--The only data we get concerns the "recovery rate" of the (un)employment measure, but you don't even mention the recent, very striking Hall and Kudlyak research on just this topic. Their empirical conclusion, if I remember correctly, was that recovery rates were fairly slow, fairly constant and uncorrelated to policy approaches.
--You claim recent policies have been effective in stimulating business investment, but you provide no numbers at all, much less any long-term data (to match the unemployment data) on whether or how much investment typically "recovers" in recoveries.
So, I'm intrigued but unsatisfied.