In yet another example of unconventional Federal Reserve policy, Fed officials invited Pope Francis to their DC headquarters today to offer a papal blessing to their beleaguered workhorse, the Phillips Curve.
Though the curve has historically provided the Fed guidance as to the relationship between unemployment and inflation, in recent years, it has demonstrably failed to do so, leaving macroeconomics with no clear theory or understanding of the inflation-generating process.
“We’ve tried everything else–anchored models, moving coefficients–but we’re stuck,” said Fed chair Janet Yellen. “Why not see if his Holiness can give the Phillips Curve the blessing it needs to start working again?”
Though papal authorities would not say whether the pope would take up the Fed’s request, they did point out that the pontiff’s NAIRU–the unemployment rate he believes to be consistent with stable prices–is “way below that of both mainstream economists and prior popes.”
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The Fed and economists don’t need any models at all. Inflation and unemployment are calculated and revised in close enough to real time and move slowly enough that the Fed doesn’t have to act preemptively, it can always be a reactive body.
Reactive policy should obviously be the norm when unemployment has been consistently above target and inflation has been consistently below target.
The last time we were at close to full employment in the late 90s, unemployment was at 4%. The idea that 5% unemployment is at NAIRU now implies that there has been no shift towards Capital and away from Labor. The hard evidence of the share of profits shifting towards Capital and away from Labor the last couple of decades beg to differ.
Adam Smith wrote that the best model is the one that holds up against evidence over time. Reality is always the best model by that standard.
“The theory that can absorb the greatest number of facts, and persist in doing so, generation after generation, through all changes of opinion and detail, is the one that must rule all observation.”
Adam Smith
http://www.brainyquote.com/quotes/authors/a/adam_smith_2.html#Qr8ak8xl1jbcPPKg.99
So now you’re either blogging for The Onion or your trying to be the Borowitz of Economics?
[edit: your should be you’re]
The Fed’s real problem is that they don’t have hats. Nobody takes you seriously unless you’ve got a fancy hat.
You mean like this, right? http://jaredbernsteinblog.com/its-all-in-the-hat/
Sure, I guess that’s fancy enough for economists. Have you tried sending them a set?
The problem is pretty obvious. Any economist that cannot bring themselves to admit that globalization is causing some serious problems is not worth listening to.
This is brilliant!
First time to this blog. Nice style and content and statement of intent so far.
Not like “fair and balanced” Fox or pure satire like Borowitz, just a bias for data, which is good.
Now that Obama has opened up the government databases to everyone, we should see some great graphical arguments from the “data scientists” out there. I downloaded several of their multi-year files for practice.
Hope all your readers do the same. Even excel can do that job for them.
And who knows..once the “unwashed masses” start graphing the data who knows how that will impact their questions to their representatives. But if you can tease them into it with simple examples…great. Just don’t get too complicated like the contrivances on some blogs I follow.
Onion quality! I laughed out loud.