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Sam Levey Profile picture
@SamHLevey
Sep 22, 2020 • 4 tweets • 1 min read • Read on X
The language of "sticky prices" implies that "flexible prices" are the base case and sticky ones are a deviation, but I think really the opposite makes more sense.

When you buy something, the starting assumption for the price is always "whatever it was last time." It seems (1/4)
like there's an extra step involved if the price changes. In a business, somebody came and changed a posted price, an additional action compared to just selling you a product.

So maybe better language would be that "stable prices" are the norm and "volatile prices" a deviation?
Or maybe better still, what's considered the expected case should depend on the context. With an auction mechanism where price is intended to be sensitive to market conditions, flexible is the norm, whereas with posted, administered prices, stable is the norm.

Then again,
most prices are administered! So if somebody brings up "prices" out of context, "stable" is your better bet for benchmark case. (Fine)

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More from @SamHLevey

Sam Levey Profile picture
Dec 31, 2022
I’d like to respond to 2 critiques of the “inflation as distributional conflict” view. Those critiques are: 1) inflation is actually just “money chasing too few goods.” 2) Distributional conflict can’t explain deflation.

Responses below…🧵
1) “Money chasing too few goods” isn’t an alternative to distributional conflict, it *is* distributional conflict, by definition! If you have 11 people trying to buy 10 units of product, then those people are locked in a fight to not be the one who will be disappointed.
What the broader conflict view adds is that there can be other kinds of conflict besides just too much demand, and so inflation can happen even when demand isn’t abnormally high. So other kinds of inflation get subsumed into just one framework.
Read 6 tweets
Sam Levey Profile picture
Nov 4, 2022
I wanted to do a more detailed thread on my paper draft that formalizes the Chartalist theory of the price level using individual optimization, and I'm thinking I better do it before Twitter implodes, so, here goes... 🧵

Paper is here: papers.ssrn.com/sol3/papers.cf…
The theory comes from Modern Monetary Theory (MMT), and this paper is a follow-up to an earlier paper that had mathematized this mechanism, which was here: levyinstitute.org/publications/m…. What the new draft adds is that it uses orthodox intertemporal optimization to drive behavior. /2
Why did I do this? Mainly because I think there's a lot of room for productive dialogue between these two camps, and I'm hoping to open the door to that. (Plus, I figured, somebody is going to do this, might as well be me :) /3
Read 25 tweets
Sam Levey Profile picture
Sep 11, 2022
When people do Econ 101 against price controls they often invoke the graph on the left, but the reality is that you need price controls for the situation on the right. When you have a necessary good (inelastic demand) and constrained supply, do price controls and rationing. ImageImage
Supply is constrained so higher prices don't elicit more output; you would get higher prices only because sellers are exploiting their position of privilege to extract rents from buyers. For necessary goods, distribution shouldn't be based on who can pony up the most.
For luxury goods, who-gets-what CAN be based on who's willing to pony up the most. So for supply-constrained luxury goods, let prices rise, by all means...and then tax the windfall profits away. But a civilized society doesn't let this happen to essentials like food and energy.
Read 9 tweets
Sam Levey Profile picture
Aug 23, 2022
Framing student loan payments in terms of inflation control is terrible defeatism. Starting from a blank slate, if we had an inflation problem and needed to impose costs on some group to deal with it, we would not single out “people with student debt” to be that group. 1/4
Saying “we need to resume student loans to control inflation” is then a tacit assertion that actually-good policy on inflation will not be forthcoming, so let’s take this nonsense, unjust approach because it’s the best we can get. 2/4
Framing student loan payments as taxes, because that’s what they are, clears this up. In particular, they’re a tax on non-rich former students. Proponents of cancellation are saying that the tax on non-rich former students is an unjust tax that shouldn’t exist. 3/4
Read 4 tweets
Sam Levey Profile picture
Jul 1, 2022
This short piece by John Kenneth Galbraith from 1941 on the inflation problem is a must-read for today, as it bears so much resemblance to today's situation. A thread... jstor.org/stable/1927509
First, Galbraith gives the rationale for acting fastidiously on inflation, noting the memory of uncontrolled inflation during World War 1. "It has been agreed that next time - i.e., this time - prices must be kept under better control."

Our painful memory is the 1970s/80s.
Next, Galbraith challenges the distinction between bottlenecks and general inflation, a conversation we're still having today.
Read 16 tweets
Sam Levey Profile picture
May 27, 2022
To reply to Jo here... What Jo offers as the issues at hand are in my view the wrong questions🧵
Here is what Jo is pointing us towards, and he suggests that the first answer is an obvious 'yes,' while the second question avoids more important issues.
And while Jo is of course quite right about question 1, in my view, MMT is not actually asking question 2. MMT is instead asking this question: are there legal/institutional obstacles which prevent the gov from executing budgeted spending? Put another way,
Read 23 tweets

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