Thread by @delong

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https://twitter.com/equitablegrowth/status/1337091765317345281

The point of departure for the overwhelming bulk of discussions of macroeconomic management from the accession of Arthur Burns to the accession of Jay Powell to the Chairship of the Federal Reserve was the adaptive-accelerationist Phillips curve.

What is #EGgrantee #EG2021 1/

What is the adaptive-accelerationist Phillips curve? It is the belief that the next year’s inflation rate will be equal to the inflation rate that labor and product markets expect—which is adequately proxied by what inflation has been #EGgrantee #EG2021 2/

in the past year—plus a linear demand-pressure term positive if unemployment was below and negative if unemployment was above what Milton Friedman had called the "natural rate of unemployment”, plus a “supply shock” term to fit #EGgrantee #EG2021 3/

episodes like the explosion of inflation that followed the Yom Kippur War oil-price rise.

In this framework, full-employment policy is impossible: the average level of unemployment will be the natural rate of unemployment, plus #EGgrantee #EG2021 4/

whatever extra unemployment is needed to “cool off” the economy and unwind wage-price spirals triggered by supply shocks. Macroeconomic management via fiscal policy is simply not worth doing, as it confuses members of Congress with respect to how to think #EGgrantee #EG2021

about the governments long run budget constraint. Macroeconomic management via monetary policy is barely worth doing, for the net benefits of shifting unemployment to shave off the unemployment peaks at the cost of filling in the unemployment troughs to #EGgrantee #EG2021 6/

an equivalent extent is only a second order gain to societal well-being.

In this framework, incomes policies might be worth doing if they could "reset" market expectations of inflation from a high to a lower level. But they are superfluous if #EGgrantee #EG2021 7/

the Federal Reserve has established its credibility as the guardian of price stability. And they are destructive if the Federal Reserve does not follow through to take steps to thereafter keep unemployment above its natural rate. #EGgrantee #EG2021 8/

This framework is immune to empirical critique in the short run? Is inflation above what you had forecast? Then either your estimate of the unobservable inflation-expectations variable or of the unobservable natural-rate parameter was too low, and #EGgrantee #EG2021 9/

you should readjust your model to make it fit ex post. Then either your estimate of the unobservable inflation-expectations variable or of the unobservable natural-rate parameter was too high, and you should readjust your model to make it fit ex post. #EGgrantee #EG2021 10/

Andrew Elrod points out that the Kennedy-Johnson administration worked with a very different model. Its centerpiece was indicative planning via a nominal wage-growth guideline to coordinate expectations and, in the unionized sector, outcomes. Unions would #EGgrantee #EG2021 11/

accept that they should stick to the guidelines, and in return the government would commit to maintaining full employment, expanding the benefits of the social-insurance state, and enforcing competitive pricing via antitrust action and threat, #EGgrantee #EG2021 12/

even against then-behemoths like U.S. Steel. In times of boom, unions would see their workers’ rates of real wage increase lag behind those in the unorganized sectors in which workers would demand what the market would bear in a high-pressure economy, #EGgrantee #EG2021 13/

and might even see their real wages fall. But it was a bargain worth making in return for full employment and social-insurance extension—especially since the long-run alternative was the shift to a Federal Reserve that would control inflation #EGgrantee #EG2021 14/

by hitting the economy on the head with a high interest-rate brick so hard and so often that nobody thereafter would dare ask for a raise.

But in the long run the buy-in did not occur, or could not be maintained. The question is why. #EGgrantee #EG2021 15/

One side has long argued that it was the fiscal fecklessness of the Johnson administration and its congress. A second side was that this social-democratic low-inflation bargain could not be maintained if it generated an income distribution that #EGgrantee #EG2021 16/

the powerful perceived as unfair, but the political system refused to amp up controls in order to restore perceived fairness. Cf.: Elrod, slide 9. Yet a third side has argued that it was all the fault of Arthur Burns, heightening the contradictions #EGgrantee #EG2021 17/

via seeking an ever higher-pressure economy and hoping to balance the situation using mandated administrative wage-and-price controls to enforce real wage declines on unionized workers. Milton Friedman was an especially harsh judge here of #EGgrantee #EG2021 18/

Arthur Burns’s transformation from economist into politician, stating in 2000:

>From the moment Burns got into the Fed, I think politics played a great role in what happened. So far as Nixon was concerned, there is no doubt, as I know from personal #EGgrantee #EG2021 19/

experience. I had a session with Nixon sometime in 1970—I think it was 1970, might have been 1971—in which he wanted me to urge Arthur to increase the money supply more rapidly [laughter] and I said to the President, "Do you really want to do that? #EGgrantee #EG2021 20/

The only effect of that will be to leave you with a larger inflation if you do get reelected." And he said, "Well, we'll worry about that after we get reelected”…

And so, for whatever reason, in macroeconomic policy #EGgrantee #EG2021 21/

we made the neoliberal turn. And I think the past two decades have demonstrated to us that that aspect, at least, of the neoliberal policy complex is now in chapter 11, if not in chapter 7. #EGgrantee #EG2021 22/END

#EGgrantee #EG2021And now for something substantially different: my comments on the Seegmiller, Salomons, and Autor paper. They argue, rightly, that outright job elimination is are: telephone plug switchboard operators. What we have instead is the #EGgrantee #EG2021 1/

transformation of occupations as some of the tasks that they consist of get displaced and eliminated, but other tasks get created and enabled by shifting technologies. The task universe expands as we invent “new work”—and sometimes this creates new #EGgrantee #EG2021 2/

occupations, but overwhelmingly it leads to the transformation of old occupations, and sometimes this transformation is recognized via new titles.

Seegmiller and company are here to try to shine some light on what they call this “new work” #EGgrantee #EG2021 3/

“dark matter of the task universe”:

* Process innovation & hyperspecialization—a more finely divided division-of-labor as increased capital and knowledge wreak their effects…
* Product innovation—computer-technical, solar-engineering & solar-installation #EGgrantee #EG2021 4/

* Demand growth due to demand shifts
* Demand growth due to plutocratization

What does all this mean?

I would recommend that the authors here try to grab hold of and follow one particular thread. We have occupations. We have tasks. We also have human #EGgrantee #EG2021 5/

competences. What are the core human competences?

1. We have strong back and thigh muscles that—especially when steroid-, cough, testosterone-soaked, are useful for moving heavy objects…

2. We have nimble fingers and the eye-brain-hand feedback loops #EGgrantee #EG2021 6/

that are ideal for fine manipulation of nature—and the feedback loop that are fine manipulators make tools that enable us to manipulate even more finely.

3. We have our gatherer-hunter skills at assessing an environment and picking out that portion of it to #EGgrantee #EG2021 7/

focus on either for resource acquisition and use or danger-avoidance.

4. We have our emotional and psychological intelligence to get the group organized, the labor divided, and everyone moving in the same direction—let’s sit here for ten minutes, save for #EGgrantee #EG2021 8/

you, Throg: how would you like to gain status by running ahead to see if there is a lion pride at the waterhole?

5. We have our neocortex’s ability to envision scenarios, plan for them, and then carry out our plans. #EGgrantee #EG2021 9/

We have not just created many and destroyed some occupations as our technology has advanced; we have not just created and destroyed and shifted tasks that fall under occupational baskets; we have made varied use of our human core competences. #EGgrantee #EG2021 10/

Hitherto, at least since the domestication of the horse or even earlier with the invention of the potter's wheel, every form of non-human power that substitutes and thus tends to reduce the value of human backs and thighs has been more than offset. #EGgrantee #EG2021 11/

Every form of non-human manipulation that substitutes for and tends to reduce the value of human fingers and eyes has been more than offset. They have been more than offset by the fact the every single source of non-human power—from the horse to #EGgrantee #EG2021 12/

the watermill to the steam engine to the diesel to the jet engine—and every single source of manipulation—from the potter's wheel to the loom to the spinning jenny to the assembly line to the mechanized factory—has required a cybernetic control mechanism. #EGgrantee #EG2021 13/

Without such a mechanism, animals and machines are useless. They cannot keep themselves on course and on track. That was possible only in fantasy and myth--the bronze-statue servitors of Daidalos, or the self-propelled catering carts of Hephaistos. #EGgrantee #EG2021 14/

And as cybernetic control mechanisms, human brains had an overwhelming productivity edge: fits in a breadbox, draws 50 watts of power, and while human brains do not grow on trees, they really do grow

The fear is that this time things really are different.
#EGgrantee #EG2021 15/

The fear is that, this time, technological anxiety is not misguided—at least as far as the social status and possibly the living standards of the median human are concerned. This fear arises from the fact that the uniqueness of human brains as #EGgrantee #EG2021 16/

cybernetic control mechanisms is no longer as clear. For the first time, we find our machines substituting not for human backs, fingers, eyes, and hands, but for human brains in their microprocessor control-loop and accounting-and-organization #EGgrantee #EG2021 17/

paper-shuffling functions.

That leaves only our smiles—our emotional intelligence—and those parts of brainwork that have not yet been computerized as places for humans to add value.

How does “new work” play into this? #EGgrantee #EG2021 18/END