Apple producers set the price of apples, to maximise their profits.
Banana producers set the price of bananas, to maximise their profits.
The profit-maximising price of apples is 2 bananas per apple.
The profit-maximising price of bananas is 2 apples per banana.
What happens? 1/ In a barter economy, this question does not make sense.
There are 2 goods, so there's only 1 price.
(You can write that price as bananas per apple, or apples per banana, but it's still only 1 price.)
You can't have 2 people setting 2 prices when there's only 1 price. 2/

Distributional conflict is about "real" (inflation-adjusted) variables, not "nominal" variables (the price level; the inflation rate).
You can't resolve distributional conflict with inflation. 1/

https://twitter.com/ojblanchard1/status/1608967176232525824

A distributional conflict theory of u* ("increased distributional conflict causes an increase in the sustainable unemployment rate") makes logical/theoretical sense, because u* is a real variable.
(How much empirical sense it makes is a separate question.) 2/

The Bank of Canada (almost) always "prints" money, and lends it to the government.
This is normal.
And (in my opinion) good. 1/n The only question that matters is *how much* money the BoC should "print" (and lend to the govt), to keep the economy operating as well as possible (given the circumstances), and inflation near the 2% target. 2/n

I wanna do a thread on:
"The Price Multiplier"
Because I think it's important in these inflationary times.
(I just made up that name, but I think it's a good name.) 1/ One reason I (unironically) love Old Keynesians is because of their "Multiplier" concept.

(Though you *could* argue Ralph Hawtrey invented the "Multiplier".)

But Old Keynesians may not realise how *general* the "Multiplier" is. It's not (just) about govt spending, and income.

A price-wage spiral (or a wage-price spiral (and these include price-price and wage-wage spirals)) is what happens if central banks let it happen, by failing to create a nominal anchor. 1/ Each individual price & wage is determinate, given other prices & wages. But without a nominal anchor, there's nothing to determine the whole system of prices & wages. Each price/wage is simply proportionate to all other prices/wages.
Fallacies of composition, and all that. 2/

"Does lower unemployment cause higher inflation?"
Three main points:
1. "Never reason from an unemployment rate change." (It depends what causes it.)
2. "Cause" and "signal" are different.
3. It depends on the monetary policy regime. Looser monetary policy causes (temporarily) lower unemployment and (permanently) higher inflation.

The lower unemployment doesn't *cause* the higher inflation (looser money causes both), but it does (in this case) *signal* higher inflation (if unemployment responds quicker).

A thread on the S-word, that does not say the S-word: 1/n There are 3 things we can do with our (money) income:
1. Pay taxes
2. Demand newly-produced consumption goods
3. Demand (a flow of) assets

[This is normally written: "Y=T+C+S"] 2/n

A short thread on:
"The Long Asset Shortage"
or
"Long Assets as Automatic Stabilisers"
or
"Short Asset prices can't jump, so Long Asset prices must jump even higher, to bring the team average up"

(Probably should do a blog post, but let's try this first) 1/ Say people now live twice as long when retired.
So they want a stock of assets that's twice as big, relative to NGDP, to fund their consumption when retired.
Unless there's new assets (investment), that can only happen by existing asset prices doubling, relative to NGDP. 2/

I'm so old I can remember 4 (or more, depending how you count them) *different* stories about why the Central Bank raising interest rates would cause inflation to *rise*.

Have I thought about this possibility? Oh yes.

Let's go through them. 1/n 1. "Cost of Production" story.
This one was very popular back in the 1970's.
Basic idea: "Interest is a cost of production, so if the CB raises r, that raises costs, and so raises prices." 2/n

The most interesting wrong answer: "economics is about money".
Because it *sorta mostly* works, even though very little econ is really about money.
(Confess it's what I told my kids when they asked, but were too young to understand any better answer I could think of.)

https://twitter.com/stephenkinsella/status/1379728650258542592

We draw a supply & demand diagram, and say it's the "apple market".
But it's really the "apple-money market".
The "supply curve" is also a money demand curve.
The "demand curve" is also a money supply curve.

So the "wrong answer" is less wrong than it looks.

"Temporary abode of purchasing power"
works better than
"store of value".
It's an asset you buy because you might/will want to sell it again in future.
(If you were *certain* you would hold currency, or Bitcoin, *forever*, you might as well burn it now.) The bag of rice in my kitchen cupboard is a "store of value". It's also part of my wealth.
But I still would have bought it, even if I knew I could never sell it again. I plan to eat it, not sell it.

Compare and contrast:
1. the economics of Bling.
2. The economics of "temporary abodes of purchasing power", including digital ones. 1/ I get Utility from owning bling, to signal my wealth.
But, unlike other goods (X), Utility depends not on the physical quantity of bling (B), but on the market value of that bling (B*Pb)
(Pb is the price of bling relative to other goods).
U=U(X,B*Pb) 2/

The second bit IMO is wrong (OLG).

And the first bit is the wrong question to ask.

It is better to ask instead: "How should we organise public finance so we do not need to answer that question?"

E.g. NGDP perpetuities.

https://twitter.com/TheStalwart/status/1353032870999314432

The whole point of market economies is to let markets answer questions that economists don't have useful answers to.
Like: "How many apples should we produce?"

"Will high money growth cause high inflation?"
My answer: "Yes/No/No/No."

A short(?) thread. 1/ Yes. Just like the price of apples is determined by Demand & Supply of apples, and price of land is determined by D & S of land, so price of Money (=1/(price of everything else)) is determined by D & S of Money.
Quantity Theory Rules OK. 2/

There's something funny/ironic about "everyone should have a Fed account".
The best interpretation (IMO) of the canonical NK Macro model is that everyone *does* have a Fed account.
That Fed account is the only money they use, to buy&sell everything else. 1/3 An individual's account balance can be +ve or -ve (overdraft).
But aggregate balances always sum to net $0.
And with sorta identical individuals ("representative agent"), each individual balance will be $0 too.
It *looks like* there's no money in the model.
But there is. 2/3

Short thread on "automatic stabilisers"
(properties of a policy regime that reduce the effect of shocks (especially AD shocks), even before the policymakers observe that shock, respond to it, and their response offsets the shock). We need "automatic stabilisers" because of lags.

Fiscal policy regimes can have automatic stabilisers.

Monetary policy regimes can have automatic stabilisers too.

A short thread on "S=I":
(I'm subtweeting a lot of you 😀)
Simple thought-experiment:
Imagine a monetary economy where *all* goods that are traded are *investment* goods (like e.g. new houses, that yield a flow of services to their owner-occupiers). 1/ Then, for some reason, people start spending their stock of money more quickly (i.e. Velocity rises).
Investment and Saving (and output and income) all rise by the same amount.
Remember: "Saving" is defined as income from production that is *not* spent on Consumption goods. 2/

This is wrong.
Debt may (or may not) be a burden on future generations.
Regardless of whether it crowds out investment (or is owed to foreigners).
This is basic OverLapping Generations economics.

https://twitter.com/paulkrugman/status/1180457374705999872

Future generations inherit the tax liability inherent in the debt. (Whether there *necessarily is* a future tax liability depends on whether r>g or r<g.)
Future generations do not *inherit* the bonds; they *buy* those bonds. (Unless you believe in Ricardian Equivalence.)

A thread on why using Fiscal Policy (not Monetary Policy) to control Y (and so control inflation) is a Bad Idea.
This is a followup to my previous thread (RTd below).
It's also going to be a bit harder.
Sorry.
Praying I don't mess it up. 1/n

https://twitter.com/MacRoweNick/status/1149301819098705920

To Keep It Simple (for me) I'm only going to consider a Closed Economy.
Y=C+I+G
Remember (from previous thread):
We want 2 things:
1. We want the right *Total* Y (fullish employment, keeping inflation controlled)
2. We also want the right *Mix* of Y (between C & I & G)

Lucas '72, which is (sorta) where microfoundations all began, is a heterogeneous agent model.
It has: old agents (consumers); young agents (producers) on island 1; young agents (producers) on island 2; etc.
It doesn't work with only 1 type of agent (or 1 island). 1/n Larry Ball's "yeoman farmer" interpretation of the NK model is also, in a sense, a heterogenous agent model. Each agent has a comparative advantage and specialises in producing a different type of fruit, which they trade.
It doesn't work if they all produce the same fruit. 2/n

If I see one more "heterodox" view on the "orthodox" view on "loanable funds" I'm gonna........well, let me do this short thread, instead of heading back to the lake with my canoe: /1 First, if any view is currently "orthodox" in Macro, it is the New Keynesian/Neo-Wicksellian view.
That is the view held by (most?) central bankers & used to guide policy, and taught in (most?) upper-year & grad macro courses. /2