I wrote: >>The MF's theory of the "natural" rate of unemployment argues that real >>wages should be hurt in the short run by inflation, as in the COLA story >>above. In his theory, workers suffer from short-term "money illusion" in >>which they misinterpret their higher money wages as higher _real_ wages and >>are thus willing to supply more labor despite the actual fall in real wages. quoth Tom: >Well and good. Deitsch and Dilts suggest the continuation of that money >illusion in a new package. Not only are they receiving higher real wages, >but they also get an "adjustment" to compensate for inflation. so there's COLA illusion in addition to money illusion. >Jim: >>My model (which follows Soskice & Carlin much more than the MF) says that >>as U falls, workers have more bargaining power. (Bargaining power allows >>workers to put their inflationary expectations into practice.) This says >>that as U falls, the COLA should improve in quality (where "quality" is >>defined by workers). But the above research doesn't say anything about >>changes, only the level of the quality of COLAs at a specific point in >>time. If COLAs were always bad for protecting real wages, it would indicate >>that inflation _always_ coexisted with falling real wages. But in the late >>1960s, real wages did very well, despite the inflation. Tom: >I agree with your premise that as U falls, workers would have more >bargaining power (or at least potentially). Whether they would use it or >know how to use it is another question -- THE question. It's my impression >that we actually agree about the fundamentals, that it comes down to an >issue of class struggle rather than market equilibrium. It's quite likely we agree on the fundamentals. I also agree that how workers use their bargaining power is not exactly determined by purely economic conditions. With a social-democratic party, with more class consciousness, with stronger unions, more bargaining power might shake the system to its roots. >What we seem to disagree about is whether there's a place for class struggle >in the NAIRU, or in a NAIRU. That is a matter of rhetorical strategy, not a >matter of science or fact. One could either oppose NAIRU as incoherent or >attempt to construct an alternative, coherent NAIRU. There are pros and cons >to either approach. Because they are rhetorical strategies, they are not >mutually exclusive. As for rhetorical strategies, which is better: to argue that capitalism should provide us with low unemployment (say 1 or 2 percent) when it can't do it (or one believes it can't do it). or to argue that one of the reasons why capitalism needs to be abolished and/or severely reformed is that it can't provide 1 or 2 perent unemployment. To me, I think trying to have a scientific understanding of the economy (to the extent that such an understanding is possible) and trying to explain it in commonsense language is more important than rhetorical strategies. I'm not into rhetoric or marketing. >You are right about the Deitsch and Dilts analysis not looking at change in >the COLA over time. That's partly why I'm intrigued by the orphan status of >the D&D article. Can you point to empirical studies that document the >increasing adequacy of COLA clauses since the early 1980s? It seems to me >that after roughly 1982 (the publication date of the article) *concession >bargaining* not COLAs became the major theme in labour relations. One might >even speculate that the detrimental COLAs (along with government policy, of >course) helped pave the way for concession bargaining. right. worker bargaining power fell in the 1980s (and 1990s) so that COLAs went out the window in most cases. >>BTW, Tom, do you think that the US or Canadian economy (as currently >>organized following capitalist rules) could live with 1 percent >>unemployment for 10 years without accelerating inflation or price controls? >No. Do you? Does anybody? But isn't "as currently organized" and "price >controls" a non sequitur? And wouldn't "one percent" unemployment be, >effectively, _negative_ unemployment? I don't see how price controls are really significant changes in how capitalism is organized (unless we go all the way to the WW 2 OPA system in the US, with ration coupons, forced saving, organized patriotism, etc.) With price controls, accelerating inflation can become snowballing shortages of goods. But if one percent unemployment is in effect negative unemployment, then you are positing a NAIRU at some rate above one percent. So we agree, though maybe we disagree about the exact number. Jim Devine [EMAIL PROTECTED] & http://clawww.lmu.edu/Departments/ECON/jdevine.html
