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Comment by chrismealy | Hacker News Reader

I never get tired of quoting Mike Konczal:

And speaking as someone who has taken graduate coursework in “continental philosophy”, and been walked through the big hits of structural anthropology, Hegelian marxism and Freudian feminism, that graduate macroeconomics class was by far the most ideologically indoctrinating class I’ve ever seen. By a mile. There was like two weeks where the class just copied equations that said, if you speak math, “unemployment insurance makes people weak and slothful” over and over again. Hijacking poor Richard Bellman, the defining metaphor was that observation that if something is on an optimal path any subsection is also an optimal path, so government just needs to get out of the way as the macroeconomy is optimal absent absurdly defined shocks and our 9.6% unemployment is clearly optimal.

-- http://rortybomb.wordpress.com/2010/06/29/blogging-and-the-e...

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One more, from Philip Harvey:

There once was an island with a population of 100 dogs. Every day a plane flew overhead and dropped 95 bones onto the island. It was a dog paradise, except for the fact that every day 5 dogs went hungry. Hearing about the problem, a group of social scientists was sent to assess the situation and recommend remedies.

The social scientists ran a series of regressions and determined that bonelessness in the dog population was associated with lower levels of bone- seeking effort and that boneless dogs also lacked important skills in fighting for bones. As a remedy for the problem, some of the social scientists proposed that boneless dogs needed a good kick in the side, while others proposed that boneless dogs be provided special training in bone-fighting skills.

A bitter controversy ensued over which of these two strategies ought to be pursued. Over time, both strategies were tried, and both reported limited success in helping individual dogs overcome their bonelessness -- but despite this success, the bonelessness problem on the island never lessened in the aggregate. Every day, there were still five dogs who went hungry.

The thing about arguing about real-world economic problems based on incredibly loose analogies with completely made-up situations is that you can use it to argue for almost anything. But a made-up situation like this rarely bears any resemblance to the real world.

Unless you include the dog who keeps the other five bones for himself.

The economic point is that high unemployment is a product of insufficient aggregate demand. The insight dates back to Keynes.

The data doesn't really suggest this is a real problem. Production has recovered. Employment has not. That should not occur if the problem were AD.

Unfortunately, the real world is significantly more complicated than the Calc 1 models proposed by Keynes.

Production is not a measure of aggregate demand and no-one doing econometrics that I know takes Say's law seriously. Keynes pointed out some of the problems with it oddly enough, but to my knowledge he did NOT propose a "Calc 1 model", although I agree it would be worth looking at if he did.

If aggregate demand were anywhere near the point of full employment, we would see evidence of inflation. We do not. Some prices are rising in nominal terms as the dollar depreciates, but that is quite different.