Final week I wrote a critique at Defining Concepts, a Hoover Establishment publication, of the views of Paul Krugman and Olivier Blanchard. Blanchard (pictured above) wrote a short observe defending himself and I wrote again. It went just a few rounds.

To recall, I had one critique of Krugman and two critiques of Blanchard. My critique of Krugman was that he was unwilling to confess that the “incomes coverage” he appeared to favor was actually a system of wage and value controls. My critique of Blanchard was that he talked about inflation with out mentioning the expansion of the cash provide and that he obtained causation reversed: it doesn’t go from gradual the economic system to scale back inflation; as a substitute it goes from scale back the expansion fee of the cash provide to scale back inflation and an impact of that’s typically a slowing of the economic system.

Right here’s my forwards and backwards with Blanchard:


Incomes insurance policies, Wikipedia definitions not withstanding, don’t have anything to do (at the least in Europe) with wage and value controls.  They need to do with social companions attempting to come back to an settlement on the best way to cope with a selected subject.

On financial coverage.  Sure, generally, it may be the supply of the battle, and thus of inflation.  Within the explicit case of the US right now, I feel fiscal coverage is extra guilty.


Expensive Professor Blanchard,

Thanks to your observe.

Once I checked the net, what I discovered is that just about each incomes coverage was designed to have an effect on costs and wages, normally with controls. In fact, Europe higher than I do. Your transient remark was a bit of too transient. What particularly have been incomes insurance policies in Europe? Additionally, you check with “social companions.” I’m undecided what which means. Might you clarify?

Concerning inflation, do you assume it could have been almost as excessive because it has been if the Fed had not monetized a lot of the rise in debt?




Don’t belief the net. 😊

Incomes insurance policies in europe are tripartite negotiations between labor, enterprise, and the federal government.  Most celebrated agreements are Wassenaar within the Netherlands, Moncloa in Spain.  And, for a very long time, negotiations within the context of the French plan to evaluate the fascinating path for the economic system, the suitable fee of development of nominal wages and so forth. (Settlement on the trail of wages is just not price-wage controls.  Distortions come when there are constraints on value adjustment)

On financial coverage.  I imagine that the impact of QE has been to lower lengthy charges by about 100 bps [DRH note: basis points], which isn’t negligible, however is much much less, when it comes to results on mixture demand than the assorted fiscal plans, particularly the ARP [DRH note: Biden’s America Rescue Plan].

Debt has not been monetized.  The Fed has purchased lengthy bonds, and issued quick maturity, curiosity paying, reserves.  This doesn’t change whole debt, and has a minimal impact of curiosity funds.



Thanks to your fast reply.

Might I exploit this in a follow-on weblog publish?




Certain.  At all times completely satisfied to coach Hoover 😊

Henderson: Lol.


I’ll in all probability have extra ideas on his financial coverage level. I feel he’s unsuitable however I’m undecided. Additionally observe that the one transmission mechanism he conceives of from financial coverage to mixture demand is thru rates of interest..

And spot that he didn’t reply to my declare that he mistakenly reversed the causation between slowing the economic system and lowering inflation. Perhaps I’ve educated MIT. I’m completely satisfied to take action.


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