Wednesday, May 8, 2013

Euvoluntary Excess Capacity

One of the reasons for fiscal policy (government spending) in contrast to monetary policy (putting more currency* in circulation) is of excess capacity: for whatever reasons, firms who could be making stuff are instead squatting over a pile of thumbs. According to the folk version of the arguments in favor of expanded fiscal policy, government spending mobilizes these slack resources, generating economic activity and reducing unemployment. And as we've pointed out before here at EE, unemployment is not euvoluntary.

Let's grant for a moment that there really is such a thing as "potential GDP" and that the malaise in the labor markets is entirely exogenous. Ask this question: can idle resources be euvoluntary? I think there's some pedestrian morality that suggests that firms have a short laundry list of obligations: they're obliged to hire [Americans if they can], they're obliged to produce, they're obliged to subscribe to an ever-changing moral contract penned by chimeric fairness norms. They may even, having undertaken the delicately frustrating duty to squirm from a womb of diligent fancy bound in a corset strung by the Agents of Congress, be obliged to exist.

But does that imply that slack production is not euvoluntary? Can non-exchange meet Munger's conditions in the sidebar? More to the point, are the marginal exchanges abetted by government spending more or less euvoluntary than failing to trade? More yet to the point, how would you adjudge the comparison? You'd need to ask a whole bunch of questions I don't see many people asking. Like, why is it exactly firms aren't producing (and some baldfaced assertion won't cut it here. It's dishonest to just blurt out what you think is a likely answer. That's what we delicate folk call "bullshitting")? What is your counterfactual (and the status quo is an inappropriate counterfactual when other folks are making perfectly plausible contributions to the conversation)? What is your metric (this one drives me up the wall. Throwing out a BEA or NBER or FRED graph is insufficient. To be convincing, you have to, you know, convince your readers why they should care about your metric as opposed to others. Making things up is also silly, sloppy, and unconvincing)?

I guess these are good reasons why macro is so hard. I might even be willing to claim that good macro is nearly impossible. What counts as "data" is open to interpretation, counterfactuals are all ad hoc, and many assumptions are tacit. How dismal.

As for the question I'm asking? Can excess capacity be euvoluntary? I'm not even sure I can ask that question in a way that will be consistent to everyone. And this question precedes questions of whether or not the government should employ policies, let alone which ones should they choose.

The relationships between philosophy, policy, and economics are sketchy, even on a good day.

*yes, I am well aware this is a bit of a mischaracterization. The nuances of the money supply are off-topic here. I'm willing to bring it up again in the off chance that anyone actually cares.

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Do you have suggestions on where we could find more examples of this phenomenon?