Alan S. Blinder, Wall Street Journal, Wednesday, December 29, 2021

Alan S. Blinder had an article in the Wall Street Journal of 12/29/2021 entitled “When It comes to Inflation, I’m Still on Team Transitory.”  Unlike many financial talk-show prognosticators, Professor Blinder did more than recite a bunch of hunches. He decomposed indexes (both CPI, PCE) and analyzed their measures of inflation in 2021.  He implicitly acknowledged Functional Macroeconomic Dynamics’ surplus circuit and he acknowledged that it takes time to implement capital expansion in order to cure supply shortages. He correctly reminded the readers that the government was forced to take extraordinary monetary actions to mitigate the Covid slowdown.  He implicitly characterized as probabilistic predictions by himself and others, including his prediction of “transitory inflation.” He asked, “What could make Team Transitory wrong?” Prof. Blinder is to be credited for being somewhat analytical and providing useful details.  However, the following comments are offered in order to a) improve the sketchiness of Walrasian macrostatics by means of Lonergan’s scientific systematics, and b) properly assign responsibility to avoid or correct inflation and unemployment.

  • In order to satisfactorily analyze and critique the recent and current disequilibrated, intrinsically-inflationary flows of products and payments, macroeconomists need a scientific heuristic guiding them to a scientific systematization of the dynamic economic process. This scientific systematization would provide a normative theory and an adequate explanatory framework by which to assess and criticize dynamical, interdependent, mutually-definitive flows of products and payments.  Macroeconomists must explain the dynamical process in terms of interconnected, mutually-defining velocities and accelerations.

A distinction has been drawn between description and explanation.  Description deals with things as related to us.  Explanation deals with the same things as related among themselves.  The two are not totally independent, for they deal with the same things and, as we have seen, description supplies, as it were, the tweezers by which we hold things while explanations are being discovered or verified, applied or revised. … [CWL 3, 291/316]

… without further clarification Schumpeter acknowledged that dynamic analysis called for a new light on equilibrium.  Such new light arises when, over and above (DSGE’s) equilibria of supply and demand with respect to goods and services (classical microeconomics), there are recognized further equilibria (crossovers balancing, concomitance of outlays with income and of income with both outlays and expenditure) that have to be maintained if an economy chooses to remain in a stationary state, to embark on a long-term expansion, to distribute its benefits to the vast majority of its members, and so to return to a more affluent stationary state until such further time as further expansion beckons. … Moreover, such macroequilibria are more fundamental than the microequilibria assembled by Walras.  (FMD’s macroequilibria) are the conditions of a properly functioning economy. (CWL 15, 92)

  • The economic process is a purely dynamic process, and textbook macrostatics is not adequate for explanatory analysis of the double-circuited, credit-centered economy.

Lonergan pointed out that this differentiation of economic activities … is discussed by traditional economists such as S. M. Longfield (1802-1884), John Rae (1796-1872), Nassau Senior (1790-1864), Eugen von Bohm-Bawerk (1851-1914), and in the heavily disputed “Ricardo effect.” But Lonergan credits Piero Sraffa (1898-1983) as having clarified it most thoroughly in his famous essay, Production of Commodities by Means of Commodities(1960).  Yet even Sraffa does not use his sophisticated explanation of the “Ricardo effect” and the “roundabout” or “concertina”-like phenomena associated with it in the way Lonergan does. Lonergan is alone in using this difference in economic activities to specify the significant variables in his dynamic analysis… no one else considers the functional distinctions between different kinds of productive rhythms prior to, and more fundamental than, wealth, value, supply and demand, price levels and patterns, capital and labor, interest and profits, wages, and so forth….only Lonergan analyzes booms and slumps in terms of how their (explanatory) velocities, accelerations, and decelerations are or are not equilibrated in relation to the events, movements, and changes in two distinct monetary circuits of production and exchange as considered both in themselves (with circulatory, sequential dependence) and in relation to each other by means of crossover payments. [CWL 15, Editors’ Introduction, lxii]

(there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area)

… The maintaining of a standard of living is attributed to a basic process (distinct process 1), an ongoing sequence of instances of so much every so often.  The maintenance and acceleration (distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stage is maintained and accelerated by the next higher.  Finally, transactions that do no more than transfer titles to ownership are concentrated in a redistributive function, whence may be derived changes in the stock of money (distinct process 3) dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. [CWL 15, 53-54]

In Lonergan’s circulation analysis, the basic terms are rates – rates of productive activities and rates of payments.  The objective of the analysis is to discover the underlying intelligible and dynamic (accelerative) network of functional, mutually conditioning, and interdependent relationships of these rates to one another.  [CWL 15  26-27  ftnt 27]

Those familiar with elementary statics and dynamics (in physical mechanics) will appreciate the shift in thinking involved in passing from (static) equilibrium analysis (of for example a suspended weight or a steel bridge)… to an analysis where attention is focused on second-order differential equations, on d2θ/dt2, d2x/dt2, d2y/dt2, on the primary relativities of a range of related forces, central, friction, whatever.  Particular secondary boundary conditions, past and future pricings and quantities, are relatively insignificant for the analysis (of the primary relativity immanent in, and applicable to, every instance of the process).  What is significant is the Leibnitz-Newtonian shift of context. [McShane, 1980, 127]

More positively, the channels account for booms and slumps, for inflation and deflation, for changed rates of profit, for the attraction found in a favorable balance of trade, the relief given by deficit spending, and the variant provided by multinational corporations and their opposition to the welfare state. [CWL 15, 17]

(The Diagram’s) basic terms are (implicitly defined by their functional relations.  The maintaining of a standard of living (distinct process 1) is attributed to a basic process, an ongoing sequence of instances of so much every so often.  The maintenance and acceleration (distinct process 2) of this basic process is brought about by a sequence of surplus stages, in which each lower stage is maintained and accelerated by the next higher.  Finally, transactions that do no more than transfer titles to ownership (distinct process 3) are concentrated in a redistributive function, whence may be derived changes in the stock  of money dictated by the acceleration (positive or negative) in the basic and surplus stages of the process. … So there is to be discerned a threefold process in which a basic stage is maintained and accelerated by a series of surplus stages, while the needed additions to or subtractions from the stock of money in these processes is derived from the redistributive area. … it will be possible to distinguish stable and unstable combinations and sequences of rates in the three main areas and so gain some insight into the long-standing recurrence of crises in the modern expanding economy. [CWL 15, 53 and 177]

it will be well at once to draw attention to J.A. Schumpeter’s insistence on the merits of the diagram as a tool. (Schumpeter, History 240-43, on the Cantillon-Quesnay tableau.) … First, there is the tremendous simplification it effects.  From millions of exchanges one advances to precise aggregates, relatively few in number, and hence easy to follow up and handle. … Next come the possibilities of advancing to numerical theory.  In this respect, despite profound differences in their respective achievements, the contemporary work of Leontieff may be viewed as a revival of Francois Quesnay’s tableau economique. Most important is the fact that this procedure was the first to make explicit the concept of economic equilibrium.  All science begins from particular correlations, but the key discovery is the interdependence of the whole. … While it is true that a tableau or diagram cannot establish the uniqueness of a system or rigorously ground its universal relevance, it remains that the diagram (of the interconnections of a few precise aggregates) has compensating features that Quesnay’s system of simultaneous equations may imply but does not manifest. … There is the tremendous simplification (a diagram) effects the aims and limitations of macroeconomics make the use of a diagram particularly helpful, …  For its basic terms are defined by their functional relations.   [CWL 15, 53 and 177] 

 The analysis of the aways current, purely dynamical process would be functional and purely relational:

“Functional” is for Lonergan a technical term pertaining to the realm of explanation, analysis, theory;  … Lonergan (identified) the contemporary notion of a function as one of the most basic kinds of explanatory, implicit definition – one that specifies “things in their relations to one another” … [CWL 15  26-27  ftnt 27]

Lonergan is alone in using this difference in economic activities to specify the significant variables in his dynamic analysis… no one else considers the functional distinctions between different kinds of productive rhythms prior to, and more fundamental than, wealth, value, supply and demand, price levels and patterns, capital and labor, interest and profits, wages, and so forth….only Lonergan analyzes booms and slumps in terms of how their (explanatory) velocities, accelerations, and decelerations are or are not equilibrated in relation to the events, movements, and changes in two distinct monetary circuits of production and exchange as considered both in themselves (with circulatory, sequential dependence) and in relation to each other by means of crossover payments. [CWL 15, Editors’ Introduction, lxii]

Click here, and here.

(the) whole structure (of Functional Macroeconomic Dynamics) is purely relational.  A macroeconomic functioning is not a compilation or aggregation of particular income statement categories, such as wages or interest expense.  A macroeconomic functioning is implicitly defined by its functional relation to other functionings.  The whole structure is purely relational.  “Lonergan’s analysis is concrete but heuristic.  It focuses on functionalrelations intrinsic to the productive process to reach eventually a general theory of dynamic equilibria and disequilibria.” [McShane 1980, 117] 

  • Authors of macroeconomics textbooks lack an objective,scientific, dynamic heuristic.  Again, the analysis must be dynamical and relativistic.

A distinction has been drawn between description and explanation.  Description deals with things as related to us.  Explanation deals with the same things as related among themselves.  The two are not totally independent, for they deal with the same things and, as we have seen, description supplies, as it were, the tweezers by which we hold things while explanations are being discovered or verified, applied or revised. … [CWL 3, 291/316]

Our aim is to prescind from human psychology that, in the first place, we may define the objective situationwith which man has to deal, and, in the second place, define the psychological attitude that has to be adopted if man is to deal successfully with economic problems.  Thus something of a Copernican revolution is attempted: instead of taking man as he is or as he may be thought to be and from that deducing what economic phenomena are going to be, we take the exchange process in its greatest generality and attempt to deduce the human adaptations necessary for survival. [CWL 21,42- 43]

A study of the mechanics of motor-cars yields premises for a criticism of drivers, precisely because the motor-cars, as distinct from the drivers, have laws of their own which drivers must respect.  But if the mechanics of motors included, in a single piece, the anthropology of drivers, criticism could be no more than haphazard. [CWL 21, 109]

Ought there not to be introduced a technical term to denote this type of intelligibility?  … The intelligibility that is neither final nor material nor instrumental nor efficient causality is, of course, formal causality…What we have called the intelligibility immanent in sensible data and residing in the relations of things to one anothermight be named more briefly formal causality … [CWL  3, 78/101-102]

… Special Relativity is primarily a field theory, that is, it is concerned not with efficient, instrumentalmaterial, or final causes of events, but with the intelligibility immanent in data; but Newtonian dynamics seems primarily a theory of efficient causes, of forces, their action, and the reaction evoked by action. … Special Relativity is stated as a methodological doctrine that regards the mathematical expression of physical principles and laws, but Newtonian dynamics is stated as a doctrine about the objects subject to laws.  [3, 43/67]

  • Macroeconomists fail to explicitly make fundamental, analytic distinctions which will serve as abstract explanatory terms and relations from which a superstructure of complete explanation may be rigorously deduced. First, the economic process is composed of two (or more) distinct functional circuits of monetary circulation. Each circuit has its own set of Outlays-Compensations constituting supply and Expenditures-Receipts constituting demand. These monetary flows, constituting actual supply and demand, must keep pace with one another. Second, the process expands in defined by the comparison of dQ”/Q” vs, dQ’/Q’ (See CWL 15, 114 ff.); and the changes in phases require changes in the distributions of incomes devoted to investment or consumption. (See CWL 3, Figure 24-7, p. 125)15

 

… , goods and services are in a point-to-point correspondence with elements in the standard of living when they are some determinate, though not immutable or unvarying, algebraic function of the first degree with respect to elements in the standard of living.  Finally, just as the aggregate of rates constituting the emergent standard of living is an aggregate of instances of ‘so much every so often,’ so also is the aggregate of rates of production in the basic stage of the process; and again, as the emergent standard of living, so also the basic stage of the process is an aggregate of rates that are qualitatively and quantitatively variable with respect to successive intervals of time. (CWL 15, 29)

However, there is this difference between the basic stage and the surplus stages.  The ultimate products of the basic stage, whether goods or services, enter into the standard of living. The ultimate products of the surplus stage, whether goods or services, do not enter into the standard of living.   From being under process themselves they pass into use in a lower stage of the process: they become means of production or the replacement or the maintenance of means of production, where production is understood in the broad sense already defined.  (CWL 15, 32)

In other words, producer goods and services are goods and services consumed by producers.  Not passengers but railway companies consume rolling stock and rails.  Passengers consume transportation.  And similarly in similar cases.  (CWL 15, 32)

A long-term acceleration is an increase in rates of production due to the introduction of more capital equipment and/or more efficient capital equipment.  The latter is termed a long-term acceleration because it changes the basis on which the short-term acceleration works.  (CWL 15, 32)

(The analytical division of the objective economic process) is not a division based on the properties of things: the same raw materials may be made into consumer goods or capital goods; and the capital goods may be point-to-line or point-to-surface or a higher correspondence; they may have one correspondence at one time and another at another.  Similarly, general services such as light, heat , power, transportation may be employed in any correspondence, and in different proportions in the several correspondences at different times.  CWL 15, 26

  • In the normal course of events, the Fed is responsible for conducting a money-supply function, inserting or withdrawing money, in correlation with the increase or decrease in the magnitudes and frequencies of events in the two operative circuits.  The Fed should not be mandated to control inflation and unemployment with the weak tools at its disposal. “Money has to conform to the objective exigencies of the economic process. “What is needed is a normative shift in incomes.  But it is the private and government sectors – not the Fed – who hire and pay people for productive contributions.  Their outlays are the incomes of persons (including entrepreneurs).

: … money is an instrument invented to fulfill a definite task; it is not the ultimate master of the situation.  One has to place first human society which is served by the economic process, and second the economic process which is to be served by money.  Accordingly money has to conform to the objective exigencies of the economic process, and not vice versa. (CWL 21, 101)

The purpose of this section is to inquire into the manner in which the rate of saving W is adjusted to the phases of the pure cycle of the productive process.  Traditional theory looked to shifting interest rates to provide suitable adjustment.  In the main we shall be concerned with factors that are prior to changing interest rates and more effective.  [CWL 15, 133]

Similarly a lowering of interest rates may encourage the expansion of basic industry; but it also will encourage the expansion of well-intentioned but not well-thought-out innovations, the number of bankruptcies, etc.  What is needed is the egalitarian shift in incomes, that will compensate for the previous and shorter anti-egalitarian shift, and will produce the things that people really need and can learn to purchase without the help of self-seeking advertisers.   [CWL 15, 141 ftnt 198] 

  • The process, whose efficient cause is humans in their respective capacities (including academics) characterized often by ignorance of the principles and laws of the objective economic process and by the bias of individual egoism, the bias of group egoism, and a general bias in favor of errant common sense rather than in a conviction in favor of the principles and laws of the process. “… the prime cause is ignorance.  The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught.”

The difficulty emerges in the second step, the basic expansionIn equity (the basic expansion following the surplus expansion) should be directed to raising the standard of living of the whole society.  It does not.  And the reason why it does not is not the reason on which simple-minded moralists insist.  They blame greed.  But the prime cause is ignorance.  The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught. When people do not understand what is happening and why, they cannot be expected to act intelligently.  When intelligence is a blank, the first law of nature takes over: self-preservation.  It is not primarily greed but frantic efforts at self-preservation that turn the recession into a depression, and the depression into a crash. [CWL 15, 82]

Our aim is to prescind from human psychology that, in the first place, we may define the objective situationwith which man has to deal, and, in the second place, define the psychological attitude that has to be adopted if man is to deal successfully with economic problems.  Thus something of a Copernican revolution is attempted: instead of taking man as he is or as he may be thought to be and from that deducing what economic phenomena are going to be, we take the exchange process in its greatest generality and attempt to deduce the human adaptations necessary for survival. [CWL 21,42- 43] 

  • Both circuits may manifest entrepreneurs receiving back more money than was outlaid for production and/or stimulus, especially when unemployment compensation is large.

It is now necessary to state the necessary and sufficient condition of constancy or variation in the exchange value of the dummy.  To this end we compare two flows of the circulation: the real flow of property, goods, and services, and the dummy flow being given and taken in exchange for the real flow….Accordingly, the necessary and sufficient condition of constant value in the dummy lies in its concomitant variation with the real flow. (CWL 21, 38-39)

… positive or negative transfers to basic demand (D’-s”I’) and consequent similar transfers to surplus demand (D”-s”I”) belong to the theory of booms and slumps.  They involve changes in (aggregate basic or aggregate surplus) demand, with entrepreneurs receiving back more (or less) than they paid out in outlay (which includes profits of all kinds).  The immediate effect (of these aberrational monetary transfers) is on the price levels at the final markets, and to these changes (in price), enterprise as a whole responds to release an upward (or downward)  movement of the whole economy.  But the initial increased transfers to demand [that is, excess transfers along (D’-s’I’)  and (D”-s”I”) ] are not simply to be supposed.  For that would be postulating without explaining the boom or slump. [CWL 15, 64]

  • As the Diagram of Rates of Flow indicates, monetary demand for point-to-point consumables is constituted by three component flows: 1) a portion of outlays in the basic circuit, 2) a portion of outlays in the surplus circuit, and 3) money unconnected to Outlays from the Redistributive Function.

  • Also, money, which should remain to normatively circulate in a normative correlation with the magnitudes and frequencies of transactions in the two operative circuits, may be diverted to the non-operative secondary markets – represented in the Diagram as contained in the Redistributive Function — to purchase previously-issued, second-hand stocks and bonds and to sit without productive motive serving only to inflate prices therein. In and of itself, this diversion would drain money into idleness and constitute a bifurcation of purchasing power in the two operative circuits, and thereby, be a problem of equity.
  • The normal entrance of money for expanding transactions is through the supply function rather than through the demand function; that is to say, compensation is normatively justified by, and awarded for, productive contribution.

the supposition that circuit acceleration to some extent postulates increments in the quantity of money in the circuits … points to excess transfers to supply, to (S’-s’O’) and (S”-s”O”), as the mode in which increments in quantities of money enter the circuits. [CWL 15,  61]

Further, the normal entry and exit of quantities of money to the circuits or from them is by the transfers from the redistributive to the supply functions.  [CWL 15, 64]

Equations (4a) and (3a) are mathematically similar.  They then give us a simple model of how all exchange money enters and leaves the system as credit money … .  Burley, Evolutionary von Neumann Models, p. 272

One cannot identify a reduction of basic income (by savings) with an increase in the supply of money (for investment), – (such a reduction is normally a misdirective drain of the basic circuit, not an increase) – for a reduction of basic income is only one source of such supply; moreover, it is neither the normal nor the principal source of such supply; … principally the increase in the supply of money is due to the expansion of bank credit, which is necessary to provide the positive (S’-s’O’) and (S”-s”O”) needed interval after interval to enable the circuits to keep pace with the expanding productive process. [CWL 15, 142]

It is a common saying that savings equals investment.  On the present showing it would be more accurate to say that the crossovers should balance, that a sustained lack of balance portends ruin, … The advantage of such greater accuracy is that it does not suggest an immediate correlation between savings and investment.  Provided the crossovers balance, surplus income equals surplus supply. [CWL 15, 70]

  • Unless the Fed actually reduces the money supply by selling government- or mortgage-backed-bonds or by not renewing those bonds at maturity, the recent flood of free money will remain in the system to be sooner or later absorbed by inflation of either consumables prices or capital expansion. (Click here and here)

…  Once the possibility of an unbalanced budget is established, the precedent can be invoked to persuade politicians to carry on other wars: wars on illiteracy, on poverty, on ill health, on unemployment, on insecurity.  Where the profit motive does not prove efficacious, the state must intervene. … the increasing volume of transactions requires a larger money supply, and the central bank can be persuaded to meet the demand. … it appears to be less evident that a vicious circle  of ever more demands for a larger money supply with no increase in real income is inflationary … In any case there has emerged in fact if not in name the welfare state. … Its mechanism is rather strikingly similar to that of the favorable balance of foreign trade. The debt once owed by colonies to richer countries now is replaced by the national debt. … now the long overdue basic expansion is doled out to one’s fellow countrymen under the haughty name of welfare. [CWL 15, 85-86]

  • Blinder correctly points out that expansion of plant, machinery, skills, and labor takes time – perhaps 1 year, or 2 years or three or four years, depending on the particular project’s time to completion. During this period significant incomes from production outlays would be directed to the not-as-yet- expanded consumables sector to exacerbate the inflation of prices therein.

…  the surplus expansion is only an acceleration lag.  The greater is it and the longer it lasts, the greater the potential for basic expansion that is created.  Obviously, it is not created and then left unused.  It is put to work as rapidly as possible, and so the basic stage accelerates at an ever greater pace while the surplus stage begins to realize that it has acquired as great a potential as possibly can be used.  There results the basic expansion, with the basic stage accelerating, proportionately, more rapidly than the surplus: w has passed its maximum. (CWL 15, 151)

  • When flows of money and products are disequilibrated – either within a circuit or in the crossovers between circuits – quantities and prices contend, as it were, to bring the system back to the equilibrium for which it has an exigence..

(In the basic expansion) … There is the same automatic mechanism as before. Prices fall.  This has the double effect of increasing the purchasing power of income and bringing about an egalitarian shift in the distribution of monetary income. The increase in purchasing power is obvious.  On the other hand, the egalitarian shift in the distribution of income is, in the main, a merely theoretical possibility.  The fall of prices, unless quantities increase proportionately and with equal rapidity, brings about a great reduction in total rates of payment.  Receipts fall, outlay falls, income falls.  The incidence of the fall of income, in the first instance, upon the entrepreneurial class, and so in the main it is a reduction of surplus income.  Thus we have the same scissors action as before: purchasing power of income increases, and the proportion of basic to surplus income increases; the rate of saving is adjusted to the rates of production as soon as the price level falls sufficiently.  But just as there is an upwardprice spiral to blunt the edge of the mechanism when the rate of saving is increasing, so there is a downward spiral to have the same effect when the rate of saving should be decreasing.  Falling prices tend to be regarded as a signal that expansion has proceeded too far, that contraction must be the order of the day.  Output is reduced; the income of the lower brackets is reduced; the adjustment of the rate of saving fails to take place; prices fall further; the same misinterpretation arises, and prices fall again.  Eventually, however, the downward spiral achieves the desired effect; surplus income is reduced to the required proportion of total income; and the prices cease to fall. [CWL 15, 138-39]

The foregoing mechanism (of rising prices) provides an automatic adjustment to(wards) an increasing rate of savings.  However, its operation is conditoned.  Unless the quantity of money in circulation expands as rapidly as prices rise and, as well, as rapidly as the productive expansion of quantities requires, there will result a contraction of the process. … … (and) unless the increment in total monetary income goes to higher income brackets and so to surplus income, there will be no adjustment to the rate of saving. … These two types of failure of the automatic mechanism are interrelated.  (CWL 15, 137)

  • The surplus expansion precedes the basic expansion, and excess or deficient production would be blunted by price changes.In the basic-expansion phase of a phased expansion, it is necessary that the private and government sectors understand where they are and and that it is their responsibility – not the Federal Reserve’s – to effect an egalitarian shift in incomes so that the overall expansion improves the good of the entire society.

k[fn(t-a) – Bn] = f”n-1(t) –An-1      (CWL 15, 36-8)

While we can effect the anti-egalitarian shift with some measure of success, in fact the egalitarian shift (required for the basic expansion) is achieved only through the contractions, the liquidations, the blind stresses and strainsof a prolonged depression. (CWL 15, 153-54)

In equity (the basic expansion following the surplus expansion) should be directed to raising the standard of living of the whole society.  It does not.  And the reason why it does not is not the reason on which simple-minded moralists insist.  They blame greed.  But the prime cause is ignorance.  The dynamics of surplus and basic expansion, surplus and basic incomes are not understood, not formulated, not taught….. [CWL 15, 82]

  • The core PCE cited by Prof. Blinder “excludes food and energy, because they are so volatile and far beyond the Fed’s control.” But aren’t food and energy along with housing and autos significant items in the lower-paid workers’ weekly budget!  If so, is the inflation shown poorly in CPI and PCE understated?  Was it wrong and misleading for Prof. Blinder to claim that the trimmed PCE index was only 2.8% in 2021?  Would anyone who shops at a supermarket and fills their gas tank agree that the 2.8% is in any way representative?  And when will the chip shortage be cured so that automobile production will increase and prices be reduced?
  • A staple of conversation on financial talk shows is the future of interest rates.Interest rates shminterest rates!  Much of the talk about and effect of the Fed’s artifice of manipulation of interest rates is guessing and poppycock. Manipulation is not the surefire magic lever so-called experts believe it to be.

The effect of rising interest rates on turnover magnitudes depends upon the turnover frequency of the enterprise. (In simple terms,) if the frequency is once every two years, 1% increase in the rate of interest is a 2% increase in costs; if the frequency is once every month, 1% increase in the rate of interest is 1/12 of 1% increase in costs. (CWL 15, 143)

  • The channels of Lonergan’s Diagram of Rates of Flow provide a general and universal explanatory framework of the always-current The channels explain– rather than merely describe or emptily postulate – both the form of dynamic equilibria of the pure cycle of expansion and the dynamic disequilibria of the booms and the slumps.  As the economy expands, human ignorance and bias can cause developments to go awry.  (Click here and here) Again,

More positively, the channels account for booms and slumps, for inflation and deflation, for changed rates of profit, for the attraction found in a favorable balance of trade, the relief given by deficit spending, and the variant provided by multinational corporations and their opposition to the welfare state. [CWL 15, 17]

Need the moral be repeated?  There exist two circuits, each with its own final market.  The equilibrium of the economic process is conditioned by the balance of the two circuits: each must be allowed the possibility of continuity, of basic outlay yielding an equal basic income and surplus outlay yielding an equal surplus income, of basic and surplus income yielding equal basic and surplus expenditure, and of these grounding equivalent basic and surplus outlay.  But what cannot be tolerated, much less sustained, is for one circuit to be drained by the other. That is the essence of dynamic disequilibrium. [CWL 15, 175]

  • Prof. Blinder considered the probabilistic possibility that “inflation could spread out more broadly across a spectrum of goods and services.  High inflation could also become ingrained in expectations, and therefore raise interest rates, but so far that hasn’t happened.”  The economic process is a vast and complex process of interconnected links of supply and flows of products and money. Energy use is ubiquitous, and all people eat food, live in housing, and depend directly and indirectly upon transportation.  Inflation may be actually present or potentially in the works.  How much of the recent flood of money will be absorbed by prices and quantities in the stresses and strains of prices fighting with quantities in the pretty-quantital process?  How will the money circulate among strata of income-earners in and between the two circuits?
  • Prof. Blinder need not feel bad about underestimating recent inflation. The economic process is a vast and complicated process, and its full understanding is composed of a) coherent equations defining abstract explanatory conjugates, and b) ideal frequencies which converge upon the explanatory magnitudes, but from which relative actual frequencies diverge in a non-systematic manner.

Our analysis … acknowledged the existence of schemes of recurrence in which a happy combination of abstract laws and concrete circumstances makes typical, further determinations recurrent, and so brings them under the domination of intelligence.  Moreover, it acknowledged that concrete patterns of diverging series of conditions are intelligible; granted both the requisite information and mastery of systematic laws, it is possible in principle to work from any physical event, Z, through as many prior stages of its diverging and scattering conditions as one pleases; and it is this intelligibility of concrete patterns that grounds the conviction of determinists, such as A. Einstein. … However, we agree with the indeterminists inasmuch as they deny in the general case the possibility of deduction and prediction.  For while each concrete pattern of diverging conditions is intelligible, still its intelligibility lies not on the level of the abstract understanding that grasps systems of laws but on the level of the concrete understanding that deals with particular situations.  Moreover such concrete patterns form an enormous manifold that cannot be handled by abstract systematizing intelligence for the excellent reason that their intelligibility in each case is concrete. There results the peculiar type of impossibility that arises from mutual conditioning. Granted complete information on a totality of events, one could work out from knowledge of all laws the concrete pattern in which the laws related the events in the totality.  Again, granted knowledge of the concrete pattern, one could use it as a guide to obtain information on a totality of relevant events.  But the proviso of the first statement is the conclusion of the second; the proviso of the second statement is the conclusion of the first; and so both conclusions are merely theoretical possibilities.  For the concrete patterns form a non-systematic aggregate, and so it is only by appealing to the totality of relevant events that one can select the concrete pattern; on the other hand, the relevant totality of events is scattered, and so they can be selected for observation and measurement only if the relevant pattern is known already  [CWL 3, 650/672-73]  (Click here)

  • However, it must be understood that inflation and deflation are swindles. Neither inflation nor deflation are to be caused deliberately or to be taken lightly.  To benefit one group is to harm another group.  Ideally, the dummy money would be constant in exchange value.

the dummy must be constant in exchange value, so that equal quantities continue to exchange, in the general case, for equal quantities of goods and services.  The alternative to constant value in the dummy is the alternative of inflation and deflation.  Of these famous twins, inflation swindles those with cash to enrich those with property or debts, while deflation swindles those with property or debts to enrich those with cash; in addition to the swindle each of these twins has his own way of torturing the dynamic flows; deflation gives producers a steady stream of losses; inflation yields a steady stream of gains to give production a drug-like stimulus. [CWL 21, 37-38]

  • For his analysis of the always current, purely-dynamic, economic process, Prof. blinder is encouraged to adopt a scientific and dynamic heuristicreplace the Bureau of Economic Analysis’ mere tally of commonsense accounting unities (GDP) with a scientific systematization of interdependent, explanatory, functional flows; and he should encourage his graduate students and his colleagues in the macroeconomics and econometrics communities to do the same.

Alan S. Blinder is a professor of economics and public affairs at Princeton University; he served as vice chairman of the Federal Reserve, 1994-96.