But Mulligan is well known as a Friedman apparatchik. What I find more amusing are economists like Glaeser. His post on the super bowl celebrating sun belt real estate was a hoot – and an unconscious indicator that the economics mainstream still has its dead talons firmly clenched in the magic idea of the self-correcting market. This is what he said about Phoenix:

“The fact that Phoenix has experienced a 42 percent housing price drop since its June 2006 peak is a sign of the area’s strength, not weakness. The high housing prices were always unsustainable, because of Phoenix’s capacity to build. Unrestricted supply meant the price boom was always a mirage. The decline in prices reflects the ability of Phoenix’s great growth machine to create inexpensive housing. ”

Only an economist could get the NYT to publish such gobbledy gook. Imagine if our weatherpersons applied the self adjusting model to weather reports: good news! A hurricane is approaching the city!

Goods and services improve in quality and decrease in price always, or almost always. That is not “trickle-down.” That is productivity growth.

That used to happen ALONGSIDE increases in income.

Now, we’re getting productivity growth without increases in income. Something new for the United States.

So, the productivity growth is being less evenly distributed than before. In fact that lowers the overall standard of living from what it could be.

“Trickle down” was the political rhetoric claiming that tax cuts for the rich improve incomes at the bottom. Decisively refuted—indeed the reverse effect appears to be true. The bottom quintiles are a bit more impoverished.

“Rising tide lifts all boats” in U.S. political rhetoric has always referred to incomes, also.

The question is not whether the two decades after the mid-1980s saw lower volatility of GDP (and some related measures): they did! The question is whether this was due to better montary policy (John Q. says no, notsneaky says yes) as opposed to some other factor.

It seems to me we use “inflation” to mean too different things. One is the cost of living, in which case it may make sense to only look at what people are consuming to pursue their lifestyles and leave out their investments. But we also use it to measure the value of money, which I think would be best determined across the entire body of things money is exchanged for.

This is true, of course, which is why there are a number of different inflation measures in use, such as the CPI and the GDP deflator. We can obviously debate whether these measures are legitimate, and which one is most appropriate for a given question. But while these issues are important in mesauring long-term growth, they aren’t really relevant to the Great Moderation, since again that refers to volatility on the scale of a year or so, and different inflation measures aren’t going to diverge much over that timescale.

The argument I’ve seen made – and in the blogs not in peer-reviewed literature as it’s too hot off the presses for that – is that comparisons of the current unemployment rate to that of the 70s or early 80s are not accounting for changes in measurement.

As for inflation, I would be surprised if the biggest difference in recent years is not the accounting for the prices of owned residences in rental equivalences rather than actual prices. If home prices from 2002 – 2006 were counted fully as inflation, I think they would qualify as hyperinflation (isn’t the standard 25% a year?).

Which brings up another point. It seems to me we use “inflation” to mean too different things. One is the cost of living, in which case it may make sense to only look at what people are consuming to pursue their lifestyles and leave out their investments. But we also use it to measure the value of money, which I think would be best determined across the entire body of things money is exchanged for. This would seem to be the definition of inflation that would be relevant to monetary policy, if the latter is to target inflation. If we do that, though, much of the “increase of wealth” since the 80s that the Friedmanites brag of is simple inflation. Volcker largely transferred inflation from consumer goods to assets, rather than ending it. And if monetary policy followed inflation under this definition, the dot com (possibly) and real estate (definitely) bubbles should have brought interest rates up and therefore been self-limiting.

O.K., professor, what does trickle down mean to you? I inferred, it seems in error, that “a rising tide lifts all boats” was a handy shorthand for your notion. You must have meant something other than what you wrote.

And, it’s just a tickle in my happy place to see your barb about being “evidence-based” followed up by some deeper research. So, you were semi-evidence-based at first dash. Again, you searched until you found what fit your sociological worldview and quit digging.

To enable your noble preference for ad-hominems over reason, here’s another personalized tale from which you might glean the irrelevances:

Thirty years ago my income was in the mid quintile. Today I’m in the bottom decile. And I’ve never been much of a saver. I spend what I earn. Yet, today I am richer. How is that possible, professor? Where do I fit on your little charts?

I’m hinting at another flaw in the income premise—the households in each quintile are not the same people over any meaningful span of time.

Mock away!

@Several of y’all

I contend “trickle down” is a non-economic term. I has a ring of economic truthiness, but as we attempt to define it, it loses value, becomes less precise. We find we are actually arguing several different ideas. In his original post, the professor is attempting to refute rhetoric, which is a fool’s errand.

What about improved supply-chain management and the shift in production and employment from goods to services? Especially since the volatility of output has declined by much more than the volatility of sales (and the volatility of household income and consumption have not declined at all).

“If I advocated a policy which involved asking alcoholics to engage in moderate drinking, would I be responsible for the subsequent binges, DTs, and drunk driving?

Counter-cyclical spending probably does work, but it can not be applied by real-world politicians in a democracy, and asking them to is just encouraging them to run continual deficits. Shouldn’t he have realized this? So, yes, I think he bears some of the blame.”

Wow. Said after 8 years of Bush, and a quarter-century of supply-side econofraud.