The shift in the central banks view about the value of the fiscal multiplier has hidden a more important change in the dynamic stochastic general equilibrium models employed by the IMF et al. In particular the infamous Smets–Wouters model is now viewing unemployment as more important than inflation, which has for a long time been the underpinning component of western macro-economic planning. How the feck they are going to fit this revelation into their DGSE models, God only knows, but expect emphasis on full employment to start appearing in the speeches of our masters anytime soon. The sudden realisation that long-term unemployment has a scarring effect, not only on the unemployed, but also their children and successive generations, may seem like common sense to the average punter, but in the rarefied atmosphere of maco-modelling it has come as tsunami of revelation. You can almost see the palm-faces in rosewood panelled boardrooms across the capitals of the world as they cry Oh bugger, so you mean to tell me that for us to make more profit we have to sell stuff to plebs and they have to be able to afford it? Why didnt you tell us this before?
Posted on: Sat, 11 Oct 2014 14:33:18 +0000