I mean, you get to the core problem with the whole system at the end: high wages are high prices. It's pain in either direction. And in time Baumol's cost disease might really break capitalism.
Millman is talking about r*. What (real) interest rate [vectrof rates, but let's reify as the EFFR] is consistent with stable inflation? That is the standard definition or r* and that stable inflation rate is presumably the Fed's target in its FAIT (Flexible Average Inflation Target) framework.
Let me further stipulate that the FAIT rate should be a forward looking expected rate, not a backward looking arithmetic mean of the last n months AND that it be chosen as the target that maximizes real income. [There presumably are stable rates of inflation that are a) so low as to cause recession, b) too low to maximally facilitate the adjustment of relative prices in response to shocks, given that some prices (like real estate assets prices and leases) and wages do not adjust downwardly easily and c) too _high_ to maximally facilitate relative price adjustment and to formation of estimates of future relative prices.]
Now we can reformulate Millman's question as, what is r*? And the answer is that no one knows, although I'll go out on a limb to guess it is less than 5.25% and greater than near zero% I'll further guess that iti s grater than it was before COVID (whatever THAT was) because of the accumulation of more Federal debt and higher structural deficits.
I mean, you get to the core problem with the whole system at the end: high wages are high prices. It's pain in either direction. And in time Baumol's cost disease might really break capitalism.
Millman is talking about r*. What (real) interest rate [vectrof rates, but let's reify as the EFFR] is consistent with stable inflation? That is the standard definition or r* and that stable inflation rate is presumably the Fed's target in its FAIT (Flexible Average Inflation Target) framework.
Let me further stipulate that the FAIT rate should be a forward looking expected rate, not a backward looking arithmetic mean of the last n months AND that it be chosen as the target that maximizes real income. [There presumably are stable rates of inflation that are a) so low as to cause recession, b) too low to maximally facilitate the adjustment of relative prices in response to shocks, given that some prices (like real estate assets prices and leases) and wages do not adjust downwardly easily and c) too _high_ to maximally facilitate relative price adjustment and to formation of estimates of future relative prices.]
Now we can reformulate Millman's question as, what is r*? And the answer is that no one knows, although I'll go out on a limb to guess it is less than 5.25% and greater than near zero% I'll further guess that iti s grater than it was before COVID (whatever THAT was) because of the accumulation of more Federal debt and higher structural deficits.
See:
https://thomaslhutcheson.substack.com/p/arrrrr
https://thomaslhutcheson.substack.com/p/framework-for-monetary-policy-1
https://thomaslhutcheson.substack.com/p/framework-for-monetary-policy-2?r=8ylpe&utm_campaign=post&utm_medium=web