Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
... that Post Keynesians on the basis of study of the actual american Industrial State divided the economy into fixprice and flexprice sectors about fifty years ago now.

It was rejected because, while being consistent with reality, it was difficulty to reconcile with the utility maximizing general equilibrium model. The same general equilibrium model that was found in the 1970's to be intrinsically and irreparably flawed by the very same "rigourous" type of mathematical analysis which was so loudly applauded when the "existence" of a general equilibrium under certain highly restricted assumptions only loosely anchored to reality.

Of course, Post Keynesians were among those who "called" the housing bubble as unsustainable.

And what is inertia, anyway? Its not an explanation under the utility maximizing theory ... its just a label for the residual that is there when everything that the utility maximizing theory can find a rationale for is taken off the table. It is, in other words, like physical inertia before we had a successful cause and effect explanation for the phenomenon.

Now "fixprice" and "flexprice" is a useful heuristic, but we today have the computer processing power on our desks (in order to play youtube clips of the cat that collapses in frustration when the pigeon gets away) to do find which price series tend to move together.

So, yes, of course anyone looking to decompose inflation due to ordinary price spikes in flexprice markets and inflation due to the evolution of price setting strategies in fixprice markets would, first, go to the actual price series measured on commensurate intervals and, second, sort them according to the ratio of high frequency to low frequency volatility and, third, do a cluster analysis to find which price series are moving together.

However, that would merely extend our understanding of the economy. It would be very unlikely to act as an ideological justification for the ever greater empowerment of transnational corporations.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri May 21st, 2010 at 11:16:17 PM EST

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