I wouldn’t say that “the price of a properly functioning market economy is that some people must be thrown out of work”. The fact is that if businesses fail because wage and other input costs are too high, then unemployment will rise, and strongly. If economists believed that the current level of unemployment was sustainable, we would be very happy about it. However, our concern is that if unemployment falls significantly, then it will rise significantly later, throwing a whole lot of people out of work.

Like I said in the post, if we keep inflation low (which entails some sacrifices now), we help the market function, we help improve productivity, and we might just lower the natural rate of unemployment.

that said, if economics tells us that the price of a properly functioning market economy is that some people must be thrown out of work and made insecure and unhappy, then so much the worse for economics.

I agree that, when talking to the public, many bank economists don’t give enough depth in issues they discuss. But this specific guy is pretty good when he does public addresses. In this case he wasn’t though.

I do agree with you that the rate of change in inflation is an important factor when dealing with certainty. The thing is, when inflation rates are higher they are more volatile. Furthermore, we can’t forget that people are bounded rational, and often use their nominal income and nominal prices as stores of value, rather than looking at them in real terms.

I think what the No Right Turn blog post really shows though is the appalling way that economists ‘market’ their ideas. I don’t know what context the BNZ economist was speaking in, but we need to be clearer about the implications of economic theory if people are to sympathise. Everyone wants to hear that unemployment is low, but they can’t be expected to know about Phillips curves and the difference between short-run and long-run effects unless economists tell them about it.